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Shopping for Mortgage Rates- How To Shop Properly

angry, future mortgage loan officer I just lost a loan, a commission, and any future commissions that I might earn as referrals from the aforementioned lost loan. This happens to me about once per week and it really doesn't make me angry anymore (well, a little)- but it astounds me that this happens at all. I lost this deal to a "rate shopper." If you are going to shop rates, you really must know what you are doing.

When the real estate market exploded a few years ago, many new mortgage loan officers jumped into the game and made a quick buck. Incompetence was everywhere you turned. These weren't loan officers; these were salespeople and many of them knew nothing of finance.

I am not a mortgage salesperson. I don't negotiate my rates, because I offer the best I can- right from the get-go. If someone is willing to negotiate your interest rate, that means he or she could have done better from the beginning, right?

Why would you want to deal with that person? (Before I get angry comments from mortgage professionals: There are some exceptions to this rule...like changing market conditions.)

Back to my story:

So a Realtor I know refers this client to me and he is a "shopper." Good for him. I like rate shoppers for the most part, because if they shop around a little, they can see that I am giving them a square deal and it cements their loyalty to me.

However, this time I lost the deal right away. He practically hung up on me. This guy did not know how to "shop."

He said, "I am shopping around for the best mortgage rate."

Mistake number one. Nobody needs to know you are shopping. Why would he tell me that? It doesn't change what I offer him. In fact, it can be harmful. If a dishonest loan officer knows that you are shopping around, what do you think he or she is going to do? Low-ball you, of course. That's when you get a closing table surprise.

I told him that was fine and I proceeded to quote a very fair rate and closing costs- the same rate and closing costs I would have quoted a non-shopper.

"Oh that's way too high. No way. I've found a much better deal already," he claims.

"Really? Because I just offered you a very good deal. What were you offered elsewhere?," I inquired, even though I had absolutely no intention of changing my offer.

He told me about his ridiculous, impossible rate and closing costs he was offered. Oh, and when I say "impossible", I mean that quite literally.

I explained to him that the deal he was offered would actually cost a mortgage company money and that I found it to be very unlikely. So I ask him the name of the miracle mortgage company.

"American Mortgage Specialists", he says.

I know this company. I know them well. I tell him to look them up with the Better Business Bureau. It turns out that American Mortgage Specialists has had 35 complaints in 36 months and even more complaints if you go further back. I direct him to the webpage.

I also tell him that I've never had a complaint from any client, ever. I direct him to the Arizona Wholesale Mortgage BBB profile page. (By the way, I have 15 employees, but this page says 5. I just noticed that. Not important I guess; but I still wanted to clear it up.)

"I don't care. The guy gave me a Good Faith Estimate [GFE]," he explains.

Honestly! He actually did not care that he was about to enter into a purchase contract with a lender that has 35 complaints lodged with the BBB! I feel like I'm taking crazy pills!

A good faith estimate is just that: An Estimate. It means nothing to most mortgage companies. Mortgage brokers and mortgage banks don't have to honor this document at all. Most people don't realize that, but it's true. Yep, this guy is going to get a closing table surprise. (By the way, my Good Faith Estimates are as good as gold and I tell all of my clients that. That's why I have zero complaints- no closing table surprises.)

How to shop for a mortgage:

1. Don't tell anyone you're shopping. Just say, "What is the absolute best deal you can give me on a [insert loan type here] loan?"

2. Shop on the same day, as rates change all of the time. Don't call 2 banks per day for three days. Rates will move up and down and you might as well not shop at all.

3. Check out each lender with the BBB for goodness sakes.

4. If it sounds too good to be true, it probably is. Go with the lender that is the lowest and still offers probable rates and closing costs. If you get 4 offers and 3 are all similar, chances are lender number four is a bait-and-switcher. Go with the best of the three and forget the ridiculously good deal.

Posted by Michael and Karen George on 04/09/2007 05:58 PM

Comments (17)

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17 Comments on Shopping for Mortgage Rates- How To Shop Properly

APR

2007

don't you hate it when a consumer makes a bad choice and there is nothing you can do to make them understand how bad their decision is.

