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Liar Loans? Watch out for Liar Quotes!

By
Education & Training with Tech and Social Media Consultant

 

You've heard about Liar Loans.  They've made the headlines in all the mainstream media. 

A Liar Loan is one where either the loan officer, the borrower, or both falsified their income and assets on the application. 

"I flip burgers at McD's  and pull in $10,000 a month"   <= Liar Loan!

Last night at exactly 9:00 PM  Zillow went live on a promising new program.

Zillow Mortgage Marketplace

Mortgages_Hero_Upsell

It's a wonderful idea.  Here's how it works.

You the borrower, fill out a simple form.  You put in the pertinent loan factors that fit you.

That information is then posted anonymously to a page that I (a Registered Lender) can see.  I can then create a quote.  If my quote sounds good - you have the ability to contact me and take it to the next step.  All in all that's wonderful.

Here's a problem.  My quote is blindly based on the information you entered. 

Garbage in - Garbage out. 

The very first quote from last night was a prime example.

zillowmortgage

Starting at the top...

  • Credit Score - Your score is crucial to a proper quote.  One digit off can mean the difference between a loan and a decline.  You better hope that when I pull your credit (that'll only happen after a loan application) that your score is the same as what you entered, or better.

  • Loan to Value - This happens to be a refi.  Is the payoff correct?  Do you have a PrePay?  Where did that value come from?  Is that something you are hoping your home appraises for?  Is that what the home across the street sold for last summer?  Loan to Value is crucial.  Two things determine your actual loan to value - the Payoff Demand from your lender and the Appraised Value from the Appraiser.

  • Debt to Income Ratio - Another critical calculation, just as critical as Loan to Value.  Two things determine DTI, Your actual income as computed by the underwriter and the actual monthly debts, also computed by the underwriter.  DTI is also forward looking.  When this refinance happens your new loan payment goes into the ratio - not your old loan payment.  Zillow can't figure this into the equation.  As an side, his Debt Ratio shows as ZERO because he did not enter his other debts (like his present mortgage) or assets.

zillowmortgage1

  • Purpose of the loan - You know that the loan for the home you live in is cheaper than the loan for an rental property right?  So does he.  He's saying this is for his Primary Residence on one portion and then he says he's going to rent this out on another.  Does this open the door for mortgage fraud?   I'd hate to find out.

  • Debts and Assets:  Both of these are very important to an underwriter.  there are different programs and different rates depending on the Debt Ratio and the number of months in Reserves you have.  What kind of reserves are they?  Underwriters count various assets classes differently.    Liquid - non liquid.  Fully vested? 

This isn't a bash on Zillow.  I think the idea is great.  That's why I'm involved.  My only warning to all those who read this is that Zillow can't ask all the right questions.  What they have so far is awesome.  When the borrower gives us (the Mortgage Professional) incomplete or inaccurate data to work with we can only do our best. 

If I were to quote this loan (and I didn't), I'd want to make sure I had the right answers or at least play it somewhat safe.  That's just me.

Somebody is going to quote this guy based on his information and filling out the blanks with the best possible answers to create the best possible quote.  That's the quote this guy is going to answer because to him it looks the best.  Only when the loan officer starts digging deeper will the truth come out.    Garbage in - Garbage out.

Now Zillow does have a feedback rating system (think eBay) that'll offer some guidance down the road for borrowers on who to trust and who to not.   How many borrowers need to be burned before that starts showing up?

To Recap... 

Zillow:  Good for you!  Way to go!  Awesome!

Borrowers:  Be careful.  You've been warned!

Comments (72)

Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Hi Mike, I appreciate a well written rebuttal. :)  The concern I have stems from the lack of safeguards, ie. Fake leads...a problem that is well documented with a number of lead generation companies (major time waster) and fake responses(from unscrupulous or uninformed lenders)...which occurs when quotes are being made without the appropriate information or simply to provoke a response. 

