A Foul Call From Lenders
One of my lenders hasn’t called this month, and therein hangs a tale….
Long ago I happily financed an investment property with a 40-year adjustable-rate mortgage that used the 11th District Cost of Funds Index. This is not particularly a loan I would recommend for homebuyers in general, but it does have pros and cons.
The big disadvantage is the 40-year term — it’s much cheaper to finance for a shorter term or, as we have done, to make prepayments. The big plus was that the 11th District COFI is generally slow to rise and slow to fall, thus avoiding sharp payment changes.
In the past few months my lender has been calling to ask about my payments, a practice which caused me to ask: Have they been late? No. Do I owe late fees? No. Does my credit report show any late payments? No no again.
My loan payment, as with many loans, has a payment due on a given day each month. It also has a grace period that lasts about two weeks. This is very generous arrangement is right in the loan papers, in black and white.
If you think about it, a payment made after the due date can be seen as “late” and I am not one to recommend making late payments — especially since many loan agreements mean exactly what they say. However, in this case we have an ineffectual definition of the term “late” because within the terms and clauses of this particular loan agreement being “late” is not a financial sin as long as the payment is received within the grace period.
Alas, each day payments are delayed there is less “float” on which the lender can collect interest. So, for example, if you send in your payment early you don’t pay less interest on your mortgage but the lender makes more dollars because it has additional time to use your cash. Alternatively, my particular loan allows borrowers to get the benefit of that precious float without penalty.
And so a few months ago I began to get calls from my lender mooing and honking about my “late” payments. It was explained that this was a terrible thing and that I should rush to send in my money. And why was that I wondered? Did I owe a late fee? Was there a black mark on my credit report? What, as actors might ask, was my motivation?
I can understand why a lender might make such calls — precious float dollars are being lost by borrowers who are merely following the dictates of their contractual obligations.
With the second call I asked the lender to stop phoning, that their purpose was obvious. In the third call I was told I would have to write them a letter to end their harassment. I explained that if I wrote a letter to anyone it would be a smoldering note to regulators and state attorneys general.
This month all seems blissfully quiet on the urgent payment front. I can imagine why. It’s obnoxious to harass customers who have done nothing other than comply in good faith with their loan agreements. It’s just a guess, but I bet more than a few people complained.
With the exception of politicians I am generally not in favor of anyone losing their jobs, but no doubt the authors of this dialing-for-dollars scheme can contribute more to society in positions with reduced responsibilities and smaller paychecks. After all, just think about the float lenders could earn if only selected executive salaries were lower….
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Published originally by Realty Times on November 2, 2004 and posted with permission.
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