Discounts Ain’t Discounts; Confusopolies & Tricks Lenders Play
When I was in law school, I lived near a furniture store that continually ran a “going out of business sale” for three years straight – because it clearly worked.
Consumers thought they were getting bargains – even though the business was just operating like any other business, and, amusingly, it continued to “go out of business” for years after I graduated too.
Retailers play similar tricks with the word “discount,” as that too works well in convincing unsuspecting consumers into believing they are getting bargains – when they are clearly not.
A “confusopoly” is a term coined by author Scott Adams. It refers to businesses that sell very similar products – while also employing very confusing marketing to prevent consumers from making informed decisions (so the businesses can make far more money). Insurance companies and cell phone service providers are great examples of this – as their contracts and offerings could easily be 10x easier to understand.
And – unfortunately, mortgage lending remains a “confusopoly” too, despite the best efforts of regulators, as lenders still employ every trick in the book to convince borrowers that they are getting a better deal than they are actually getting.
These tricks include outright confusion as well as the employment of “retail tricks” discussed at the top of this blog.
I bring this up because we recently had a borrower who had been very confused by a competing lender, particularly with respect to the “discount points” she was paying.
Fortunately, we were able to review her Loan Estimate and explain that her “deal” was not a “deal,” and we readily beat the other lender’s offer.
My main point though is this – given how competitive the mortgage industry is right now, lender tricks are more prevalent than ever.
I’ve written several blogs over the years regarding these tricks and will link to the blogs below.
TLDR: Borrowers should always have their Loan Estimates reviewed carefully by an experienced and honest loan advisor – who can quickly and readily suss out the tricks lenders play.
FIVE MISLEADING CLOSING COST TRICKS BIG BANKS PLAY: In this blog, I point out how banks often make their closing costs appear lower than other lenders’ closing costs – when the closing costs are in fact the same. The banks will “estimate” minimal prepaid insurance, property taxes and interest estimates, as well as artificially low title insurance and third-party fees. The practice of course misleads buyers, but as long as the confusion does not surface until after the borrower is hooked and reeled in, banks don’t seem to care.
FIVE MISLEADING RATE QUOTE TRICKS: In this blog, I illuminate many of the rate quoting tricks all lenders employ including: (1) confusing “no cost” with “no out of pocket;” (2) confusing “no points” with “no cost;” (3) quoting rates that don’t exist when they know borrowers are weeks from getting into contract; (4) quoting rates without a full scenario in hand; and (5) manipulating APRs using some of the closing cost tricks discussed above.
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