What is the first question every consumer asks when they call a mortgage entity?
What is your interest rate for a _________? (Pick a program).
What is the second question every consumer asks when they call a mortgage entity?
How much do you charge?
First, these are the two worst questions a consumer can ask because it demonstrates a high level of ignorance to whoever the broker/banker is on the other end of the line. You pay for what you don't know in this world, asking these types of questions to the wrong mortgage pro is like waving a steak in front of a hungry dog...you can hear the saliva hit the floor.
Second, consumers aren't going to stop asking these questions because they don't know what else to ask. What else is there to ask? "Are you going to give me good service?", "Will you be honest with me?", "Are you really gonna give me a good deal"? "Will you do what you say?". Point made.
Consumers will likely never come off of this fixation for the same reason my wife will buy crap just because it's on sale. "Look honey, I just got back from Bed Bath and Beyond, they had a sale where if I bought $2000 worth of lotion I got 20% off!!" It's American consumerism, it's inbred and here to stay. Just the ability to say you paid a little less than the next guy is incentive enough to throw all reason straight out the window.
People are so fixated on rate that there seems to be bragging rights associated with the lowest, regardless of consequence or cost. If they can get one-eighth of one percent lower from one broker/banker over another, they're on it like white on rice. Show Joe $100 less in closing costs than the next guy? Done, sign em up. What are the repercussions? Who the hell cares? Joe's $100 in the black!
I was answering a comment on the Inman blog about a 3rd party service for mortgage shoppers that essentially uses non-licensed people to check a mortgage broker/bankers rate and term quotes to see if there are too many fees or 'dangerous' terms. What the F*%$? This is what it's come down to? Some hourly validating what should be a professionals work? Admirable idea but...
The perception of this industry is so far down the toilet, its festering in the septic tank.
So The Billion Dollar Question Is:
If consumers are so fixated on rate and cost, and this is where all the bad stuff originates...
WHY DOESN'T THE MORTGAGE INDUSTRY MANDATE 100% DISCLOSURE FOR WHOLESALE RATE PRICING AS WELL AS BROKER AND BANKER COMPENSATION??
Eliminate the problem at its core.
Put it all out there for consumers to see, let them jump up and down and rub wholesale rates all over themselves to satisfy their desires.
Stop the ridiculous practice of allowing bankers to play 'Hide The Fees', it's been proven to screw the consumer.
Make EVERY mortgage professional compete on SERVICE AND KNOWLEDGE.
You'd see 75% of the fat in this industry evaporate within 6 months.
If it's all this simple, then why isn't it happening? It would cripple too many businesses. Sad, but true...
This one strikes a chord with me. I just saw a young couple get raked over the coals on a mortgage. 11% interest 30 year fixed. The seller paid $12,600 in closing costs on a 250k house! AND the buyers, at the last minute were asked to come up with 40k for a downpayment.
Realtors have to disclose their commissions. I think this broker took these people for a terrible ride. They really need to refi, but were advised to wait 3 months.
I agree with the disclosure, how ever, I doubt that will be anytime soon.
That is a dirty little secret in business. So many junk fees, and honestly do you really want to tell your client you could give him 6% however you are going to give him 6.5% because it has taken him weeks to get you pay stubs, he forgot to mention 5,000 in back child support he needed to pay up, and he forgot about the loan he co-signed on for his ex-girlfriend, etc., etc. You spent hours getting his loan packet ready.
When you work 5 times as long, do you or do you not feel okay with giving him 6.5% instead of 6.0?
Now this is a can of worms to be sure! Great post, I give it a big 5. Full disclosure at the wholesale level will NEVER happen. The whole business, starting in the secondary market and up would never go for this. The spreads, the hedging, it's just better kept under wraps. I don't think it would help consumers in the end.
You just touched the tip of this gigantic iceberg Jeff. You're so dangerous.....
Kimberly...I would have laid out how long he had to get me the appropriate documentation and told him my retainer is $3000, if he got me all needed docs by set date. Anything past that date, my fee meter starts running at $100/hr.
Precondition your borrowers to your needs as a professional. Its about time over money. The more time and labor a client costs me, the more money it costs my client.
Jeff - Sad but true is right. Since I'm here, I've been wanting to ask you. You did a great article on How to Beat Your Foreclosure.
Days later, I happened to see someone (who is facing foreclosure) announce on their well known blog that he now had a "professional" looking at his TIL. Please tell me it's coincidence. : )
Kimberly brought up a point. Junk Fees. Correct me if I'm wrong but isn't it the reason that there are such junk fees because lawyers were going after big companies, using the class action game, and challenging the companies to justify their fees?
