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How the Mortgage Industry Screwed it Up

You like that title, huh? Well, its true... we became our own worst enemy!

I am not talking about the mortgage meltdown.. that was more a combination of greedy execs, Wallstreet investors, a soaring and inflated housing market and a government that continues to ignore growing problems until everything falls apart.

No, I am talking about the dreaded "rate shopper."

You can't blame the potential borrower. They are simply playing the game that the mortgage industry created. They go from lender to lender asking for their "best rate" as if it is some hidden national treasure they must uncover. Items such as professionalism, service, knowledge, follow through... these don't matter any more. Why? We told the public they didn't matter!

Think about it like this. Imagine if you will an ad on the tv from the local doctor... "One 5 Minute Phone Call is All it Takes to Diagnose your Illness! Call now!" Would you consider this a professional doctor? What if 90% of the doctors advertised this way? What would the common message be? Maybe something like "This is so simple, a monkey could do it in just 5 minutes!"

My fellow mortgage professionals, I emplore you... STOP with these ads that make us come off as insignificant! Ask the borrower that fell for the "5 minute approval" and found that the lowest rate costs him more than he bargined for... that borrower wishes at the end that they had a real professional. Yet, by the time they realize they need a real professional it is usually too late to help. Kinda like calling a doctor in to look at the sneezing after it develops to full blown pneumonia!

To the potential borrowers out there... never in history have you needed a mortgage PROFESSIONAL than today! 30 years ago, when loan officers were respected, there were 3 basic mortgage loans. Today, there are too many options to count, and with Congress acting at last minute with "sweeping changes", the entire mortgage industry is becoming a maze. Even HUD is confused with the new FHA guidelines... they didn't write them, so now they are trying to figure them out!

Now, more than ever, you need a mortgage professional to help you. Don't play the "rate shopping" game. The lowest rate isn't the best deal. The best program, terms and service will ensure you come out on top every time, even if the rate is 1/8th of a point higher!

Ed Nailor is a mortgage professional in Charlotte, NC, specializing in Charlotte FHA Mortgages, North Carolina USDA Mortgages and special mortgage programs for Teachers, Firefighters and Police.

Call 704-651-8704 for your free mortgage consultation... but please understand, it will take longer than 5 mintues!

Mortgage information for Carolina residents. Check out CarolinaMortgageConnection.com for more information, suggestions, advice and tips on getting the best mortgage in the Carolinas.

Posted by Charlotte Home Loans - Your Charlotte Mortgage Lender on 08/12/2008 12:39 PM

Comments (30)

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30 Comments on How the Mortgage Industry Screwed it Up

AUG

2008

As a real estate agent, I'm with you. Now let me ask you a question. Do you feel the same about "discount brokers" who advertise as full service but provide little beyond the basics?

I will be honest and admit that as a mortgage professional I am not a real estate professional. However, IMHO I think that most folks get the difference, especially when they find out all the things the discount agent WON'T do.

I think the biggest problem that Realtors face is the misconception that all one does is put it on the MLS and then get paid some outrageous commission. Most don't know what a real REALTOR actually does for them.. they only know Realtor - MLS - Commission. So I guess you guys do have a similar fight. At least NAR does run some ads to try and educate the public. (Still waiting on the mortgage industry associations to step up on that one.)

Ed,

You are right. But I am wondering too if a lot of the rate shopping had to do with people buying homes that they couldn't afford and needed all the help they could get? It is also my experience that the BIGGEST rate shoppers are those who are not in the position to be, ie credit problems etc. We've lost many deals on these types of people shopping rates and being promised something they could never get. They come back in the end when the other company doesn't deliver.

In today's market we should emphasize service and trust over rates, especially when we see what happened with those who picked non-coventional programs for a lower rate and and are now facing losing their home.

Michelle

Ed,

Michelle

Now that my state has "cleaned up" the mortgage industry a bit, adding some licensing and continuing education, I value mortgage brokers much more than I did before. I have to confess...even though I myself owned a mortgage company in the past...I did not hold the industry in high esteem.

In a funny sort of way, the mortgage "crisis" has done much to increase my respect for you folks who work in the mortgage industry. Gone are the fast talkers who signed up clients but wouldn't give me any information...they couldn't survive in this new environment, where once again people are looking for qualities that surpass the short term gains.

Precious metals are refined by burning away the waste, and I think that is what has happened. Mortgage Professionals now will do what it takes and yes, professionalism, service, knowledge, & follow through DOES matter once again.