I would agree with John Cookman that the Grading system will be a critical factor which determines not only if it succeeds but more importantly if Zillow is able to distinguish itself in this playing field as a responsible participant whose service model does not contribute to the ongoing implosion of the mortgage industry.

Apr 04, 2008 11:59 AM
Mike Mueller
Tech and Social Media Consultant - Walnut Creek, CA

Tom - True enough.

Wayne - while we recognize the danger, hence our leeriness, we must also recognize that the public is going to do this anyway.  We might as well meet them and give the opportunity to do it right.

Kevin -We're you climbing Rainier?  I think you'll be surprised.

Lanre - My plan is to only quote those within a 20 mile range.  I want to meet them face to face.   Why don't they meet with them at the first stage?  Because the internet makes it easy and Zillow makes it anonymous.  Kind of like what we're doing here right now. 

Justin - Made up of what?  The loan still has to pass an underwriter.  This is just a quote.

Lola - Fake leads?  You bet.  Many a LO has already placed pseudo loan requests just to see what they get. What about the fake quotes?  In truth, a Monkey could fill out the quote form.  Brokers are hiring "Monkeys" right now to fill out as many forms as they can in an 8 hr. work day. 

Will the public chose to work with a accurate (higher rate and fee) guy who has a better rating than the Bait and switch guy (who low balled the quote and who's rating is crap)? 

I think the public will look right past that low rating and only see what they want to see. 

"Welcome to Unobtainium Funding!"

PS:  Watch for my post coming up this weekend.   

BTW: I also enjoy friendly discussion.    We might have different opinions but we're all on the same team!

 

 

    

Apr 04, 2008 12:14 PM
Michael Albanese
Michael Albanese - Barnegat Township, NJ

If the Zillow mortgage site is anything like the Zillow appraisal site- then it will be completely useless. Something good for consumers to go to and get bad information.

Apr 04, 2008 01:35 PM
Michael Albanese
Michael Albanese - Barnegat Township, NJ

How could this be good for mortgage professionals? Undercutting eachother and false rate quotes can only hurt the industry. This will be something else the negative media can talk about.

I do Lending Tree leads and the borrowers don't like being contacted by 4 banks, how many are going to contact them with Zillow?

Apr 04, 2008 01:39 PM
John Cookman
Cole Mortgage - Raleigh, NC
Sr. Loan Officer

Guys, Wake UP!!!  This isn't even close to Lending Tree.  This is the opposite of a lending tree.  You will never contact a prospect before they contact you first. 

You are worried about being undercut with false rates?  Uh... is this your first week in the mortgage biz?

spending 25 bucks is nothing for an opportunity.  I mean think about it let's say you close one loan in the next 12 months as a result of a lead.  Make the loan amount 200K and let's say you net out of it a conservative 1.5%.  3000K in your pocket, oh wait....  I'm sorry correct that.  2,975 dollars.

It's a great Idea no matter how you look at it.  I am sure they will tweak somethings as they go along, but it's a great start.  Instead of being so negative why don't we get behind it and encourage them to make changes as we see problems. 

Apr 04, 2008 02:11 PM
Mitchell Jamel
Brite Real Estate Professionals - Saint Augustine Florida - Saint Augustine, FL
e-PRO Realtor

Nice Post, Systems like this will always have Faults...

Do they offer a "AVM" with the quote for the Property Value or how will you deal with the appraisal Issues then LTV CLTV can become an Issues which will affect the rate

 plus a Mortgage Credit Score is Different from what a Consumer can pull...

Anyway Just thinking out loud

Apr 04, 2008 03:06 PM
Tom Davis
Harrington ERA,DE Homes For Sale, $$ Save $$ Buy Today ! - Dover, DE
FREE Delaware Homes Search!, $$ Save $$ - Find Homes! Delaware Realtor

YES!  This sounds like a great new system thanks to Zillow..I agree it will be watched very closely as it begins the launch these next few months....let's see what happens!!  Excellent Post and I have heard so much about it!!

