I'm going to wait till rates drop

Most every competent mortgage person will tell you, when the feds change the rates they are responsible for (Fed Funds and Discount) it has little effect on the actual mortgage rates you and I get to pay.

So the Fed's decided to lower the Fed Funds Rate .25 bps and lower the Discount Rate .25 pbs.  

FOMC Statement

Did mortgage rates go down? 

Here's a short video with Greg McBride from BankRate explaining the disconnect.

http://www.cnbc.com/id/15840232?video=606963530

I have issues with BankRate in that they exist to sell advertising, much of the rates advertised there are deceptive at best.  But Greg does know what he's talking about in reference to rates - I'll give him that.

So should you wait to refinance or purchase until the Feds lower even more?
I think you already know that answer.

 

"Which is better Lending Tree or E-loan?"

That's a good question. It's something I have not yet specifically written about. Yet it is something that someone somewhere wondered about. They typed that into Google and searched for it.

When the search results came back they saw that I was the second organic listing on the page and they clicked on my blog site.

That took them to this page: The Truth About Lending Tree

From there they clicked around the site, read more than 20 pages, and spent 1 hour and 19 minutes getting to know me better. I use a couple of tracking tools that tell me where a visitor comes from. (No, I cannot harvest your email address or see who you are).

I'm sure that they came away with a better understanding of who I am and what I stand for. I'm also confident they now know that LendingTree is a lead generating website. Their primary business is NOT to get the best loan to the people. "When Banks compete you win!" is only an advertising slogan. LendingTree doesn't care if you get the best rate or the best loan. They care about one thing. Selling your name to Brokers and Lenders - period. They learned about a lawsuit against LendingTree alleging inappropriate dealings. They learned that LendingTree had also owned it's own mortgage company. My guess is that they learned more than they asked for.

They could have also asked about Bankrate as well. Bankrate has it's own lawsuit going on, not by consumers but by advertisers.. Bankrate exists for one reason and surprise! It's NOT to give the consumer the best interest rates for a myriad of products. Bankrate sells advertising space on their site. Those rates they list are old, and highly inaccurate. they are put there by companies who pay to have them there.

They did ask about E-Loan. I'll bet they came away with the idea that E-Loan is the Mcdonalds of lenders. I know people at E-Loan. The corporate office is just miles away in nearby Dublin. They are order takers. They do no analytical analysis. They take the loan app and move on to the next caller. While I am sure there are people in E-Loan that know a debt ratio from a loan to value ratio, they probably won't touch your loan. E-Loan exists for one thing. To skim the cream of the crop loans, hire the lowest common denominator to work those loans, and move on to the next.

They didn't ask about DiTech. If they had, they would have found out that DiTech and E-Loan work on the same business platform.

At the end of the day, I have no idea what will bring someone to read my words. Sometimes they'll leave a comment, sometimes they won't. Will they become a new client? I certainly hope so. One thing is for certain, they'll come away with a better understanding of what I do, how I do it, and why I do it. They'll be better informed and perhaps wiser in the ways of mortgage. In the end, I will have made the world a better place. I like that.

Want to read what Agents and other Loan Officers think of this post?
Read here:

"Which is better Lending Tree or E-loan?"

Redfin Sweet Digs, The Chron, Bankrate and me

I do a lot of daily reading. Yesterday I was reading the Redfin Blog. In it they referenced an article that appeared in the San Francisco Chronicle last Thursday.

Mortgage crunch hits Bay Area hard because of jumbo loans

The article covered most of the basics, got most of the info correct, and overall was a well written article. Good job, Carolyn Said and Kelly Zito!

But then I got down to the bottom...

Do you know that sound Sitcoms use? The old needle on the phonograph record being dragged sideways? That's what I heard inside my head. Why?

Bankrate.

What you can do

With the mortgage situation changing day by day, it's hard to say what's best for consumers. One thing all experts agree on: If you don't have to be in the market right now, it might be best to wait this crisis out. If that's not an option for you, there are still places to get advice. For instance:

-- Bankrate.com: A free, online source of personal finance information that includes an entire section on mortgages, including local rate comparisons.

-- FDIC: The Federal Deposit Insurance Corp. provides comprehensive consumer advice on mortgages and home lending. Check its "Looking for the Best Mortgage" page for starters. You can find it at links.sfgate.com/ZOL.

-- The Federal Reserve: The Fed offers a great consumer overview of lending issues, particularly focusing on settlement charges. Check it at links.sfgate.com/ZOM.

-- The FTC: The Federal Trade Commission also offers an advice site for consumers navigating the mortgage market. Here's a shortcut to the site: links.sfgate.com/ZON.

Remember Sesame Street's "Three of these things belong together..."?

Three of these things belong together, one of these things just doesn't belong. three of these things are government agencies, one of these things is a capitalistic business who's primary function is generating income by selling leads, advertisements and banner ads. They also are knee deep in a Bait and Switch Lawsuit brought on by a former Advertiser / Lender dating back to 2002.

