Mortgage Almanac Book Review:

Tips and Traps When Mortgage Hunting

by Robert Irwin
Mcgraw-Hill, Inc., $12.95, 273 pp.

Reviewed by Michael Licamele

Although the home mortgage market in the United States ranges from $500 billion to $1 trillion in loans per year, mortgage lending has resisted the market forces of industry standardization.

In the past, a small number of mortgage lenders offered a small number of mortgage products. Mortgages are not like car loans and credit cards, where lending standards are essentially uniform nationwide. Only in the past five years has mortgage borrowing begun to look the same in California as in Connecticut.

Robert Irwin has attempted to create an all-encompassing consumer guide to the entire mortgage market in Tips and Traps When Mortgage Hunting. He has touched on most of the major issues that mortgage borrowers face in the mortgage application, approval and closing process. Despite the localized nature of mortgage lending that still prevents broad generalizations, Mr. Irwin has succeeded in creating a guide useful to consumers anywhere in the country.

The general tone of Tips and Traps is one of empowerment for consumers. For too long it has been the case that mortgage borrowers have been taken for a ride more often than they have been in the driver's seat. Unfamiliar with the home buying process, fearful of rejection and vulnerable to erroneous or outdated advice, home buyers have often felt extremely helpless. Mr. Irwin, through his series of detailed recommendations, has provided consumers with a means to gain back at least a little bit of control over the mortgage process.

Mr. Irwin's Tips and Traps comments are placed in the text near his accurate and detailed explanation of mortgage terms and procedures. For example, under adjustable rate payment caps, the tip advises: "If you get a mortgage that has a payment cap you can be almost certain that it has negative amortization. In fact, the best way to determine if a mortgage has negative amortization is to look for a payment cap. If you find it, you should immediately know what's in store for you."

The "trap" then cautions: "It's important to remember that a monthly payment cap alone does not limit interest rate increases. What a monthly payment cap does is to restrict that portion of the interest rate increase that you immediately pay. The portion that you do not pay, however, does not go away. Rather, it is added to the mortgage."

With comments this detailed, Tips and Traps is not intended for reading from start to finish. It is best to have available for use as a resource guide when unfamiliar terms and new options are presented to consumers by mortgage lenders. A consumer offered a graduated payment mortgage by a mortgage lender would probably not be able to make the most informed choice without the specific tip and trap quoted above.

Although giving extensive coverage to topics such as government mortgage programs and adjustable rate mortgages, Mr. Irwin presents a cursory look at two of the topics that consumers care about most. Neither credit issues nor closing costs are covered adequately. First-time home buyers with credit problems need detailed information to help them navigate through the difficult task of rehabilitating their credit standings. In addition, most consumers tremble upon hearing the horror stories about closings costs, the most common including the comment, "when we got to the closing the attorney informed us that we needed $5,000 more than the lender had told us!" Also noticeably missing is any coverage of construction mortgage loans.

The mortgage payment charts also could have been presented in a more flexible format. Instead of a monthly payment table like most books about mortgages include, Tips and Traps offers "Mortgage Finder" tables. These charts attempt to show readers how much of a mortgage they can afford based on estimates for property taxes, insurance and lender guidelines. Unfortunately, the number of variables that must be estimated are so great that the chart's usefulness is minimized. The reader would have been better served by fill-in-the-blank forms that could be adapted to individual situations instead of the 33 pages of tables that fit only one predefined scenario.

Despite these shortcomings, Tips and Traps can be a good guidebook for consumers seeking to avoid getting fleeced by an unscrupulous lender. Even if a home buyer takes advantage of one of the tips or avoids one of the traps that Mr. Irwin includes, the purchase of the book will have been well worth it. Any one can be worth hundreds or thousands of dollars.