I was working at National City and remember when our standard fees were changed from one $x,xxx to several smaller fees. Processing, underwriting, admin and so on. We still had the exact same fees, just named them individually instead of "Lender Fee". Am I remembering that right?
I still believe the "Reloading the Stapler Fee" was bogus...
Jeff.... do I know you? He's back.... lol
Seriously, hope all has been well. I agreed 110% of what you were talking about until you got down to the last paragraph, the last 6 sentences. You should know very well, being in the mortgage business at one time, that some of this is not possible and will hurt consumers anyhow....
I won't get into details, but think about it. It's not a done deal until you go to settlement. I could give you the best price and rate...no fees... but if you took long, we had an appraisal issue... 100's of things... forget about the rate expiring. What about the fact that I gave you a full doc rate, got you in the door, knowing that it was going to be very slim on getting you approved full doc. It was probably going to be stated. Now things change. Your rate, fees, etc etc. You don't get to see these true figures until closing. My only true disclosure is to give you a new good faith estimate when things change. And we know that this doesn't happen all of the time.
You want transparency, without stating that word. But then you make a statement that you would ask for a retainer fee of $3,000. That just won't happen. You aren't going to get people to give that kind of money up. So, I have to go back to your ending statements and why this can't and won't work. There is no specific way to narrow it down to the penny. Especially when work does go into this.
And the fees, then just raise the rates. Some of you are missing the point. You need to fees to complete a process. The national rates are just that, national. But some regions have higher rates with no fees. Some regions have lower rates with higher fees. What does this tell you?? Just as your rate, the cost in doing business will come from one of two areas. Why do you think Countrywide offers a no closing cost loan? because the rate will include the fees. That is my point.....
Otherwise, I loved what you had to say. I just disagree on the end result and how to get there.....
Jeff:
BINGO! Ain't never gonna happen though. Best post I've seen so far on AR. Thanks.
Fran
Tony..... if your rate is lower than that other person... less fees... who cares what is on the back. SERVICE. too many people worrying about what the other is doing and charging, but they forget the fundamentals, TRUTH - SERVICE - HONESTY - & Commitment ..... in reality, this is fluff to get people to balk at rates....
Jeff even goes to mention in his opening paragraph...people want to know RATE. what happens with this is that they forget about everything else. I could give the lowest rate and no fees every single time. But change it at the end... the very end. Bait and switch. How are you going to shop this if I am disclosing everything, but change it at the end? We need to think about the end result. The good loan officer will get through the beginning of this bs and the so-called shopping. You aren't buying a car here and showing sticker price..... anyone can sell a car that works. Not everyone can sell a mortgage, without it not falling apart at the end because they didn't ask the right question.
Good one, Jeff - a level playing field for all the mortgage players would be the only real way to protect the consumer - if that's anyone's REAL goal. It would certainly turn mortgages into a commodity, however, and shift the focus from price to service.
In some ways, a mortgage is becoming the second highest investment in just about everyone's lives - if we live long enough. Major cardiovascular surgeries and cancer treatments are beginning to outstrip homes in some areas - and in certain stages of life. I don't see full disclosures from hospitals or surgeons as to their costs and fees - and "why" they are so high.
Lending should be competitive like other services, not boiler plate and over-regulated. In some ways, the credit repositories are to blame. If a guy could get his credit run 50 times - without score hits - the consumer could shop a bit.
Ahhh, but those tricky banks - hiding their fees with impunity while blaming brokers for the nation's mortgage woes - they are slicksters, aren't they?!
Nice thought-provoking post.
X-
Did you think you were going to slip one in while we were preparing for Inman?
The answer is simple. It is impractical to require bankers to disclose their profit because the sale of the loan is not predetermined.
Bankers don't earn fees, they make a profit ( or a loss). Would we mandate that Wal Mart disclose their purchase price when they offer a battery for 99 cents? Of course not. Wal- Mart, like bankers, take on the market risk when they sell that product.
Bankers are discernably different from brokers because of the three risks they absorb:
1- Credit risk (maybe the end user won't buy the loan from them because it wasn't underwritten properly.)
2- Interest rate risk- lending money today and selling the loan after interest rates have changed can create HUGE profits...or HUGE losses for a bank. Of course, the bank can try to mitigate that risk through hedging but it is impossible to affect a perfect hedge on a mortgage instrument because of its nebulous payment date.
3- Secondary Market Risk- There is no guarantee that loans will be bought from the originating lender. Ask Morgan Brown about this one- he has publicly written about his challenge with a now defunct New Century on Blown Mortgage.
While what you suggest sounds neat and tidy, it is impractical and actually quite dangerous to the liquidity of the markets. Here's why:
If banks were to disclose a profit to the consumer, they would need to require a firm commitment from said consumer. So, in the interest of consumer protection, this proposal would actually work AGAINST the consumer by limiting his options. The current laws allow a consumer to shop for financing up until the loan has funded. Locking in a commitment from a bank requires removal of the consumer's options.
