Keeping You In

I read an article in the WSJ that was about how banks are working to keep you.

Customer Retention's the name of the game.

For some reason I cannot link to it so here's a cut and paste.

Best part is at the bottom (isn't it always), LendingTree is promoting a $500 price guarantee.

That sounds great. Then you read the fine print...

• It's only for fixed rate mortgages
• It's only for Conforming Loans ($417,000 max)
• Oh yeah and you as a borrower have to document that you received a better offer from another source on the same day as the application was submitted to LendingTree.
• And you have to close on that offer.

This is such great fodder for another day but...
You have to understand Lending Tree's business model.

They are a referral generating lead source.
They advertise, advertise, advertise.
Then if they did a good enough job on their commercials,
they'll get a stream of applications coming in.

But "Oh - Oh" you say, "Lending Tree doesn't do loans".
That's part right! They are in the Lead Selling business.
They will then sell your good name to no fewer than 4 brokers or lenders.
Typically they'll sell you for around $500 to each one.

The other part, the part that's wrong, is that they do indeed do loans.
See: : LINK

Now let's see here...
If I just spent $500 to get your name, address, and credit scores, how accurate do you think my Good Faith Estimate is going to be to you?

Not sure? - Shame on you!

Go back and read "What is a GFE and why should I care?"

Go on, we can wait...

This is important stuff.

Got it yet?

Good!

So if I'm buying leads from Lending Tree, and I'm quoting rates that are "not so realistic" just to get you to bite on my hook, how in the world is anyone going to beat my offer?
How can LT lose?

That's right, they can't.
And even if they did, it's such a good marketing gimmick that they just don't care.

They mention that one guy did submit a claim.
His loan was only for $100,000 - which is pretty petty,
meaning chances are none of the Lending Tree lead buyers really cared too much about winning that one.

Oh, and anytime LT wants to crank up the profits, all they have to do is start selling your name to 5 or 6 lenders instead of the 4.

Of course they'll paint that as a positive, "Now you'll get up to 6 offers from banks, because when banks compete, you win!" - NOT!

Just remember, in anything you do...
Know who's selling you what, and where they're coming from.
You have to know their angle.

Note to self: You now have 3 or more days of topics here, LT, Ditech and E-Loan, oh and Listing Agents too.

Ok, Off the soapbox!
Here's the article:


Get a mortgage from another lender and we will pay you $250.

That is the latest marketing twist from Bank of America Corp. With competition for home loans increasing, the Charlotte, N.C., lender is encouraging its customers to apply for a mortgage with the bank and then shop around. If they decide to get their home loan elsewhere, Bank of America will write a $250 check to cover a portion of their closing costs.

The Bank of America offering is the latest sign some lenders are beginning to emphasize price, service and stronger customer relationships in the face of slowing loan volume. Mortgage originations fell 29% in the third quarter compared with the same period last year, according to the Mortgage Bankers Association, as the housing market cooled and rising interest rates made it less attractive for borrowers to refinance.

Last week, Charles Schwab Corp. said it would give most of its bank and brokerage customers a 0.25 percentage point discount on the rate for a new adjustable-rate mortgage or home-equity loan and a 0.125 percentage point discount on the rate for a fixed-rate mortgage. Until now, the discounts were available only to clients who had combined bank and brokerage account balances of more than $250,000.

In August, E*Trade Financial Corp.'s mortgage unit began offering $500 off mortgage closing costs to the company's banking and brokerage customers who have less than $100,000 in total assets at E*Trade. E*Trade customers with assets of $100,000 or more get a 0.125 percentage point mortgage-rate discount.

Other lenders are using rewards programs to try to boost customer loyalty. National City Corp. (my old company, - mm) gives customers enrolled in its rewards program 50,000 bonus points when they take out a mortgage with the bank. Customers also earn bonus points for tapping a new home-equity line of credit. Citigroup Inc. offers special reward points to customers with a Citibank mortgage or home-equity loan, provided they also have a Citibank checking account and debit card. The points can be redeemed for a variety of rewards, from gift cards to plane tickets.

The offers represent a new tactic for lenders, which for years vied for customers by rolling out mortgage products that allowed borrowers to lower their monthly payments. These include interest-only mortgages that allow borrowers to pay interest and no principal in the loan's early years, option adjustable-rate mortgages that let borrowers make a minimum payment but can lead to a rising loan balance, and mortgages with 40-year terms. But the flow of new products has slowed and bank regulators have raised questions about the risks some nontraditional mortgages may pose to borrowers and lenders.

Some lenders are wooing customers with pricing guarantees. LendingTree.com, a unit of IAC/InterActiveCorp, is offering a $500 price guarantee to certain borrowers who use its loan network to shop for a home mortgage. The offer, which runs through year end, applies only to borrowers taking out standard fixed-rate mortgages for $417,000 or less. To qualify, borrowers must document they received a better offer from another source on the same day an application was submitted to LendingTree, an online service that matches borrowers with lenders. LendingTree will pay the $500 if it can't get one of its partners to meet or beat the offer. So far, only one customer has put in a request for the $500 payment, but the request was declined because the loan was for less than $100,000, the company said.

Bank of America's "Best Value Guarantee" program is designed to attract borrowers who think they would get a better deal from a mortgage broker or another competitor. To qualify for the payment, customers must have a checking, savings or other account with the bank, apply for a mortgage and then provide proof they obtained the home loan elsewhere. During the pilot tests, only a handful of bank customers claimed the payment, said Senior Vice President Eric Telljohann. The offer is being rolled out in a number of East and West Coast markets and should be available nationwide by January, the bank said.

Note from Mike: Report after report from the Mortgage Brokers and the mortgage bankers groups have repeatedly shown that the borrower will generally save more money by going through a broker than by going directly to the source. While BofA's "Best Value" is once again a wonderful marketing slogan, it doesn't hold water to the facts.