Low doc loan fine print

When things are going smoothly a low-doc loan is a great way to get an investment mortgage without the hassles of paperwork and producing tax returns. Beware the fine print.

I took out a low doc loan from Liberty Financial in August 2004. These are also called non-comforming loans and generally come at a higher interest rate in exchange for the easier qualifying criteria. Given I was using the funds in a business deal I didn’t mind.

I thought my loan was scheduled for an automatic rate review and reduction after 12 months of good payment history. In June, I faxed Liberty to check out the status of the rate. I also advised them I would be closing the bank account they had on file for repayments and gave them the new account details.

Unfortunately 2005 has not been a great year for me. The aftermath of the litigation I went through plus physical and emotional exhaustion have taken their toll. As a result I haven’t been as vigilant in checking loan payments and deadlines as I normally could be. So I didn’t check to see that they had actually acted on my fax. They claim to have not received the fax and I should have checked that the payments were still going through. Of course Liberty didn’t even have my phone number recorded correctly.

You can see were this is going, yes?

It turns out a rate reduction must be applied for. If you have a low doc or non-conforming loan, your broker will say “and the rate will reduce in 12 months”. This never happens automatically, and many brokers will not follow up on the anniversary of your loan to make sure you apply for it. Stupid move on my broker’s part as he’s lost me as a customer for the sake of a post card.

So I’ve been paying unnecessary extra interest since May 2005. And because I didn’t follow up with the payment change I am two payments in arrears. I’ve made those payments today, as soon as I found out about it. But my 14 months of perfect payment history doesn’t count anymore. I have been invited to reapply in 12 months for a reduction or my account manager, Peter, said I could contact my broker to refinance the loan elsewhere. Not a good customer experience.

Given that attitude I must conclude that Liberty Funding expects their customers to make mistakes. Oversights in applying for rate reductions and stuff ups with closing accounts. I’m guessing there must be many other ways to screw up your loan with Liberty.

This is not a tirade against Liberty. It’s a cautionery tale. I went into this deal with my eyes wide open and knew these people were not my friends. Yet changed circumstances has affected me and cost me a lot of money.

Live and learn.

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