Upfront Mortgage Lender

Upfront Mortgage Lender

A lender offering loans on the Internet who provides mortgage shoppers with the information they need to make an informed decision before applying for a mortgage and guarantees them fair treatment during the period after they apply through to closing.

The specific requirements, and how they meet the needs of shoppers, are as follows:

Requirement 1: AUML provides quick access to the market niches it prices on-line. Shoppers need a quick way to determine whether a particular lender prices the niche in which that shopper falls. If not, the shopper can go elsewhere without wasting time.

If the shopper's niche is priced on-line:

The shopper can make valid comparisons of one UML's prices against those of another, prior to paying any fees and prior to filling out an application.

After selecting the lender and applying for the desired loan, the applicant is not exposed to a future price change based on information that the lender claims not to have had at the time of the original quote.

• The applicant who elects to move to a different niche, say to a 15-year from a 30, or to pay more points to reduce the rate, can check online to ensure that the new niche has been cor- rectly priced.

The applicant who elects to float rather than lock can monitor the price as it is reset daily with the market, and therefore will not be overcharged on the lock day.

UMLs comply with this requirement by filling out a table on their Web site called Market Niches Priced On-Line. The table format is the same at every UML, making it easy for a shopper to tell at a glance whether the lender is pricing the shopper's niche.

Requirement 2: A UML includes its fixed-dollar fees, including credit and appraisal charges, in its price and guarantees them to closing. This assures borrowers that new fees won't be added or existing ones increased after they have committed themselves to working with the selected lender.

Requirement 3: A UML provides a clear explanation of its lock requirements: Mortgage shoppers need to know when they have the discretion to lock. The explanation should include any required payments, processes that must be completed, how expired locks are handled, and whether the borrower is committed as well as the UML.

Requirement 4: AUML discloses all the information about its ARMs needed by shoppers to make intelligent decisions. It is very difficult today to obtain the information about ARMs that is needed to make an informed decision. Loan officers selling ARMs stress one or another feature, usually the index, and leave the remainder of the ARMs' features in the dark. Shoppers need information on potential ARM performance—what will happen to the interest rate and mortgage payment under assump-
tions about future interest rates that make sense to the shopper.

UMLs can comply with this rule in two ways. One way is to offer schedules of monthly payment and interest rate under no-change and worst-case scenarios. The first assumes that the most recent value of the index remains unchanged through the life of the loan, while the second assumes that the ARM rate increases by the maximum amount allowed in the contract.

The alternative is to provide the information needed for the shopper to calculate these (and perhaps other) scenarios using calculators on my Web site or other sites. The required information is shown on a form that is identical for all UMLs.

Requirement 5: A UML informs borrowers if its loan officers are compensated in a way that gives them a financial incentive to overcharge the borrower. Off the Internet, many lenders credit loan officers with overages. An overage is a price higher than the price delivered to the loan officer by the lender's pricing department. For example, if the price shown on the loan officer's price sheet is 6% at zero points and the loan officer sells the deal for 6% and one point (an upfront charge equal to 1% of the loan), there is an overage of one point. If the loan officer gets a piece of it, there is a conflict situation that the customer ought to know about.

At the time of writing in 2003, the Upfront Mortgage Lender (UML) program had just been launched, with one participating lender: Eloan.com.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
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On the page under the headline "Awards & Media," the top item states: "E-LOAN has been certified as an Upfront Mortgage Lender (UML)." The brochure neglects to identify who is handing out this new designation, but we thought you'd want to know.