Great Post...have a great year!

Ed - you are so the man! Best blog this month on Active Rain. Soo true! I use radio, print and internet and NEVER, NEVER and I will say it one more time, NEVER do I mention "the lowest rates". Those people are killing our industry.

I'm afraid it's too late.... The fly by nights aren't going away anytime soon....

you know what they say....you get what you pay for. lowest rate may not always be the best rate and lowest fees may not always be the best loan.

AUG

2008

You make so many valid points. The mortgage industry in many ways has created the perception of its own value.

Ed- nail on the head. I hate those ads. We deliever service. I had a lazy LO that was all about rate. It thought it could do better by going to a bank, but they were not the lowest. It is now toast on the unemployment line. Offer service and great one at that.

Dave

Nice post but it will never happen.

I used to be in the car business. Spent almost ten years with Saturn (you know the no haggle place) I carried those values to a used car chain with the hope of building a niche of good quality, value priced cars. Know what happened? Spent way to much money and had to check everyday if the doors were unlocked.

Went back to traditional pricing and needed to put in revoloving doors to help with the traffic.

Thanks for the post

Tony

Hi Ed, Congrats on the feature, well deserved!

When you have a true professional working with you, educating you, following through and knowing how to troubleshoot so that a successful closing takes place, that's quality IMHO! What good is a rate if it never closes successfully? You could tell all your friends about the great low "rate" you were quoted but if you don't end up with a closed loan that rate quote is all you have....

Great Post Ed. Often times, the rate shopper gets to the closing and rates and fees have "magically" gone up-it is then that they wished they had delt with a true professional-but by that time it is usually too late. Again, tremendous post.

I agree wholeheartedly with your post. I found long ago that the rate shopper will slit your throat the day before closing over a perceived 1/8th of a point. I found that to give honest answers, great service, and lock the rate when the client says to is the way to go. I put my fees and rates in writing with a guarantee. If someone tells me that the lowest rate is the sole criteria for using me, then I say "good bye and good luck".

Ed, I read something the other day how Lender Tree has commoditised the mortgage loan. Brokers fell in line buying their leads and some are so conditioned to the leads they don't know any other way to create business. But, there is so much more involved in a mortgage and the consumer is actually receiving a diservice by doing a loan over the phone. It is harder and harder to get your clients to come in and meet you. I like to talk to my client and determine what is truly in their best interest. I just don't get it. Anyway, great post. I hope it opens some eyes.

Roger,

These days it is not so easy to say goodbye and good luck with investors monitoring lock commitments and pull through ratios. I wish it was easy. I have contemplated commitment fees or lock in fees for a while now although I have NEVER been a fan of junk fees.

I think we are in an age of instant gratification. If we go back and look at the stock market, the emphasis is on short term gain, certainly the builders played that game trying to beat each quarter and teaming up with lenders to form builders' lenders and then offer incentives...not really a level playing field. Good service is highly unusual today. When people receive good service, they are often astounded. The criteria then becomes cost ... maybe good service is just old fashioned. Sigh.

It's certainly important to build trusting relationships with the Realtors that will send you the clients for the knowledgable service. We still use the primary lenders that we used 7 years ago because they offer us the tools for us to inform our clients of what's going on in the lending world.

Ed-

Great post. As we know, many times the "lowest rate" is actually not the best loan scenario for a particular family. People need to use a true consultant. It's unfortunate that so few mortgage originators actually educate their clients. We are in this industry to serve the best needs of people in the short and long term. Nothing less. I appreciate you sharing this! JB Brookman

Right on! I don't understand how a lender could qualify a buyer for the teaser rate and the buyer didn't have to qualify for the rate that it would change to down the road. That doesn't make sense at all.

The new housing developers around the country are largely to blame by getting kick-backs from the designated lenders they used at their homesites and enticing home buyers with lower cost for fees etc. I heard a comment on CNN, "the best thing that could happen to this country is if many of the national home builders went belly-up".

Amen Brother! Here in St. Louis (and in other cities, I'm sure) there is a box in the local newspaper that lenders advertise in. I stopped doing it because only the biggest liars looked like they were competitive. It got to the point where there were lenders saying that they had rates that beat my BEST wholesaler by .5%...that's on the rate!

It was like that old Johnny Lang song, "Lie to Me". I guess to certain people, they WANTED to believe. Excellent post and congrats on the feature!

