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Liar Loans? Watch out for Liar Quotes!

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

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.

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.

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!

This post brought to you courtesy of Mike Mueller.
Feel free to ReBlog or ReTweet as you like as long as you credit the source (him).
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Posted by Mike Mueller on 04/03/2008 11:43 PM

Comments (72)

zillow mortgage, zillow mortgage marketplace

Originally posted at: Mike Mueller, Social Media.ist: Liar Loans? Watch out for Liar Quotes!

Post is included in group: Mortgages
Post is included in group: All About Mortgages/Mortgage Networking
Post is included in group: The Lounge at Active Rain
Post is included in group: Northern California Real Estate Professionals
Post is included in group: Zillow Mortgage Marketplace

72 Comments on Liar Loans? Watch out for Liar Quotes!

APR

2008

Mike - True that, good points. I'm involved as well and trying to get a feel for everything. Love the concept, looking forward to seeing how it all plays out.

Thanks Jason-

Really, I am Two VERY Big thumbs up on this!

Great great great thing Zillow.

Todd Carpenter and I were going back and forth at 9:00 last night as the loan requests were filing in. I wasn't going to write a post but he asked me to.

Thanks to Sarah for the Zillow Mortgage Group! Woo HOO!

Go Zillow Mortgage!

great blog Mike....over the years I have learned that everyhting put in by a customer is up for grabs or subject to change after a nice detective call to the customer..in fact sometimes the fields don't allow for the customer to accurately describe the loan parameters!

Mike, we shall see just how honest the people will be. But it is an interesting idea and for that reason I signed up

Hmm. This will definitely be interesting to watch.

Great post, Mike. Another thing I noticed about Zillow MM is that as of last night (haven't checked this morning) they are not including title, escrow or reconveyance fees on the quotes.

Hi Make - You very eloquently stated precisely what I felt this morning when I saw my first Loan Request. I did respond with an honest offer, all the while kind of knowing that I am going to get undercut by someone with a false rate.

I do agree that this could be great for Zillow and for Mortgage Professionals. One just hopes that clients are truthful and realistic with the information that they enter, and that most in our industry respond in kind. As you well know, there is no real way to stop the bait-and-switchers out there - but I think Zillow is on the right track with the Ebay-like rating system. There is also a feature that enables one to write a personal message to the prospect, and I think that in there we can provide some cautionary words about offers that are too good to be true. In mine, I took the time to explain why my rate is definitely going to be higher than others that are quoted, but that it is accurate based upon the given information.

Best of luck with this new source of leads.

Hey all - Of course there is going to be a certain degree of trust on both sides of the table. Our hope is that the ratings system will flush out a lot of the fraud that happens on the professional side. But you can guarantee that we will be watching things closely and adjusting as necessary. We rely heavily on the feedback from people like yourself and others in the blogosphere, which is one of the reasons I started this group, to try to organize the feedback a bit.

Good luck to everyone. If it works and you start getting a lot of business, maybe you can buy me a beer at the next Beer For Bloggers event in SFO.... :)

Charles - It's true. Zillow cannot ask every question possible. There's a balance between too much and not enough. Zillow is doing a fabulous thing in bring the public to the LO and keeping them a safe distance apart. their putting the power into the hands of the homeowner and I like that. My only complaint is that the public isn't going to know what's missing.

Joe - Honest is one thing, healthy sales competition another. I'm all for both. Lowballing a quote is yet another and I'm not ok with that.

Karen - interesting? I'm excited!

Rhonda - Good for you on noticing! Can you say LowBall?

Steven - I really like the personal note feature. That'll make the difference for guys like us (and girls like Rhonda!)

Sarah - I'd buy you a beer anyway! Business or not. We all owe you more beer than you could possibly handle (you can add drew to that too!)

Great points, Mike. I receive partially complete applications through my website all the time, and immediately contact them to get the answers needed to properly quote the client. All or nothing is how I approach it...just opens the door to borrowers feeling they were taken advantage of if they receive an "off the cuff" quote. Curious to see how you do with this, and will watch for your input before signing up.

Mike ~ Very valid points. Points I address in my comment to the borrower. I have let them know that the rate listed may vary up and down. I have not been giving anyone the absolute lowest. The danger with cushioning is of course looking over priced. Oh well...It is a free service to us. So, if I get one every now and then, it is worth my time.