Bankrate is much like LendingTree. Both disguise themselves as friends of consumer. LendingTree is a lead generation business (who also was caught in a lawsuit of their own. See: The Truth About Lending Tree). Both are in the business to generate income. Both advertise massively and tout that they are there for the consumer.

There is nothing "Americanly" wrong with the business model. They are in the business of making money and do so by attracting clients in what some might say is a deceptive manner - the truth is, that's advertising!

My issue is with the Chron article including and referencing Bankrate as a real resource. I'd have the same problem if they had said, "Go to Mike - He's the Man!" Yes, I am. But I too am a capitalistic business who's primary function is generating income, albeit with a slightly different advertising pitch.

Integrity.

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.

The Lead Gen Biz - Part One

So I caught a little flak over my explanation of the Tree and it's business model.
LINK

No biggee.
If I get this right, I am the "Flak-er", and they would be the "Flak-ees".

The Flak-ees reactions ranged from the standard issue knee jerk "Duh", to eye opening wild disbelief.


Let's do this in two parts:
Part One - the answer to the Dee-Dee-Dee side, (Carlos Mencia reference)...

Some of the Flak-ees maintained that the Tree was and is doing what it needs to do to stay in business. In order for the Tree to continue offering the great services it does to us poor consumers, they need to sell the leads. "Wadda you think? They should just give 'em away?"


Uh, no...
I have no problem in their selling the fruits they have grown.
I do have a problem with their trying to deceive both the buyers of the leads and the customers.

Advertising has been called the business of half truths.
Some might argue that there's far less than half of a truth in any advertising.
But I'll say, if the banks were competing you indeed would win.
That is the truth. But the truth is, the banks can't really compete.
For many reasons, the playing field is stacked against honest competition.

With the Tree sending leads to their own mortgage company first, they get a jump on the competition. If they really wanted you to know they had a mortgage company wouldn't they have called it something like Lending Tree Mortgage?

Home Loan Center doesn't sound like L.T. at all does it?

Then there is matter of human nature.
I'm a good guy, but I know there are plenty of less than honorable people out there.
As I have said before, they can lie thru their teeth about rates and fees all the way to the signing table. There's nothing illegal about it. It's called Bait and Switch and I see it everyday.
And guess what? If they know they have to beat 3 other liars to get your business, guess what they are going to do?

The best liar wins.

I have a great solution.
Make them tell the truth!
How?

The "Mueller Act"!

Force the lenders (you figure out how) to quote you a rate, a term, a prepay, the total non-recurring closing costs, all fees, everything, and then set that quote in stone.
No changes - period!

Then, if the loan you get isn't what they quoted - they have to pay the difference plus let's say $10,000 in damages.

Furthermore, take the quoting away from individuals (loan officers who work for commission) and put it in the hands of the corporation. Not that corporations don't lie - they'll be more apt at looking at the bottom line.
In short, fully guarantee the quote.
Sounds like a sound and reasonable idea - right?


Now let's step back and see what happens.

From the Lender side:
The lenders will now be caught between trying to compete but not underestimate the rates and fees. They know there are 1,000 ways a loan can change from application to funding.
Many of which are completely unseen this early in the process.
As a lender, you can take a calculated risk and hope nothing increases the rates and fees, that you can close before your lock expires, that the supporting documentation comes back as stated.
But that's a risk. Guess wrong and it costs you money.

So the business is going to price these with a certain amount of cushion.
How much? - Nobody could tell for sure, but a cushion for sure.
Cushion means... not the lowest rate possible, yet low enough to win the deal.

Let's go over to the consumer side:
I'll take two different borrowers, one who has it all together and a super clean deal with no surprises anywhere. We'll call him Mr. Clean.

The other one has everything imaginable come up - not necessarily by his own fault. Both have identical income, credit, and debts. He's Mr. Calamity.

Mr. Clean is doing a refi on his condo. He locks for 15 days (cheaper rates), the appraisal is done and comes back perfect, the prelim as clean and clear as well. His HOA does what they need to do and keeps the records they are supposed to.
Working with any reputable lender, he would get the absolute best rates and fees.

Mr. Calamity, doing the same refi, the same amount, locks for 15 days as well.
But then the poop starts hitting the fan.
His appraisal comes back with issues - there are questionable comps, they need more pictures, or a zillion other things. The Prelim comes from title and shows tax liens. It also shows his ex-wife who happens to be on safari with the new husband. Ooops. We need a quit claim deed signed. His condo turns out to be unwarrantable, the parking is under the building as opposed to outside the footprint, the loan he applied for also says it needs to be 75% owner occupied complex wide. Oh, and there is pending litigation from someone who tripped on a sidewalk last month and is suing the HOA.

Each and every item listed added to the rate, points and fees of Mr. Calamity's loan.
That's just a couple of items that might go wrong.

So under the newly enacted "Mueller Act" the lender that quoted both these guys would get the same loan. Not having a crystal ball, the lender would have quoted the same to both. Got it?

But here's where market forces screw it all up.
Mr. Clean - had he gone the traditional route, would have gotten better rates and fees.
Why? Because the lender had to build the risk of unknown factors into the original quote - the cushion. Mr Clean paid more for his refi then he had to.

