How LendingTree Misleads the Loan Consumer
When it comes to lenders, those of us that broker loans have a distinct advantage over banks that are forced to use in-house lending options.
As a broker, I can set my own prices for the most part (meaning interest rate and closing costs). In theory, I could give a client a wholesale deal with an interest rate and closing costs that would be impossible to beat. I can also shop around for the best rates each and every different day. For example, today I am locking my loans with a certain bank in Ohio; tomorrow, I may find something better elsewhere.
If I worked for a major bank, I would simply have to offer the consumer my bank's current going rate and closing costs. My hands would be tied for the most part.
So when LendingTree came on the scene, I thought it was the greatest thing in the world...for me.
I thought that LendingTree would make me rich! I would sign up and then be the lowest-priced lender on the LendingTree network-- every single day. I wouldn't make any huge commissions, but I could do volume. A couple hundred loans per month, maybe! I could be a multi-millionaire by the end of the year!
I envisioned hiring a ton of office staff to take care of all of the loans that we would be stealing from the big banks. At night, I would dream about it.
Of course, I soon found all of this was just too good to be true.
You see, why would any other lender sign up for LendingTree if I was going to be able to steal all of their business? After all, a lender has to pay a small fortune to become part of the LendingTree network. If any particular lender (bank or broker) resolved to be the lowest priced, every single day, LendingTree would lose all of the advertising revenue from the other banks. And of course, LendingTree has to take care of their customers: Meaning Lenders, of course.
Oh, I'm sorry! Did you think that the mortgage consumer was LendingTree's customers? Certainly not. It's a "free" service for consumers and it's the mortgage companies that butter the LendingTree bread. Regardless of what their commercials imply, LendingTree does not care about you, the loan shopper.
Why should banks pay LendingTree for "leads", when Arizona Wholesale Mortgage would steal every lead, every day? That would just be silly. LendingTree would go out of business with only one monkey wrench thrown into the mix (me).
But that's not the way LendingTree works. LendingTree isn't about giving people the best deal; LendingTree is about making the consumer think they are getting the best deal, while taking good care of their lenders that pay them. And taking care of every lender equally, as I will explain.
Here's how it works:
1. LendingTree boasts having a ton of lenders and they claim that you will get the best rate because "lenders compete for your business". This is actually a half-truth.
You can see how many lenders actually work with LendingTree right here: https://secure.lendingtree.com/stm3/Lenders/scorecard.asp
I didn't count them, but it looks like there are a few hundred retail lenders listed on the above page. They aren't all licensed in every single state, but the last time I checked (I think it was early last year), there were about 30 lenders doing LendingTree business in Arizona. I would guess that there are more than that now.
2. When the consumer visits the site, he or she is told that they will get "up to 4" quotes from the LendingTree lenders.
Hmmmm... Something doesn't compute here. They have 30 (or probably more by now) lenders in Arizona, but you can only get quotes from "up to four"??? What kind of loan shopping is that?
3. The consumer thinks, and it's easy to understand why, that they are getting the four best offers on the LendingTree network on that particular day. But that isn't the case.
There are certain lenders that would always be on the bottom when it comes to competing with other mortgage brokers. That is, there are certain lenders who would always have the worst rates to offer. Of course, even lousy lenders get taken care of by the LendingTree. After all, they paid...and they paid a lot.
In reality, the lenders are put into a rotation and given a chance to offer the best deal-- not to every single consumer-- but only when their numbers come up in the rotation.
4. So, the unknowing consumer gets 4 quotes, but they could be from the 4 worst-priced lenders on the LendingTree network, just by the "luck of the draw."
Let's say there are 28 lenders in your state and one-- and only one-- can actually be the lowest. If you are getting the maximum four quotes, that means you only have a one-in-seven chance of actually pulling the best-priced offer. (28 lenders / 4 picks = a 1-in-7 chance.)
If there are 56 lenders in your state, you have a 1-in-14 chance of getting the best deal with LendingTree. When you sign up, who knows where the best-rate company is buried in the rotation? Will you actually get matched up with the best that day? There is some possiblity that you might. You know...like 1-in-14.
The home buyer / or refinancer is so excited to get "four competing quotes"; and he, or she, or they end up having to pick a lender from what could rightfully be the best-of-the-worst on that particular day. The poor consumer ends up paying too much on most loans, literally. Remember, there can only be one "lowest" on any given day and an exact tie is unlikely.
Bottom line: 13-of-14 offers would not include the lowest priced lender, based on an availabity of 56 lenders per state and 4 lenders per offer.
If a state only has 30 available lenders in the pool (which is a conservative guess), you will have much better odds: Then, only 6 in 7 leads would not include the lowest priced lender. What a deal!
To LendingTree, the rotation is the best business model to distribute loans amongst it's true customers: Mortgage Companies.
Doesn't sound like it's in the consumer's best interest, does it?
;)
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