HomeMortgage Almanac Book Review:
Tips and Traps When Mortgage Hunting
by Robert Irwin
Mcgraw-Hill, Inc., $12.95, 273 pp.
Reviewed by Michael Licamele
Although the home mortgage market in the United States ranges from $500billion to $1 trillion in loans per year, mortgage lending has resistedthe market forces of industry standardization.
In the past, a small number of mortgage lenders offered a small numberof mortgage products. Mortgages are not like car loans and credit cards,where lending standards are essentially uniform nationwide. Only in thepast five years has mortgage borrowing begun to look the same in Californiaas in Connecticut.
Robert Irwin has attempted to create an all-encompassing consumer guideto the entire mortgage market in Tips and Traps When Mortgage Hunting.He has touched on most of the major issues that mortgage borrowers facein the mortgage application, approval and closing process. Despite the localizednature of mortgage lending that still prevents broad generalizations, Mr.Irwin has succeeded in creating a guide useful to consumers anywhere inthe country.
The general tone of Tips and Traps is one of empowerment for consumers.For too long it has been the case that mortgage borrowers have been takenfor a ride more often than they have been in the driver's seat. Unfamiliarwith the home buying process, fearful of rejection and vulnerable to erroneousor outdated advice, home buyers have often felt extremely helpless. Mr.Irwin, through his series of detailed recommendations, has provided consumerswith a means to gain back at least a little bit of control over the mortgageprocess.
Mr. Irwin's Tips and Traps comments are placed in the text near his accurateand detailed explanation of mortgage terms and procedures. For example,under adjustable rate payment caps, the tip advises: "If you get amortgage that has a payment cap you can be almost certain that it has negativeamortization. In fact, the best way to determine if a mortgage has negativeamortization is to look for a payment cap. If you find it, you should immediatelyknow what's in store for you."
The "trap" then cautions: "It's important to rememberthat a monthly payment cap alone does not limit interest rate increases.What a monthly payment cap does is to restrict that portion of the interestrate increase that you immediately pay. The portion that you do not pay,however, does not go away. Rather, it is added to the mortgage."
With comments this detailed, Tips and Traps is not intended for readingfrom start to finish. It is best to have available for use as a resourceguide when unfamiliar terms and new options are presented to consumers bymortgage lenders. A consumer offered a graduated payment mortgage by a mortgagelender would probably not be able to make the most informed choice withoutthe specific tip and trap quoted above.
Although giving extensive coverage to topics such as government mortgageprograms and adjustable rate mortgages, Mr. Irwin presents a cursory lookat two of the topics that consumers care about most. Neither credit issuesnor closing costs are covered adequately. First-time home buyers with creditproblems need detailed information to help them navigate through the difficulttask of rehabilitating their credit standings. In addition, most consumerstremble upon hearing the horror stories about closings costs, the most commonincluding the comment, "when we got to the closing the attorney informedus that we needed $5,000 more than the lender had told us!" Also noticeablymissing is any coverage of construction mortgage loans.
The mortgage payment charts also could have been presented in a moreflexible format. Instead of a monthly payment table like most books aboutmortgages include, Tips and Traps offers "Mortgage Finder" tables.These charts attempt to show readers how much of a mortgage they can affordbased on estimates for property taxes, insurance and lender guidelines.Unfortunately, the number of variables that must be estimated are so greatthat the chart's usefulness is minimized. The reader would have been betterserved by fill-in-the-blank forms that could be adapted to individual situationsinstead of the 33 pages of tables that fit only one predefined scenario.
Despite these shortcomings, Tips and Traps can be a good guidebook forconsumers seeking to avoid getting fleeced by an unscrupulous lender. Evenif a home buyer takes advantage of one of the tips or avoids one of thetraps that Mr. Irwin includes, the purchase of the book will have been wellworth it. Any one can be worth hundreds or thousands of dollars.