Mr. Calamity however made out like a bandit.
Not intentionally, but the lender would have to honor the quote.
(eat the difference)
His real rate and fees would be incredibly higher.
Missing his lock might have cost him a 1/4 point.
Tax liens, pending litigation, HOA cert. all would bump him out of an A paper loan.

The lenders, learning from their mistakes on Mr Calamity would adapt and build in a bigger and bigger cushion. Unfortunately imposing this cushion on the next Mr Clean.

So in the end, the "Mueller Act" would fail in what it was enacted to do.
Mike Mueller would be impeached,
the Act would be repealed,
and the lessons learned would be taught to high school history students across the US for years to come.

Ok, how's this idea instead?
We educate the consumer to make insightful decisions, by working with trusted professionals, who understand the consumers objectives and goals.
I like that better.

Next time we'll look at the "They don't really do that do they?" side in Part Two

The Truth About Lending Tree

In anything like this I find it best to start with the business model.

What is a business model?
Simple, it's what the company does, or plans to do, on a regular basis to make money.

DO NOT forget, every business is in business to make money.
Even Non - Profit's must have a business model, a plan to bring in money, or they will soon cease to function.

Lending Tree (hereafter to be referred to as the tree) portrays itself as the best and easiest vehicle for you to use to compare different lenders.
And you know very well that "When banks compete..."

But there's a couple of things you don't know.
The tree's business model is all about selling referrals, almost.

Fill out the application on their site and in 4 hours you'll receive up to 4 offers from competing lenders!

Hey that's pretty cool.
One stop shopping!

But how do those lenders know to send me their "best" rates?
Could it be because the tree sold your name and info to them for around $500?
True story!

So they advertise on TV, radio, ballparks, bus stops, and so on.
Meanwhile they bombard us with offers to sell us "red hot financing leads".
Four lenders pay $500 each for your name.
They know they have to beat the other guy so it quickly becomes a contest of who can bait and switch the other guys better.

You, the consumer, buys into what you believe is the best sounding one and commit to a loan.
You, the consumer then find out later, you can't get the rate they offered, or at the fees they originally offered but it's too late now. You've swallowed the hook.

The lender closes another loan, makes money, buys more leads.
The tree collected $750 on selling your name - so it made money.

This is the lead generation business and make no mistake, this is a big business.
I get lead sales offers everyday, not one - many!
It's not just the tree either.
Have a high traffic website? - You can collect names of people who want to refi and sell them!
Got a blog like this? - same thing.
Buy an Autodialer and download the names and numbers of people with sub-prime loans into it.
Let it run each and every day. Collect all those people that "Press 2 now" for more info.
Sell them, not just once but over and over again!

See those banner ads, pop up ads, or that long column of ads on a website - that's all about lead generation!

What's that you say?
How come the tree collected only $750 when it sold 4 lenders at $500 a pop?
Smart cookie you are!

You see, the tree also owns it's own mortgage company called The Home Loan Center.
OOOOPS!

Chances are the first quote and probably the best was from them!
Nothing like faking the public into believing they were getting an honest deal while drive applications to your own people, all the while still making money off from 3 other lenders.

Too bad they couldn't keep it a secret. Now they are involved in a class action suit.

Also related: BankRate - same animal, same tactics, same problems - class action lawsuit.
This one not brought on by consumers but by the advertisers themselves.

In anything you do, anything you buy, ask yourself the simple question -- what is the business model working here?

Oh here's a mini bibliography of sorts:

http://www.bizjournals.com/charlotte/stories/2006/10/09/daily31.html

http://www.consumeraffairs.com/finance/lending_tree.html

http://inkblots.markwoodman.com/2005/05/24/cutting-down-the-lending-tree/

http://inkblots.markwoodman.com/2006/05/23/stump-grinding-the-lending-tree/

http://www.epinions.com/content_17983901316/show_~allcom

http://thesqueakywheel.com/complaints/2006/FEB/complaint8288.cfm

http://thesqueakywheel.com/complaints/2006/SEP/complaint9941.cfm

http://realtytimes.com/rtapages/20030909_lendingtree.htm

"I contacted LendingTree.com regarding a refinance loan and was told by the representative Mr. Daniel Lete that I would have to give him a $400.00 deposit to secure the lock-in interest rate on the loan and receive additional information regarding the Mortgage lending process. I stated that I was concerned about providing my credit card information without getting any information in writing first. Mr. Lete assured me that my deposit could be refunded. However, after giving my credit card information I was sent an e-mail from Mr. Leta which included detailed information on the loan and the very limited circumstances which I would be entitled to a refund of my deposit. Mr. Lete was quite misleading.

The matter resulted in my not getting my deposit back after the loan agreement was never signed or processed. After getting the lock-in interest rate, I needed to change my refinancing amount. I was advised by Mr. Lete to get a home equity rate because of the low amount I was requesting. I declined to proceed with the process after I was quoted a very high interest rate."