Many in the mortgage industry have become familiar with television commercials featuring a frustrated originator who regularly rants, "Oh no, lost another loan to Ditech." But the flat fee program touted in the ads has come under scrutiny by a consumer advocacy publication.
Ditech, a unit of GMAC Mortgage, has been pitching a $395 flat fee mortgage. Its television ads for the flat fee program claim, "No points! No broker fees! No other lender closing costs period! Why pay more!," according to Consumer Reports Money Adviser.
But the claims of no broker fees or points are misleading, the newsletter said, because consumers deal directly with the lender, broker fees should not apply. Plus, paying points is sometimes a desirable option for borrowers who plan on staying in the home for several years because they can lower the loan's rate.
"These are both meaningless come-ons to hook people who don't really understand how mortgage financing works," Jack Guttentag, a finance emeritus professor at the University of Pennsylvania and a news columnist, reportedly told the Consumer Reports newsletter.
And, the flat fee really isn't, as it does not include all costs. When using the calculator on Ditech's site to compare options under the $395 program, fine print reveals and does not fully explain potentially large additional costs. The publication called Ditech three times and got a different representative as well as conflicting estimates of rates and closing costs each time. The difference between the lowest and highest estimate was over $1,000, according to the newsletter.
"Without adequate closing cost information, you can't tell whether you are really saving if you take the flat fee rather than the 0-point option with the lower interest rate," Guttentag reportedly said.
The deal is not what it seems, warned Consumer Reports, which recommended that borrowers obtain a list of all closing costs when mortgage shopping to find a deal that best suits their needs.