Bob Mitchell

ValueList Real Estate Services, Inc.

Ed, Well put. Despite the common belief, the best rate in the long run seldom turns out to be the best rate. Unfortunately the consumer often just hears what the lowest number is and latches onto that without checking out the rest of the loan.

Ed, I'm impressed! I like to hear a such great standards coming from the mortgage/lending industry and to think you are in Charlotte! I'll have to refer you some buyers of mine!

we have a funny saying in the business..."The Rate Shoppers Always End Up With The Biggest Liars" :D

I hate to disagree. But there are loan officers out there that will give low rates, professional service, lower closing cost, and are good loan officers.. Whether the rate is low or high does not determine professionalism or knowledge of the loan officer.

Wow... lots of comments and a feature! Thanks all!

I did not expect this much response to be honest. I would love to respond to everyone individually, but I don't have the time to do that tonight. However, I would like to address Russ's last comment.

Russ,

I never said that professional loan officers were going to be the highest around. Actually, the professional ones typically are on the lower end of the feild when the final score is tallyed. And there are those that advertise "low rates" that actually honor that and give good service. Those are not the ones I am speaking of.

As a matter of fact, what I was referring to mainly was not rate driven... actually I was referring to the image that we have provided to the general public that we can provide them with the best advice, service and rate on the largest purchase in their adult life all in 5 minutes or less.

Most things that can be done in only 5 minutes usually do not require a professional. So if the biggest issues in getting a mortgage can be handled in just a "quick 5 minute phone call" then one can assume that we must not bring any value to the table outside of a rate quote, therefore the lowest number must be the best and therefore should get the business. When in fact, most people that do the "rate shopping" game end up talking to so many lenders that they never make a good decision and get confused in the porcess. Then when they get to closing and find that the low rate was just an estimate based on a quick 5 minute conversation, they realize that maybe they should have spoken to someone that actually took their time to find out what they needed... too late.. gotta close.

There is a difference. I hope you do understand that.

Russ-You are right, low rates do not equate to bad service. Higher rates also dont mean that you will receive exceptional service.

I think the point that is being made is that many times these proposed rates are at best fuzzy, and at worst out and out lies. A very common scenario is to publish a rate with several points, or astronomical junk fees built in. Saving .25% in rate, but paying a 2% origination fee and $1,800 in lender fees is not a good deal, to say the least.

There is still a misconception out there that there is "one" rate out there for all conventional programs. A loan officer needs to ask detailed questions to determine what the rate will in fact be. A 685 fico score with a high loan to value may result in a higher rate, but an inexperienced (or worse) loan officer will not ask these questions, therefore their rate may SEEM lower, but when you get down to it, its probably higher! The buyer will learn this sometimes just before closing, and will be angered and frustrated but due to time constraints will probably close with the loan hack.

I have seen on a GFE where a lender tried to tell a client that there was an aggregate adjustment that was a magical reduction in his closing costs. This in itself is completely false. To make matters worse the client wasnt even escrowing!

Earlier in the year a client of ours was quoted a 30 year in the mid 5% range. It was a high loan to value cash out loan and the clients had bad credit. The LO said that he had a "reserve pile of monehy" and could offer that rate. Of course, he locked in with them, and the LO came up with some BS answer and of course the loan didnt close.

These kind of things happen all too often. There are hundreds of other examples. I'm sure that any good loan officer that has been in the business for any length of time has run into these yahoos.

at his closing costs are similar to mine, when in fact they are not.

Ed,

Great comparison to doctors advertising 5 minute diagnoses without mistakes. Is that the doctor you would trust looking over your family?

I must say, though, I might give a second look to a doctor's ad that promises no more than a 5-minutes in the waiting room and exam room. ;)

Sarah Metzger, Crye-Leike, Realtors, Cabot, AR

OCT

2008

Ed - the unintended fallout of an economic (or any) crisis is better scrutiny and (not over) regulation of industry.

99.9% of all lenders, realtors, .etc.... were honest and did a great job. However, when things 'hit the fan' , the bad guys are under the magnifying glass.

This change will be good for the industry even though we all have to suffer the consequences today!

NOV

2008

I like some of your articles on activerain and I'm going to put a national referral group together at www.realestateloans.com within the next few weeks with some contacts accross the country.. I'd like you to consider joining my group. REL has just opened up their domain and I think its going to be great for us.

Mike Rogers http://mikerogers.realestateloans.com/

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