The real estate industry has created millions of jobs and, for many of those in the industry, it has also created a great deal of wealth.  It was not until recently that I fully appreciated the kind of money that is to be made by the players in real estate.  As an entrepreneur myself, I encourage those who dedicate themselves to a trade or profession to reap the rewards of their efforts.

However, I have no tolerance for those who take advantage of people or abuse the system for their gain.  I recently have been awakened to the greed and unscrupulous business practices that have made many of these players very wealthy at the expense of people who do not read the fine print. It is unconscionable.  Recently, a friend was the latest and victim of these sharks and his experience opened my eyes and made me more determined than ever to inform and educate so you will not suffer his same fate.

His story, unfortunately, is not uncommon.  He had recently refinanced his home through a mortgage broker (not a lender or a bank) - as many people have over the past few years with interest rates at near historic lows.  But as soon as he closed on his new loan, he knew something wasn't right. He gave me a call. I only wish he had called before and not after his settlement.

It turns out that on his $350,000 loan, he wound up paying more than $10,000, or three points. Turns out his mortgage broker was more interested in making money than providing valuable advice and good service.  In addition to paying points, he was put into a two-year ARM (adjustable rate mortgage) - where the payments can adjust after the first two years.  What's more, the interest rate was higher than market rates.  In fact, ARMs tend to have lower rates than longer term loans such as a 30-year Fixed Rate Mortgage (FRM).  Yet, his two-year ARM was at 6.609% while 30-year FRM markets rates are still as low as 6.00%.  So unless interest rates go down in the next two years, he could be forced to refinance all over again within 24 months, which makes this an even more costly mistake.

The simple fact is he made a very bad decision by going with a mortgage broker - rather than a mortgage banker or a lender. The more I learn about the business from my own experiences and talking with hundreds of people about their own encounters, I see that some mortgage brokers can be extremely greedy and will stop at nothing to make a quick buck. More often than not mortgage brokers will put people into loans that pay them the most rather than recommend what is in their best interest. They are salesmen, not financial advisers or accountants; their only motivation is closing the deal and making the money.

In most states there are few educational or licensing requirements to enter the mortgage business.  At the height of the refinance boom a few years ago, so many people got into the business because companies simply needed warm bodies to answer the phones.  More and more people have been lured into the industry by the tales of mortgage brokers making $50,000, $75,000, even $100,000 a month.  Yes, a month.

If you are wondering how brokers make so much money, look at your HUD1 settlement statement from your last real estate transaction.  Add up your origination points, discount points, and other fees and you can begin to get an idea of how much you are paying these criminals.  But don't stop there.  There often is another line item - POC - or Points Outside of Closing.  The POC figure may look like a credit to you - but in fact that is the amount the bank or lender is paying the broker to find the deal.  So now add up your origination, discount, fees, and POC and you will see why a few mortgage brokers are driving around in BMWs and Mercedes and not you.  And keep in mind; if the broker were to reduce his "take" (the points and POC) you better believe you would get a better rate. It is hard to make the case in my friend's situation that he received $10,000 worth of service and advice.

It is the misguided monetary motivations and greed that lead to misguided service from many of those in the industry.  However, one cannot fully blame the industry for not doing a better job of screening its representatives.  We have to take responsibility.  As with anything in life, we have choices.  We have choices about who we turn to and who we seek advice from.  Too often, we spend more time researching where we can get the lowest interest rate rather than where we can get the best overall deal for our needs and our situation.  In fact, the more I learn about the business, the lowest interest rate does not always matter.  The program, the terms, the service, and total cost most often are more compelling.

However, so many of us were lured in a few years ago by the lowest interest rate by one of the warm bodies on the other end of the phone or worse yet an anonymous rate provided by an Internet broker.  We were so proud of how low our rate was that we didn't take the time to read the fine print about the terms, conditions, fees, etc.  Why do we spend more time researching plasma TVs and new cars than seeking sound financial advice for the largest investment we will have?

So what does all of this mean? First, mortgage brokers work with a variety of banks and are paid to find a bank willing to give you a loan.  Brokers are no more than matchmakers.  Knowing this, why not work directly with the same banks that the brokers are going to?  What's more, it is nearly impossible for the broker to know the intricacies of the thousands of loans he has access to from the variety of banks they work with.  Therefore, there is a good chance that he does not know the "fine print" either. Stick with the banks. They will be experts in their line of products and you can get the lowest total cost deal.  This approach will save you time, money, and headache.

In our quest to become financially secure, our home is the foundation to building wealth.  There is too much at stake to put your financial future into the irresponsible hands of those who have their own interests in mind.  Do not become a victim like my friend.  If we take care of our homes, they will take care of us.