We recently had a borrower go into contract after she had been pre-approved by both us and one of America’s largest mortgage banks, via an online portal.
The borrower was shopping us against the online lender, making for some very good blog fodder. Here are a few observations:
1. She used JVM’s pre-approval letter when making offers b/c if she had used the online lender’s letter, her offer would not have been accepted. Listing agents in her market are extremely leery of delays and appraisal issues associated with that particular lender.
2. Her agent was panicking when she found out that the online lender was still in the running b/c she was so afraid of appraisal issues.
3. This is the biggie: the rate we were quoting was almost two points CHEAPER than the online lender’s (b/c we have lowered our rates so much recently), but the online lender’s loan officer was somehow convincing our borrower that that was not the case.
Some online lenders run lean operations and actually have decent rates. But many have spent tens of millions learning how to market and to train loan officers to effectively sell higher rates.
In the above case, we were able to easily get a rate quote from the online lender ourselves (with our borrower’s parameters) and quickly learn that our rate was in fact far lower.
Online Lender Rate Quote Tricks
1. Points vs. No Points: Many online lenders quote rates that require points that are somehow obscured in their marketing or quotes. To be sure, the lenders are compliant (they disclose everything), but they are just very skilled at obscuring the actual points and fees required.
2. The Old “No Points & No Fees” Trick: Many lenders quote “no points and no fees” loans, when it really only means no lender fees. Borrowers still have to pay for their appraisal fee, escrow fees, title insurance fees, notary fees, etc. These fees can easily add up to several thousand dollars, making “no fees” quotes very misleading.
3. The Super Short Term, But Not Yet Available, Lock Trick: Many online lenders quote rates that are available with very short-term lock periods of seven days or less (shorter lock periods always have lower rates). These rates, however, are only available “upon approval” and when borrowers are within seven days of closing. So borrowers who fall for these quotes are subject to the vagaries of the market. If rates go up from the time of submission to the time of lock, the borrower has to take whatever is quoted (unless he has time to go to another lender if he doesn’t like the final quote).
4. Quoting Without All the Facts: Many factors significantly affect interest rates such as down payment %, credit scores, property types, etc. We often hear from borrowers who have quotes from online lenders that do not account for all of these factors, making the quote totally misleading. Or worse, many online loan officers are simply undertrained and they quote loan products that are unavailable altogether for certain borrowers. We have a borrower now in fact with significant tax issues who we know for certain cannot close in 30 days, but a confused online loan officer is telling him otherwise.
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646