Banking Trickery Exposed

By Tony Evans

Years ago in a movie about the oil industry titled “The Formula” I recall a classic line. George C. depreciating home valuesScott and Marlon Brando starred in the movie. Brando’s character ran an oil trading business. As Scott was leaving Brando’s office, he turned and said, “You’re not in the oil business. You’re in the oil shortage business.” It got me thinking about how banks are in the “appraisal pricing” business.

The following is Howard’s real life experience with his bank. I’m only using Howard’s first name for reasons that will become obvious. Howard applied for a refinance with a major bank on the east coast, which held his first mortgage of $139,000. Only seven months earlier this same bank valued his home at $158,000. He wanted a refinance to get out from under an adjustable rate loan that was financially pinching him, and he wanted no cash out. It was a simple enough procedure since the application was online. Once completed, the bank told Howard he qualified and a loan consultant would be in touch in a couple days to finalize the paperwork.

Several days went by until he got the call from the bank to verify the information Howard submitted on the application. Since the property was a 19 month old manufactured home on a foundation, the bank consultant indicated the best they could do under the circumstances was a 20 year fixed rate home equity loan at 9 percent. It wasn’t the best deal, but since it was a fix Howard decided to take it. Oh, there was one more thing the bank needed to tell him. They had a new value on his home – $93,000.

After Howard practically picked himself up off the floor he asked how their value seven months ago of $158,000 could suddenly drop to $93,000, a loss of $65,000. The consultant replied the new value was derived by a computer software program, and if he wanted to pay the bank to get his own appraisal they would get a certified appraiser on their approved list to do the job, which could take several weeks. The loan consultant also said Howard’s home was located in a county full of foreclosures, and the bank’s computer analysis might be the best.

Several days late, Howard agreed to the deal and the bank Fed-Ex-ed the loan documents. Upon reviewing just what he was getting into in this sneaky refinance, Howard noticed the bank added an additional amount of $9,450 to his existing mortgage of $139,000.

Now, instead of refinancing his existing $139,000, his new 20 year fixed rate loan was $139,000 plus the additional $9,450, which he had to agree to in order to close the deal. Howard suddenly found himself upside down. Aren’t banks wonderful? Has it just come down to how banks can screw their own customers? Yep…’s called greed.

I talked with Howard about a week ago. Although his credit may be damaged in the process, he is getting some semblance of satisfaction even if it’s at his own expense. He pocketed the $9,450, and since he doesn’t have to make the first payment for 60 days he’s decided to not make any payments – EVER. Howard is going to wait for five months then contact the bank and work a short sale through a real estate broker. Since the banks appraised value was $93,000 that just might be what his broker will sell it for.

It’s sort of a “take it or leave it” Mr. Bank. Simple math tells me the bank will have to eat the $148,450 mortgage they thought was such a nice deal. Meanwhile, Howard lives rent free and California law says he can stay until the fire sale or short sale is complete, which could be more than eight months.  Final score: Howard 1 Bank 0.

BITS AND BYTES: If you’re a first-time buyer or may have lost your home, finally some good news. FHA, which insures mortgages via mortgage lenders, will let you sneak into a home even with credit problems, but there will be some added charges. Starting July 14, 2008, FHA insurance will cost as much as 2.25% up front and 0.55% each year thereafter for the term of the loan. The current rate until July is a 1.5% up front of the mortgage amount and an annual fee of 0.5%. For loan limits, go to: and look for “FHA Mortgage Loan Limits.”

I know it’s not Halloween, but let me take a minute to scare the hell out of you – especially if you’re a Wachovia Bank customer. This bank doesn’t charge its NEW banking customers a fee for speaking to a “live human teller,” but it used to. One customer noticed an $8 dollar teller “transaction fee,” and after writing to the bank learned he’d been billed $2 for each of four “teller services” in one month.

His account only allowed two, and once a customer goes over they get charged extra. Wachovia Bank says these original policies remain in effect until customers request a change. This clever move is just the tip of the iceberg because banks have found trickier ways of raiding your account. They’re even targeting their best customers who have never bounced a check. Read that mice print.

To read Tony’s other columns click here.

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