In many cases, the seller and the buyer are actually represented by their real estate agent. In those situations, there is a fiduciary relationship created that requires the agent put the client's interests above their own.
There is generally no such relationship between buyers and lenders. Some of the housing crisis issues may have been avoided had the lenders been more concerned for the buyer's best interests.
The following are a few warning signs that should cause a buyer to do much closer investigation:
- Claims that bad credit is not an issue
- Prepayment penalty
- Larger than normal loan charges
- Rate gouging by brokers - yield-spread premium
- Loans without escrow accounts for taxes and insurance
- ARM loans that only go up and not down
- Initial loan to secure property with plan to replace it later
As a real estate professional, I can recommend a lender who is experienced in your market and has a history of providing good service. A real estate professional can be a good intermediary between you and the lender.