Oh..is the answer to allow the consumer to know the exact profit and not commit? Won't work. Nobody would accept the three risks I cite that bankers absorb today...and you'd have less liquidity...which leads to higher prices.
No...better to understand that the mortgage banking system, like all markets, is not perfect...but it is efficient and the lowest cost-producer of mortgage financing in the world today.
I can't believe we'll probably have this discussion over martinis tomorrow, Jeff . We'll actually be acting like...well..a couple of bankers
Business can be odd - even the service business. Get a bid for siding your home and all can be pretty well spelled out - except the homeowner doesn't know siding quality. pro-rated warranties, foam quality, etc. It's about money, because it's all we understand..
Ever had a "binding estimate" from a moving company? Seems real enough, legal enough. Then the trucker shows up at your door at your new place with a "pay me this" bill or he keeps your stuff until you do. And then the Moving Company charges you for storage and handling while you sort it out and just keep losing. Who regulates them?
I (gulp) sold cars for a short short while (but it was long enough). They had me work the "four-square." which was breaking it all down to price, term. payments, and down payment. Eventually it all came down to a "one square" - monthly payment, because that's all people understand in the context of their lives.
Consumers want to know rate as that's all they can understand, but what they really want is the payment. And that is the most ill-conceived question of all, and why Neg-Ams and I/Os have ripped lives apart. Wanna help consumers - BAN THEM for all but experienced homeowners and investors - after signed, regulated, and mandated consumer-ed classes. People only buy what's on the shelves.
Don't regulate the industry rainmakers - regulate the products they can sell.
Or - regulate NOTHING and encourage saving and investment and reasonable home prices as people shift toward responsibility again. I had an almost-client a few weeks ago - why "almost?" From our conversations and her credit and rent history, I knew she wanted to buy a home so she'd have a place to live for 6 to 10 months as she had NO INTENTION of really paying for it. It was cheaper than rent. How responsible is that?!?
Every change results in others. There are no free-standing changes that can be made without another inadvertent one happening. Cause and effect is a law of nature. Solutions are not simple, but our ideas can be.
Iraq should teach us a lesson or two about jumping nto a system that is flawed as heck , but works. They had a dictatorship - we have the real estate industry.
Don't regulate the industry rainmakers - regulate the products they can sell.
That's a joke. Right, Art?
Art.... you should have stopped with the payment vs rate issue. You hit that nail on the head.
Jeff C... how about going after these companies? Mortgage Advertising -- Is it like a scam? Let's start with educating the consumer. Let's not dangle carrots in front of them just to get them in. You can regulate all you want, people will still get around it when it's all said and done.
What about time and effort in educating clients what to look for other than YSP.... again, it goes back to service. The lowest rate doesn't allows get you good service. I am going to offer a 2% fixed rate for 30 yrs and no costs. I am and I can. But it doesn't mean that I have to give it to you at the end, at closing. Forget about approvals and such. Advertising... let's educate the client on what is out there and not what's on paper. Just my .02. PS... you love this attention and I am not a politician when it comes to this stuff.
JeffX-
Your proposal is to isolate the originator profit only in the banking function without disclosing the servicing exchanges?
That would be difficult to implement but I can agree to such a notion. You realize that we'd essentially have to extract the compensation model to have two distinct entities in the banking world (banks would have to run dedicated origination firms, like a broker but originating only proprietary product, within their entity).
It's expensive and would essentially add to the origination costs but it would be an interesting notion. Undisclosed compensation between both entities would be STRICTLY verboten (including trips, Lakers tix, etc.)
PS... you love this attention and I am not a politician when it comes to this stuff
Yeah, but he's good at it, Jeff B.
Come on X...come out and play.
Brian Brady- Mortgage Rates Report
Aw Brian, I don't see how we can regulate any of it any way. And why we should. I'm from an era when we stuffed six or seven skinny kids in the back seat of a car and drove off - nobody complained. Now I find myself - when I see a kid unstrapped in the back of a moving car - thinking "somebody has to call the cops on that driver" and I get concerned for the child and think the parents should be incarcerated. When did that change come about that The Government has to make everything well and better and safe and good?!? What happened to me that I think that way now?!?!
If I thought this all though I'd not have commented at all - it is more philosophical than financial - and can get personal fast. The system works for all parties - some times and some places better than others. I know enough about the system to know it is self-sustaining as is.
If you are asking if I think SHOULD the products be limited - nope. Let the investors figure out what risks they're willing to take. The 125s were good for a while - some over-extended and are gone. Pawn shops and pay-day loan places charge upwards of 400% interest - they have a client base, too. Isn't that how a free market works?
