The latest move in our industry, fueled further by its recent implosion, is that of transparency in the mortgage transaction. For starters, I am all for that, though you may not feel that way after reading this. Why? Because of what transparency encourages.
To truly understand what I am getting to, let's look at what has happened to the airlines in the last 30 years or so. Some of you are old enough to remember the "glamour" that surrounded airline travel. In fact, families would save for years just to afford to take a vacation that included air travel.
However, deregulation took over the industry. It brought its benefits, cheaper travel, more options, increased competition, etc. Nothing wrong with that for the most part. But look at what the US airline industry has become. Poor service, cramped seats, little or nothing "glamorous" about it. Can you say commoditization?
Yes, especially after September 11, 2001, an airline seat became nothing more than an airline seat and no passenger was willing to pay a penny more for that service, even if it meant giving up added service and amenities, such as food. And the airlines responded, cutting out everything they could to keep costs down so they could supply that seat as cheaply as possible.
The Internet actually played a huge role in this, believe it or not. Having instant access to the cheapest fares and doing research on ways to "scam the system" assisted in the demise of a once luxurious industry. Now, airlines are little more than Greyhound buses in the sky.
I have seen the same thing happening in the mortgage industry. Again, not that it is all bad, but there is a much bigger problem for the consumer that I see for those seeking mortgages. With the Internet and the increased focus on transparency, the "lowest rate and fees" quest is forcing the industry to focus more and more on cost, providing loans as cheaply as possible to compete. Hence, the commodization of the mortgage industry.
I find that more and more clients are not willing to spend an extra penny for their mortgage transaction, even if it means giving up service and expertise. They flock to the Internet and other sources looking for that "lowest rate and fees" just like they do looking for the lowest airfare.
Now for the problem they don't even realize will catch them down the road. Since everyone is focused on the here and now, saving money for the initial transaction, they fail to realize the true costs of their decisions over time. By seeking the lowest rate and fees now, they will be almost guaranteed of obtaining the wrong mortgage for their overall financial situation.
Remember that old adage, you get what you paid for?
Studies have shown that even if you get the lowest rate and fees on the wrong loan product, over time it will cost more than if you paid more to ensure you obtained the right one.
Can you imagine if an airline skimped on maintenance enough so they could be the lowest priced airline? Now imagine if their skimping caused the aircraft you were on to crash? Are you willing to pay that price to fly? Why would you be willing to do the same in your mortgage transaction, after all it is your financial health you are dealing with, right?
As the government moves toward requiring more transparency, possibly even eliminating Yield Spread Premiums (YSP), and you are able to see exactly how much someone is making on a loan (FYI - I have done this since day 1), be careful about the temptation to seek the lowest rates and fees. Focus your research on getting the best value for your dollar and ensuring you get the correct loan for your situation.
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