Tom Davis - DE Realtor

Apr 04, 2008 04:08 PM
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes
It will be intersting to see how the Zillow thing works itself out. Thanks for the post.
Apr 04, 2008 04:14 PM
Christy Powers
Keller Williams Coastal Area Partners - Pooler, GA
Pooler, Savannah Real Estate Agent
I can imagine some borrowers will be upset when they contact a lender for the quoted rate but it turns out to be different because their information was incorrect. Be careful and be truthful
Apr 04, 2008 05:51 PM
Meghan Wood
Innerwork Mortgage - Roseville, CA
Great info! I am a lover of technology... but too much of a good thing can make it bad.
Apr 04, 2008 09:00 PM
Richard Lecinski
Long Realty Company - Oro Valley, AZ
Sounds like another tools borowers can use. BUT they will always need to do their homeowrk.
Apr 05, 2008 02:05 AM
Richard Lecinski
Long Realty Company - Oro Valley, AZ
Sounds like another tools borowers can use. BUT they will always need to do their homeowrk.
Apr 05, 2008 02:06 AM
Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495

Mike,

I've been following Zillow mortgage since they launched earlier this week.  I appreciate your post!

Mike in Tucson

Apr 05, 2008 02:29 AM
Mike Mueller
Tech and Social Media Consultant - Walnut Creek, CA

I just recreated this post on Zillow as well:

http://www.zillow.com/wikipages/Zillow-Mortgage---Words-of-Wisdom

 

Hey, John Cookman...  You get it!  

    

Apr 05, 2008 05:10 AM
Christopher Ohlsen
Credit Werx, LLC. - Malone, NY

I commented on the blog before really checking Zillow's gig out. My response was directly related to the quote request example that you provided. I checked it out; its very cool, they may not be the greatest leads but they are leads and it takes very little effort on our side.

Apr 05, 2008 05:21 AM
Christopher Ohlsen
Credit Werx, LLC. - Malone, NY
I am signed up with this now... It totally rocks... There is no place to include a real accurate estimate because there are no fields for my estimate of third party expenses. Still this is a very good service and you can't beat the price. Although you cannot accurately estimate closing costs for the potential borrower you can type in information at the bottom of each quote which you can use to explain the quote a little bit including the fact that you aer simply estimating lender fees and that actually closing costs wil be higher. We are all on the same playing field.
Apr 09, 2008 02:42 AM
Dione Sage
Nova Home Loans - Gilbert, AZ
Great Blog, Thank you for posting it.  I am impressed by Zillow coming out with this type of lead generation however there are a few tweaks still to work out. But it is a great concept and can benefit everyone.
Apr 09, 2008 03:08 AM
Lew Corcoran
Better Living Real Estate, LLC - East Bridgewater, MA
Real Estate Agent, Home Stager, & Photographer

When I send out a quote over Zillow.com, I put the following "disclaimer" in my comments section:

"Rate and fees quoted are based on the information provided including loan purpose, loan amount, loan-to-value, credit score, property type, property location and occupancy."

Zillow has the following disclaimer:

"Disclaimer: Rates and fees you receive from lenders in the Zillow Mortgage Marketplace are based on the information you provided. Initial quotes through the Zillow Mortgage Marketplace are not binding Good Faith Estimates because the lender is not able to verify your identity or credit history. Your final quote, rates, and fees may differ when you close with a lender..."

I don't usually concern my self with the income, debts and assets information provided as I'm sure they're not accurate anyway.

May 05, 2008 08:10 AM
Frank Marta
Nuhome Mortgage - Houston, TX
Texas Home Loan Specialist NMLS#: 245813

What can we do about this?  The only thing I can suggest is to not do it ourselves.......  The lowest rates are not always the best way to go I heard this in every type of bussiness "you get what you pay for"... Buyer beaware!!!!!!!!!

Jul 27, 2008 03:15 AM
Lewis Poretz
Apex Home Loans - Annapolis, MD
Business Development Manager

I have stopped quoting over Zillow. Too many bogus quotes. There is no policing. I am not even sure any of the reviews are legit.

Jul 27, 2008 09:41 AM