Thanks for the post! :)

I didn't realize Zillow was offering this feature now. But they sure have their share of issues with the home values. Letting home sellers enter their own information is a horrible way to determine the value. They can lie, just to help their friends/neighbors values look higher. And of course, the public thinks the information is completely accurate.

Mike, great information to put out there for us all to be aware and wathing.

Zillow needs to get with it on adding standard escrow and title fees (which have skyrocketed of late). Additionally, Z should disclose that rates change daily, sometimes during the day and that rates/quotes represent what is available at the time the quote was given.

APR

2008

great blog mike and i wish you a lot of luck in your business...

Mike, the issues you raised here are eerily reminiscent of the kind of structured arrangements that have created the current mortgage mess. I guess I wouldn't agree with the conclusion that this is good for Zillow,(apart from short term benefits from ad revenues) the consumer or lenders. But thanks for a well structured review of the inherent dangers.

Mike,

I read about this Zillow mortgage program last night and am glad that you wrote about here and explained some of the wrinkles. If a borrower wants a worthwhile response from a home loan expert, he ought to be truthful.

Mike- Congrats on your gold star. The other thing is the borrower needs to know not just what their credit score is but also what their middle score is. They need to pull from all 3 reports and take the middle score. Most people don't know anything about looking at all three credit reporting agencies.

Mike.....You have raised some really good points here. by the way, have you heard of teh WALKER Loans?

Mike - I think Zillow is off to a good start with this. Hopefully it will match borrowers with mortgage professionals who aren't afraid to ask the right questions and will fully explain the lending process to them.

The biggest problem with these types of estimates is that is exactly what they are. I didn't use the word quote, because a quote is a price you can hang your hat on. There are so many loan officers that will put low numbers on a bid like that to get the client and then switch to the higher numbers much later in the process.

Mike, we had a client once, yea out of control. He kept going to the internet and getting quotes so was going to hop around until he found one. We FINALLY convenience MR. INTERNET SHOPPER to at least get pre-approved by our local lender. Guess what?

Several defaults, a bankruptcy years back, horrible score. He still insisted on trying to get the right loan amount.

Finally closed with OUR lender, who worked her tail off and had to get gift letters, you name it.

Oh, what happened to all the others that made good promises?

Once they delved deeper they wouldn't touch him. Fortunately our lender kept us up to speed and we knew what was happening.

I hear these loans being advertised all the time on Satellite Radio.

Karen - "All or nothing is how I approach it". That's a great way to go with applications. I completely agree with you! With leads it's a little different.

Sarah - Yup! I posed the question to the ZMM group n the wording they plan to put in the Lender Msg Box.

Lisa - The Value they choose is being tracked by Zilllow. They have the choice of just using the Zestimate. How many times have we had that conversation with the public?

Ray - Thanks!

Rich - Zillow shouldn't be responsible for any fees - should they?

Lola - I wanted to reply to your comment in a comment all it's own (see next comment below)

Lola - I thought you comment was good enough for a box all it's own.

"I guess I wouldn't agree with the conclusion that this is good for Zillow,(apart from short term benefits from ad revenues) the consumer or lenders."

Good for Zillow? You bet it is. Just about every newspaper and news station got the press release. They've all run stories. Zillow draws plenty of eyeballs already. With this new tool they will grab even more! Eyeballs equal revenue - simple as that. Unlike Lending Tree - Zillow is serving up quotes to the public for free. Unlike Lending Tree - Zillow is operating as the middle man only with no vested interest. When something goes wrong in a transaction, and we all know that'll happen from time to time, will the public blame Zillow? No. When you buy something on eBay and it goes bad, you don't blame eBay, you blame the seller right?

Good for the Public? You bet it is. Where can I (the public) go to get real mortgage quotes like this? I could pick up the phone book and start dialing for rates. We know how that'll turn out. Even if the phone book yielded good rate quotes, how many people will spend that time? Few. In 5 minutes the public can fill out the form and receive 5 or 10 realistic rate quotes. I see nothing wrong with that.

Good for the Lenders? You bet it is. I can quote away (honestly of course) and if and when a lead decides to move forward, they'll contact me. I spent a little time then, and then will spend only quality time with those that want to move forward. That's great for time management for me! I do the same loans with the same pricing structure I always have. I get new eyeballs focused on me. That's good, good, good.

