Brokers are NOT your friends

I came across this story today about how 7 mortgage brokers in Boston were shut down for using illegal and unethical practices:

Regulators have also gathered evidence of other abuses in the industry, including brokers discouraging homebuyers from hiring lawyers to scrutinize mortgage documents and persuading borrowers to sign blank loan applications. As a result, the division has adopted emergency, and permanent, regulations banning fraudulent practices, particularly scams that target poor consumers with limited English skills.

The funny thing is that while the target of these brokers were nailed for targeting people way over their heads, thousands of brokers are selling loans to middle class familes that really can't afford them. (Of course "can't afford them" is arguably subjective... which is why these brokers are still in business).

Whenever you are entering into any contract or sale, remember that you have no friends in business. Your mortgage broker isn't really looking for the best deal for you, he's looking for the best deal for himself that he can convince you to take. Your real estate agent isn't trying to get you the best possible price, he's trying to get the easiest commission he can. Remember that the majority of his commissions is set by the general market, not how well he sells your house. An extra $10,000 for you is only worth a couple of hundred to him. All of the moral hazards I wrote about earlier still apply.

Case in point, the shirt house Biff and I bought we purchased with $19,400 equity (10% down). We brought just over $22,000 to the closing table. The second house we went with a less typical broker and purchased with $9,995 equity (5% down) but ended up bringing (after fees and other garbage) about $18,000 to the table. I don't know how that slipped past us, we didn't buy any points, but it did and I regret it each day.

I'm not saying that everyone is out to screw you. I'm saying that there's a fair number of people out to screw you and the only way to tell the difference between them and the good people is to do your own research.