HomeMortgage Almanac Book Review:
Your Bank Is Ripping You Off
by Edward F. Mrkvicka
St. Martin's Griffin, New York
$12.95, 201 Pages
Reviewed by Stephanie A. Chisholm
Twenty years ago, most consumers did all their banking at one of theirlocal banks. Checking and savings accounts, mortgages, car financing andpersonal loans all came from the same local banks and the likelihood ofloan approvals seemed better because of the full-service relationship. Today,consumers often use a different institution for each financial service theychoose.
A basic pass book or checking account might be at the local bank, butmany savers have moved their savings to brokerage accounts that offer higherinterest rates on uninvested deposits. Car loans often come from an autoloan financing subsidiary, and credit card offers come in volumes of directmarketing pieces from lenders all over the country. Mortgage borrowers cannow choose from dozens of mortgage bankers, brokers and even on-line lendersfor their home loan.
Competition has finally come to the financial services sector. But whilerates and fees have dropped during this process, many of the old oligopolistictendencies of the banking industry continue to cost consumers. It is inthis context that Edward Mrkvicka has written his latest attack on the bankingindustry, Your Bank is Ripping You Off.
The author has a serious chip on his shoulder about banks and bankers,despite the fact that he was Chairman and CEO of a bank. Your Bank is RippingYou Off leaves no doubt as to the author's perspective. Mr. Mrkvicka haswritten numerous books about consumer banking, including The Bank Book andBattle Your Bank-And Win.
The majority of Your Bank is Ripping You Off is devoted to detailingthe intricacies of consumer banking, and how bankers make loads of extraprofits from small areas that most consumers either do not know or careabout.
In his chapter on unsecured consumer loans, Mr. Mrkvicka analyzes twosample financial statements and shows how one borrower looks better to thebank. He calculates financial ratios and shows how a banker looks at eachpart of a borrower's finances. In a spirit of candor found throughout thebook, the author writes, "A person should be able to tell the unvarnishedtruth and receive fair consideration from a bank. My experience shows that'snot the case."
In his chapter on mortgages, Mr. Mrkvicka covers the usual target areasfound in many mortgage books such as rate-shopping, closing costs and escrowaccounts. He offers not only suggestions for savings but also specific,understandable explanations as to how banks take advantage of borrowersin each area.
Most interesting in the mortgage chapter was the author's detailed instructionson how to buy a home with no mortgage expense after 30 years. His strategyis to first make a small additional principal payment each month to shortenthe loan term from 30 to about 22 years. Borrowers should then continueto make their regular mortgage payment when the loan is paid off to theirown savings account for the remaining eight years. Finally, borrowers shouldpurchase a grade A tax free municipal bond with the same term as their loanwhen they buy their house. Mr. Mrkvicka proves clearly that these threestrategies combined to truly make the mortgage cost nothing. Of course,most home buyers do not have the money to buy a bond at the time they arescraping up a down payment and closing costs.
With eye-catching topics such as "Your safe-deposit box is not sosafe," and "You can't trust the trust department," Mr. Mrkvickahas made every effort to give consumers a wake-up call about the financialservices they select. In addition to getting ripped off by price gougingand hidden fees, Mr. Mrkvicka also warns consumers that incompetency cancost dearly as well. For example, in the section on bank trust departmentshe bluntly writes: "Based on experience, I can say without hesitationthat most community banks have trust departments whose staff are professionallyunqualified."
Mr. Mrkvicka goes a little too far in some areas, such as when he hintsthat banks created 30 year loans so that borrowers would pay more interest.In fairness to lenders, a 30 year mortgage was not invented for lendersbut for home buyers. Until the 1940's, loan terms of more than 10 yearswere rare, and lenders were in fact cautious about lending for too longa period even if it meant extra interest. Longer terms were encouraged bythe federal government through the FHA program to promote more affordablehome ownership. On the other side of the coin, 100 year loan terms are commonin Japan, but only because land prices are so astronomical that in somecases it is the only way to afford a home.
Consumers who feel that their financial institution is taking advantageof them but are unsure how will find Your Bank is Ripping You Off a roadmap to savings.