At least that's how I see it.

And the beat goes on. Just another layer of advertisers and lead generation web sites to get between the service providers and the consumer.

Oh well. The platform appears to work. Z has the Google juice and will get the leads and will sell them.

Esko - I'll make the arguement that maybe the borrower doesn't know what the truthful answers are. Yes they can outright lie but that serves nobody. The guy I highlighted probably thought he did everything right.

Katerina - Thanks. I'm not worthy. Back to the scores. Credit changes. Sometimes drastically over night. How many times have we seen the underwriter call right before drawing docs - "the credit score dropped". But good point!

Pam - Walker Loans? Nope.

John - Zillow isn't going to match anyone with anyone. That power is completely in the hands of the consumer. I think that's cool.

Randy - you bet they will. I'm seeing already. For me, I'm only going to quote people that I can meet face to face.

Missy - very good points.

Diane - Not sure what loans you are referring to. Zillow isn't loaning money.

Lenn - I see this as very different from Lending Tree. LT wanted to sell me leads. They had a vested interest in those leads as they also had a mortgage company themselves. I had a vested interest because I was paying $500 a lead (I've never bought a lead - but that was what they were charging). With LT the best liar won the loan. Bait and switch is the way of life.

Mike.....We are seeing a lot of Walker loans right now. That is where the borrower "walks away from the loan and property".

The problem with this is that I have to provide my information. I like the loans where I just sign the paper and the mortgage broker just fills out the form for me afterwards. Just jpking.

Mike, Great post. Zillow will be an interesting experiment for the market. It has potential. As you stated, garbage in, garbage out. Too much garbage and this experiment will come to a screeching halt. Who will want to spend the time on garbage. I kind of like the idea. AJ

I am always suspect about the information the public give to a web site it always seems to have missing or inaccurate info but it can be a business generator.

Mike, thanks for the article. I hope realtors and other AR community members are reading this. This is a wealth of knowledge that speaks more than to the zillow topic at hand. This is exactly what a great op. ed piece is made of: Opinion surrounded by the facts. I have read other mortgage related articles here are AR that are really good but for whatever reason they do not get featured. Someone was paying attention on this one.

I think one of the largest factors for brokers/lenders that participate in the new zillow mortgage leads venture will be how the grading system will play out. As you mentioned, we can only do as good as the information given to us. If joe consumer decides to write disperaging remarks about the broker/lender because his original quote was different than his closing Settlement statement without any reguard as to the bad or bogus information that was initially presented then I would suspect this will really hurt the validity of what zillow is trying to do. I see this grading system being the make or break for this venture.

Thanks for the great info!

Mike, great post and this is my first introduction to Zillow Mortgage Marketplace. I look forward learning more about. Thanks

Mike,

Thanks for the great roundup of the new program on zillow. I'ts another big win for consumers, however now you have more lenders competing for fewer clients. Good news for the veterans in the business. The more your and expert and a professional, the better you fair. I think sticking with professional relationships with people who know you and trust you. Seems like a higher rate of return.

I liked your post. To us, it's simple. We understand. It's scary how many consumers don't realize how big a difference some seemingly small detail can make. In the long run, I'd say that the consumer is best served with a personal touch. If that touch starts on an internet level, that's fine, but that personal touch needs to take place shortly there after or there will be problems.

I have enjoyed this discussion as the others yesterday. I applaud Zillow for doing this really for free and think it can be an amazing opportunity for lenders if the borrowers are honest. I'll keep watching :)

Mike,

This is a pretty big step towards streamlining thisngs on the money side. The consumers seem to like it, but hey will still need the guidance of brokers to make it work for them.

Steve

Good post Mike. I have had many clients who I have sent to my trusted lender that I would send my own parents to, and then they go out there and find stupid Internet quotes that are just too good to be true. I have gotten in the habit as telling them, go ahead, shop around, then bring me what you get and have my lender go over it, every time there are hidden fees and bad things.

I would love to see a post like this on zillow's home page. I think that this type of thing is misleading whether it is a website or a lender. Perhpas, they would consider it! Thanks for the heads up, Mike.

i agree Mike that zillow can't ask all of the right questions for an accurate rate quote. They are also way off on a lot of their home estimates as well.

