I am shopping around for the best solution in a mortgage and one broker
told me the other broker has offered a deal that is unethical. Is he
right?

What I need to do is buy a house for the sale price and then
immediately get some of the equity out (it is a foreclosure and I will
have alot of equity in it).

Broker A has offered to finance the house originally at a 30 year fixed
rate loan 100% LTV at a high rate (7.385). He says he can sell this
loan at a high profit and he will credit me all of the closing costs
meaning I move in for 0 out of pocket. He assures me that there will
be no prepayment penalty so I can refinance immediately.

The next day or whenever I decide he will do a normal refinance based
on the appraisal with a normal rate and regular closing costs. I have
my house and the cash I want to do some updates/repairs.

Broker B has said that the original lender is going to be out the money
they paid for the original loan since I will pay it off immediately and
that Broker A has offered something unethical but not illegal. He says
at worst the lender is going to try and recoup the money he paid to the
Broker for the loan.

This is by far the best offer I have received but I don't really want
to be a part of anything unethical. I figure the lender has a right to
try and recoup the money but why would the broker risk being out the
money? The broker is the CEO of a company that is well respected and
has been doing business for over 50 years. The difference ibetween the
two offers is about 12,000 over the first 5 years.

Opinions?

Aside from the issue of ethics, which really is an issue that Broker A
must deal with and not you, the plan sounds good on paper but in
reality there are a number of things that can go wrong.

As an example, will Broker A be able to sell the original loan? What
guarantee do you have? His word - remember this guy has no ethics.

Will you be able to secure refinancing? Everytime you apply for a loan
or mortgage, this will show on your credit report. Don't you thing a
lender would be a bit concerned when they find out you just took out a
mortgage?

The list goes on and on.

You may want to check out our website for more information on creative
financing found in our Home Buying Tips Guide.

Steve
@ www.buyingahouseandsavingmoney.com

writes:

I am shopping around for the best solution in a mortgage and one broker
told me the other broker has offered a deal that is unethical. Is he
right?

Probably. Bunch of charlatans in that industry. Worse than Realtors!

What I need to do is buy a house for the sale price and then
immediately get some of the equity out (it is a foreclosure and I will
have alot of equity in it).

Broker A has offered to finance the house originally at a 30 year fixed
rate loan 100% LTV at a high rate (7.385). He says he can sell this
loan at a high profit and he will credit me all of the closing costs
meaning I move in for 0 out of pocket. He assures me that there will
be no prepayment penalty so I can refinance immediately.

Okay, get it in writing. Work with a real estate attorney. I don't
know of any loan programs that do a single loan with 100% LTV offhand
though. Typically it's an 80/20 program if you seek to avoid PMI.
But, those details not withstanding....

Broker A will happily collect yield spread premium on the closing of
this loan. A BIG one.

The next day or whenever I decide he will do a normal refinance based
on the appraisal with a normal rate and regular closing costs. I have
my house and the cash I want to do some updates/repairs.

Oh how convenient. Broker A will happily collect another YSP on this
loan if it goes through. And you may find out that maybe that normal
refi won't appraise out to where he thinks it will, and your ability
to get cash out will be less than you might think. And horror of
horrors, you'll be holding the bag with a 7.385 interest rate. And
he'll have already pocketed a shockingly large YSP on the first loan.

Broker B has said that the original lender is going to be out the money
they paid for the original loan since I will pay it off immediately

Yes they will.

and that Broker A has offered something unethical but not illegal.
He says at worst the lender is going to try and recoup the money he
paid to the Broker for the loan.

Possibly, but that's not really _your_ problem. That's your broker's
problem, and it may very well impact his ability to do any further
business with Lender #1. Or it may not. Quick refi's of loans
happen quite a bit, actually. If a builder loan is foisted on you
with too-good-to-pass-up free upgrades for a house, for instance, but
the rate is crap, people refi those babies quickly to seek better
terms. If the lender doesn't protect themselves with a prepayment
fee, or other terms to prevent people from flipping, that's really
their problem. And don't be duped into thinking they aren't still
making money somewhere.

I would chalk all this up a bit to broker B hiding the fact that he
can't get you as competitive a rate as Broker A.

I'd shop around some more, and I would scrutinize the holy hell out of
teh good faith estimates of closing costs. Remember, you might not
pay them out of pocket, but you are paying them--in this case you wil
be paying for 2 different closings and that will be thousands of bucks
there too.

Look for the catch though with Broker A. Shop some more.

This is by far the best offer I have received but I don't really want
to be a part of anything unethical. I figure the lender has a right to
try and recoup the money but why would the broker risk being out the
money? The broker is the CEO of a company that is well respected and
has been doing business for over 50 years. The difference ibetween the
two offers is about 12,000 over the first 5 years.

It's an interesting question.

--
Todd H.
http://www.toddh.net/