The Wal-mart analogy was a good one. Reward for risk.
Best wishes for a strong showing at the Inman event.
Jeff
Art.... you should have stopped with the payment vs rate issue. You hit that nail on the head.
True that, Jeff - I REALLY should have stopped with, "Nice post." I'm swimming around in the deep end of the pool and all I really wanted to do was cool off my feet. I need a life guard and will even take David Hasselhoff, drunken hamburger binge and all.
If I thought this all though I'd not have commented at all - it is more philosophical than financial
I get it, Art. Keep commenting. Thanks for the disclosure.
I agree that all originators shouldn't sell all products but we can't regulate it...although we'd like to.
I don't think you could disclose it in enough time. A banker would have to disclose the cost of the warehouse line and it could take up to 3-4 months to sell the deal on the wholesale market. If it was on the line that long, How would it be possible to disclose? You cant say what day in the future you will have the deal sold. If they could do it, I would believe that we would already be doing it.
You cant say what day in the future you will have the deal sold
Brilliant !
If they could do it, I would believe that we would already be doing it.
Exactly !
Wow...I fogot what it was like to have a post 'featured' on AR.
I'm in the midst of a cross country trip to San Fran from the east coast. The way the airlines run nowadays it's almost faster to drive :(
I'll be back to this thread to address the individual commenter's...for now, it's California or bust...
Hope to see a bunch of you there!
First Martini on me Brian ;)
One thing though...Many of you mortgage guys are taking this a few levels too deep. Servicing costs, holding times, etc were not meant for this discussion...
Brian had it the most right, it's philosophical more than financial, although a philosophy that deserves to be considered standard curriculum.
In any case, it'll be an interesting follow up....
I predicted your comments would be from a Blackberry, written in an airport.
CU in SF ! Lots to discuss!
X...Y...Here
And yes. It is nice to see ya round the rain :)
I am doing what Blog Boy (Broker Bryant) is doing. Got popcorn? :)
TLW...ROAR!
ok comments from a consumer... I've read posts from people working in mortgage talking about how consumers don't know what they are really getting and don't know how to shop/compare properly. And after I read these posts I feel like I'm left hanging. So what would I do? If I was shopping for a mortgage what would I ask? How do I compare? I thought the whole point of APR is that it includes the interest rates and the fees in order to give you something to compare while shopping around. As a consumer (not in the mortgage business) that is the impression that I am under. In today's environment do I ask rate and what fees? Some kind of comparison chart would be helpful (rate, fee a, fee b, fee c, do you have any other charges etc)...
Compare Good Faith Estimates.
Ask for one up front.
If the fees are any different at the time of closing, CANCEL the closing.
At that point, it is only up to the consumer.
One thing you touch on that I spoke to a client about last night is bank fees.... I sent him over to Bank of America where he got a HELOC for his 88yr old mother for 7.75%... I couldn't touch that. Plus I know he's about to list the property and BankoA said they don't care.
We talked about his new purchase and then he started reading me off some questions about his HELOC... I couldn't believe he could not get a straight answer on such simple issues. Simple to ME - a Mortgage Broker... but they were contradictory in nature because they were showing fees paid by the bank but it was a No Cost Heloc.... so why were there costs??? because it was the Affiliated business Agreement disclosure!
I had to go back and explain step by step without their paperwork in front of me.
That's why I always go through the 1003 and disclosures line by line when I first sign up the borrower. Then they have more educated questions to ask.
Sure - you're always going to get shopped... but this sells the client on you from the get go.
I'm still intrigued about your technique about disclosing all commissions... most of my clients are floaters....
There is an up-and-coming Professional Association pushing just this idea- the Upfront Mortgage Brokers Association of America.
http://upfrontmortgagebrokers.org/index.asp
You still spouting this? Okay - let's all, EVERYBODY, show your cards. Car dealers, restaurants, retail stores, camera shops. Everybody may I have your attention please! You can post your full retail price but you've also got to post the price you paid for the hamburger meat and the bun and the mayonnaise. Not sure why I'm bothering posting again to your idea. By the way - as you already know - even as a lender I show any YSP I make. I never KNOW how much SRP I will make. So if I lose money when I sell the loan can I call the client back and say - uhm, I lost money on your deal please send me a check.
Unfortunately Ken you're argument doesn't hold water because this isn't the Kia dealership, Taco-Bell, or the local Mall, it's the mortgage industry, which has been under a bit of a microscope lately regarding disclosure issues.
SRP is not related to YSP...If you service the loan and otherwise perform tasks that you normally would pay someone else to do, you should be compensated accordingly. SRP doesn't effect interest rates either.
Thx for stopping by :)