Even better. I liked the gardners who claimed to make $20,000 or more per month just mowing lawns!

I think this is an issue that the real estate industry is just grappling with which is using the efficiency of the internet, but somehow trying to balance it all out. I'll know I always cringed when a buyer told me they were preapp'd with LT. I made them go to a local trusted lender to verify.

I'm with you Mike. I have already posted comments on other blogs that this is a bad idea. You will spend more time punching numbers that will turn into nothing. Then they want YOUR Social Security number. Not the buyers, THE LENDERS. No thanks.

Mike, very good post and while we may debate the long term affects of the FED's recent and very drastic steps you are 100% correct here. Not only should the borrower be cautious but the mortgage professional needs to be cautious as well... I mean how accurate does someone truly believe a quote using this kind of technology can be? As you pointed out one simple error on the side of the borrower can create an entirely different scenario and your right about the mortgage guy who will assume the "best case scenario" and then base his quote on that. When that person can not deliver the goods the borrower will feel as though he/she has been scammed when in fact the quote was given based on incomplete information. As a mortgage professional I will air on the side of caution and limit my involvement with this type of prospecting until more has been done to either collect more accurate information or to make the borrower well aware of the risks associated with regard to the accuracy of this type of quote. Thank you for yet another excellent post.

It's so much harder for me to write nasty comments about Zillow after meeting Sara Bonert at their Beer With Bloggers event at Inman Connect. Like their Zestimates on home values, there are limitations. And I think the consumer will figure out pretty quickly that if they do a Liar, Liar Pants on Fire when they submit information, it just won't work. It's interesting, because almost every good agent I know insists on their clients being pre-approved (through underwriting and all) by a trusted, usually local, loan officer. But as part of the educational process for people dipping a toe in the water, it's just fine.

Thanks Mike!

Thanks for your post. Just came across it.

I was very excited to see it go live. In fact I did answer 21 posts yesterday.

Now I do not feel that any of these answers will sell a loan. All I can hope for is that the prospect feels comfrotable and checks me out via profile, blog, website. Then I can sell.

Plenty of little start up issues. Who cares? They work it out. Just happy it is up and running.

Tony

Pam and Dan - LOL

AJ & Terry - Thanks! I agree.

John - You are too kind. You are right, but too kind.

Hector - You are welcome.

Dan - SOI will always be higher. This is just another tool in the box.

Katherine - Agreed!

Jo - Word!

Obeoman - Exactly, which is why i'll never be replaced by a computer.

Kim - I've done the same reviews. Even with my warnings I've had clients go ahead and (blindly) hope for the best. The truth is that after you jump through all those hoops only to find new fees or rates at the closing table, many people will just sign away instead of starting over. That's sad, but that's what happens.

Joan - I was going to submit it on there as well. i just need more hours in a day.

Mike - They might be - but this is still a great tool.

Charles - I did know a Gardener that actually made big bucks like that. In reality he owned the company that serviced huge clients but listed himself as a gardener and payed himself big salary. LOL

Melina - LT is a pit of Lies. It's sad but the best liar wins. It's also sad that Costco sends all it's members to LT.

Tracy - That's ok. to each their own.

I have prequalified people with their own data before. Just like in the above scenario.

50% of the time, at least one of those data points is off or not verifiable.

Great points Mike. I am still quite leary of loans made over the internet.

I was not aware of this program... I will have to check it out. Thanks!

People filing out forms on the Internet are not going to be honest. That's why we are in the mess that we are in now. If people have to fill out information on the Internet and send it to somebody they will probably not see? Home buyers are eventually going to have to come into the office anyway. So why don't they just do it at the first stage of the home buying process to establish rapport with the loan officer. Internet is to be blamed for this .

I think its going to come out that most of 2007 and 2006 was made up of these

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.

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!

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.

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?

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.

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

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

It will be intersting to see how the Zillow thing works itself out. Thanks for the post.

APR

2008

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

Great info! I am a lover of technology... but too much of a good thing can make it bad.

Sounds like another tools borowers can use. BUT they will always need to do their homeowrk.

Mike,

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

Mike in Tucson

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!

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

2008

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.

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.

MAY

2008

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.

JUL

2008

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!!!!!!!!!