Karen,

Don't you just love this business? People making decisions with half information and half truths!

Keep doing the professional job. Keep your chin up, it will get better.

Lucky :)

Ha! ! !

He'll find out at the settlement table that what he thought was a good rate comes with very high lender fees, points, terms, conditions, etc. That Good Faith Estimate will turn out to be "just an estimate".

I have found few buyers who know how to shop rates. They focus on the interest rate and not the lender fees, lock in terms, margins, adjustments, etc.

Excellent advice Karen. It sure sounds like this guy is in for a few surprises on the way to closing. Oh well. you tried.

Karen i especially love the shoppers who claim that their sisters brothers cousins best friends uncle is able to get a 1% fixed rate for 30 years. I always respond with do you know what negative amortization is? HA HA gets them every time.

Eddy

Karen,

Good points. I don't like to work with people who drop their rates when I ask them. That shows who much they were going to rip me off. I had a A/C guy come once who sat in my kitchen and said he'd cut this and that fee and it just drove me crazy since he was doing this in response to my requests. That made me really feel like I was being taken to the cleaners because you can never know if you're getting a good deal.

Thanks,
Shailesh
www.aimeeloans.com

Karen, Another fabulous Post. I am Cutting and Pasting your post to my Mortgage Banker/Broker you guys are so much alike.

Karen ~ it has to be very frustrating to know exactly what will happen to the "shopper" in the end. People just want to beleive they can do better. When they are over a barrel and have no choice but to close on a bad loan, maybe they will remember you "told them so."

APR

2007

You are correct Kristal, but it never does me any good to have "told them so"... I still lost a loan and they still get ripped off. I wish people only knew how slimey some mortgage companies are.

When people "shop for a mortgage" they end up finding the biggest liar, not the best deal.

Karen: I feel your pain! Here in St. Louis there is a advertising box that is published in the Sunday paper. I refer to it as the "liars box". I used to advertise in there,but stopped because I was giving an honest quote and so many other lenders were lying, that it quickly became a race to the bottom as far as who was willing to lie the biggest.

One of these companies was owned by a lady that I had brought into the business. She would quote rates that were 1/4 then 1/2 of a percent in rate lower than I could get from my best investor and not have to pay to close the mortgage. I know that she was selling to the same investors that I was because we had mutual friends.

Anyway, I did okay during the rush, she made a small fortune. I'm still in business however and she's closed up shop and is working as a loan officer at a different mortgage company.

R.B. "Bob" Mitchell

I think Brian's quote says it all. It sucks... but there's not much we can do when a customer "knows" what they want. More often than not, customers appreciate honesty and will come back for good service.

Karen I also feel your pain. The same thing happens to me as well, but I have to remind myself of the type of borrower that I want to work with is one that trusts that I'll give them the very best rate with the least amount of fees.

Hey Bob! We have a liars section in the newspaper also! It absolutely infuriates me. It makes me want to use the f-word, but of course, I am a lady so I don't. But those advertisers- every one of them- is a you-know-what.

It's unfortunate, but honestly, these are the type of people that assign to value to the service you give them. By nature, these are people that will never send you a referral. They will never help your business succeed, and they won't come back to you in the future unless you still have the lowest rate. Losing these deals isn't the worst thing that can happen. If someone wants to do their loan for a $5 commission check, then they are assigning their value as a loan officer ($5).

I always tell my customer that "the best rate on the wrong mortgage plan won't compare to a fair rate on the right plan." Our value is in our advice. I only care to work with people that understand this concept. People that truly understand your value proposition (having nothing to do with rate) almost always turn out to be referral machines.

Great comment Chad! Thank you!

APR

2007

Great point Chad. I completely agree and run my business the same way. Not every borrower is going to understand that. And those that don't understand the value in working with someone they trust probably won't be referring you any business either. In the end, it's the people that value your opinion and service that will give you referrals.

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