Don't expect to relax just because you have been pre-approved for a home mortgage loan with USAA. Like many of you, I have received outstanding service with USAA for many, many years. Little did I imagine it was going to be such a horror to finance my home through them. After my experience, I talked with a number of other mortgage lenders, realtors, and colleagues at the Texas Business School who were or are active duty military officers, and they all shared similar experiences. It seems that lots of folks like USAA, particularly for auto insurance, but many folks I spoke to have had problems with them or know people who have in financing or re-financing a home.
This is going to be an abridged version of my problem, and will mainly serve to be a place that I can post and share my thoughts while I am in the process of extricating myself from many of my financial ties to USAA.
Here's the story:
On January 16th, I called USAA to get pre-approved for a home mortgage. They approved me for a 30 year VA loan for 7% with 0 points and 0 origination fee. Here is a copy of that letter. It says that the rate is floating, and that one may call at any time to discuss the rate protection options. Shortly after receiving that letter, I received another flyer from USAA entitled "Mortgage Services Features and Benefits." It contains the following description of their rate lock feature, in plain, unambiguous language that I have come to expect from USAA:
Outstanding! I was approved for a 7% loan, and the rate was locked. All I needed to do was to find a home within 90 days, and it wouldn't cost me a penny. Well, imagine my surprise when I called to tell them that I'd found my house, and I was ready to start doing all the stuff we needed to do to make the closing date. The mortgage consultant outlined three options for locking in a rate, none of which were free, and none simple. I asked if he could fax the description of the three options to me so I could run some numbers and make a rational choice given my risk profile and what I believed interest rates were going to do for the next few months. "No, I can't do that. I don't have it on paper to give you. I'm reading it from the computer screen." Whoa! That alone should have made me run for cover. Maybe the phone company can get away with having you pick a plan without seeing it in writing, but a mortgage lender shouldn't even ask you to, and should certainly be able to provide it in writing if asked for it.
What's more, they wanted to tack on an additional .75% origination fee that wasn't part of the pre-approval. This is where the pain started for me. Rather than go into all the details of my conversation with the consultant's boss, and his boss's boss, and the USAA liaison for his boss's boss, let me cut right to the chase, and tell you why I have begun taking my business elsewhere, and will continue to until my faith in USAA is restored:
1. I don't recall USAA having disclosed that their mortgages are handled by another company. The loans are not just sold to another company, rather the whole process is conducted by another company. It wasn't until I complained about the service to my realtor that I found out that the folks I was dealing with weren't USAA employees, but were with PHH, another company that USAA connects you to when you think you're talking to USAA about a home mortgage. The letterhead they use says USAA, but they are not USAA as far as I can tell.
2. Although the flyer called "Mortgage Services Features and Benefits" was discontinued and was not well written--according to someone who says he helped write it--USAA would not stand behind the plain promises that were made in it.
3. Three people from PHH and one from USAA each insisted that the use of the word "free" was not inconsistent with charging a person a fee of 1% of a loan to lock a rate for 60 - 90 days. The fee is later applied toward the closing cost. It was shocking that no one I spoke to appreciated that holding my money for a period of time is a cost to me--it is simply not free. Another mortgage lender, Chase Manhattan, offers a similar rate lock in. Except theirs really is free. Free in the sense of the way most people understand free: you don't pay anything. In my humble opinion, at best, USAA's claim of a free lock-in is sloppy wording or poor proof-reading, at worst it is downright misleading and dishonest.
4. PHH is in the unique position of being able to benefit from the trust that USAA has built with its members with years of unparalleled service. In speaking with a number of people about my problems with the home mortgage folks, I've been told that I shouldn't let the poor service I received during this transaction color my view of USAA as a whole. Unfortunately for USAA, I must. If they allow PHH to leverage the trust that members place in the USAA name, they must also suffer the consequences when PHH abuses that trust.
If anyone, particularly Service Members considering getting a PHH (USAA) home loan would like to find out more, you may feel free to e-mail me at dan@teamtaylor.org. It gets worse, but I didn't want to get into anything that could remotely be considered personal attacks or libel online. Suffice to say that it was a service encounter worse than any I have received from USAA or from any other company. Yes, it was that bad. I included the complete copies of the marketing literature and the approval letter rather than just excepts so no one would think that I was selectively editing from them to cast USAA in a harsher light than is due.
Update: April 2, 1999:
Just got off the phone with USAA's Executive Director of Home Loan Sales. She is in the process of implementing some changes to address the issues that I describe below. They had received three other complaints about the misleading literature described below. It is no longer in use and is being revised to say that they offer free rate lock-in for 60 days. The PHH employees have been trained and should be making it clear to customers that the USAA home mortgage business is handled by a national lender, not by USAA itself. She clarified for the PHH folks that Coast Guard is subject to the same 2% VA funding fee that the rest of DoD gets, not the 2.75% that the Guard and Reserves pay for the first VA loan. She agreed that the rate lock-in information should be in writing and will be taking steps to put it in writing and make it available.
I chose to go to another mortgage lender. When it's time to buy another house, I'll see how much USAA/PHH has changed. If anyone who reads this has a personal experience that shows that they have changed, please e-mail me and I'll amend this page.
Update: April 21, 1999:
This may be hard to believe, but the story gets worse. After you read about the problems I had with the USAA Home Mortgage people, take a look at what they did with my checking account. After the horrible experience I had getting a mortgage, I began immediately to limit my exposure to USAA. I submitted a written request to cancel automatic withdrawals from my USAA checking account to a number of USAA mutual funds. They didn't comply with the request. It wasn't until I sold some of the shares from one of the accounts and received a statement that I realized that they were still making the deductions. That's not quite stealing from me, but it is certainly misappropriation of my money to buy shares in mutual funds managed by the USAA Investment Management Company contrary to my specific written instructions. Read the whole story.
Update: May 17, 1999:
I still have not heard back from the Executive Director of Home Loan sales to tell me that the rate lock information is being made available in writing to customers.
Update: May 23, 2000:
After a phone conversation with the Director of USAA Sales for PHH Mortgages Services, he agreed to send me a copy of the new feature and benefit worksheet which they send to prospective customers. I agreed to make it available from this site in fairness to them and to provide you with a more current perspective on their business practices. Take a look at it and judge for yourself.