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.

"Paging Dr. Mueller to the White Courtesy Phone..."

"Hi, my name is Mike Mueller
I'm not a real Doctor but I play one on TV...

I have a problem, it's a serious problem,
and guess what?
I know you have it too!
It effects each and every one of us every day."

Actually the realization is closer than you may think.

Disclaimer: The following is an analogy, a metaphor if you will. While using myself as an example, I am not equating the level of training as a mortgage professional is equivalent to a medical doctor. The analogy is in the dispersement of the treatment to treat the ailment.

I am a highly trained, highly skilled, Mortgage Professional.
While the real doctors are also highly trained, skilled professionals we both use much of the same systems and tools.

We both rely heavily on new and complicated technology.
This technology allows us to make better decisions in our recommendations.
Yet nothing replaces a human smile, a warm handshake, and a knowing voice assuring the patient that, "Everything's going to be alright."

The M.D. works in conjunction with others very well.
He refers tasks better done by specialists like lab tests & X-rays.
If the doctor is a general practitioner, they may bring in the opinion of other specialists in specific fields.

As a professional, I do the same.
I order work (lab tests) from my title company, my processor, appraisers and so on.
As for specialists, I have plenty. Not everyone who comes to see me is in good mortgage health.
As a mortgage broker I need to know who might be able to help my patient.
With the plethora of lenders available, sometimes it's in the patients’ best interest to call in a specialist.

Bringing in the expertise of others is critical to the patient's health.
Having a general practice doesn't mean the MD can, will, or should do most everything involved in the treatment.
The same goes for my chosen field of practice.

While I do have a State of California, Department of Real Estate License which would allow me to represent the seller or the buyer in a transaction, as a true professional I fully understand the implications and serious ramifications that may be possible if I did.
Working in the best interest of my client is my Fiduciary Responsibility as decreed by law.
Doing anything more would be Real Estate Malpractice in my professional opinion.

In the course of treatment the M.D. may recommend certain drugs.
Some times these may be considered "over the counter" and available to the patient with little guidance from the Doctor.

Other times the best drug for treatment may be by "Prescription Only".
Prescription drugs may have serious side effects if used by the wrong person, or in the wrong conditions, and may interact with other drugs a negative ways. While a particular drug may work medical miracles on one person, it may be deadly for another.

When dispensing any drug it's imperative for the patient to be aware of possible side effects and precautions. The Doctor upon writing the prescription will make these issues and concerns perfectly clear to the patient.
For this reason the F.D.A. determines the drugs that may pose serious problems be dispensed only by trained professionals.

As a mortgage professional, I dispense or prescribe loans.
Just like there are no bad drugs, there are also no bad loans.
Every loan program has the potential to be a good program if applied to the right condition with the right patient at the right time.

When the patient comes for an office visit,
(And yes, sometimes I do house calls) it is my job to accurately diagnose the ailments of that patient.
Once diagnosed, we can discuss possible treatment options.

Sometimes the best remedy may be something simple, akin to putting ice on a swollen joint.
Example: "Mr. Johnson, I suggest you live with the adjustable loan another 6 months until your prepayment period is up."

Sometimes the best remedy may be something generic, something "over the counter" but offered with a little guidance.
Example: "Mrs. Smith, I suggest you go down to your bank and get a $50,000 HELOC, but make sure there are no costs at all."

And then sometimes the best remedy is something very specific, but something with serious warnings and contraindications, something that if used improperly could result in devastating complications to the patient.
Example: "Mr. and Mrs. Newlywed, this combo loan will allow you to buy your first home but remember the interest rate is going to be fixed for only a short period of time. After 7 years this loan will become adjustable and you may want to move, sell or refinance before that time."

Any and all of the above also have possible side effects and complications that as a professional it is my duty to warn about.

I am a professional. I am very confident in the work I do and the patients I treat.
But I have a problem.

The industry allows non trained, non skilled, non professionals to prescribe the same drugs I can.
These pseudo professionals appear to the unknowing patient as professionals.

• Do they do the same diagnosis I do?
• Do they ask insightful, probing questions, like I do?
• Do they fully understand the needs and goals of the patient, like I do?
• Do they accurately and precisely articulate both the risks and rewards of all possible solutions, like I do?

And maybe the most important question of all...

• Do they act with the same Fiduciary Responsibility, like I do?

Anything less is mortgage malpractice and that, in nutshell, is my problem.

What is a GFE and why should I care?

o Recently on my blog I mentioned that I had a client who was "shopping" for the right loan. This client was well educated. He was a first time home buyer. He and his wife were trying to do what they thought was best for them in buying their first home. He did some research and came to me convinced he needed a 5/1 ARM. That would be an adjustable that has a fixed period for 5 years. In interviewing him and answering his questions (for over 3 hours), we determined that maybe this wasn't the best loan available to match their personal plan. I suggested some other options to look into besides the 5/1 ARM. We set another date on which to get together and go over these options.

o During that time he contacted another loan officer. This loan officer did not take the time to find out this couple life plan, to ask the important questions that needed to be asked. She simply gave them a quote for what he asked for. Typically these quotes are going to be in the form of what is called a GFE. That stands for Good Faith Estimate. It's a very official looking form. In certain cases is mandatory to provide a GFE within 3 days. Sounds like a good thing right?

o Then he came to me and asked for a quote so as to compare rates and fees. He wanted to do the right thing and compare loans and lenders. That sounds like a good thing too.

o This client went into this prepared to do his homework. Prepared to get the very best loan for him and his new family. A good faith estimate sounds like, and is even purported to be a good way to compare loans and fees. But here's where this all falls apart...

o Loan Officer's are sales people. They do not get paid if they don't do the loan. The more loans they bring in the more they get paid. While the GFE started out as a way to show borrowers what the details of the transaction are going to be, the sales people have found loopholes and have turned it and APR into a sales capturing tool. For them it's a hook.

o You see, the GFE doesn't have to be accurate. In fact, because of when it's produced in the loan process(at the beginning), it rarely is. While the law states that a broker or lender must produce a GFE, they cannot enforce its accuracy. There have been legislators who have tried to rectify this but as of right now, it simply does not need to be accurate. That opens the door for the less than ethical to produce something that thru the buyer's eyes is set in stone. Using the one loan mentioned, the 5/1 ARM as an example; If I wanted to produce the best GFE and trick the client into going for my loan I have many options available. Just in the loan itself I have close to 100 to choose from. What Index is this based off of? That makes a difference too.

o 1 Yr Treasury? 6 month? The LIBOR? Is it interest only? If so, for how long? Does it have a prepayment penalty? I might even pick a loan that they have no hope in qualifying for just because it looks good on the GFE. Or I can also pick a day on which rates where lowest and base the numbers off that day.

o Then there are the fees. As a broker we have a set fee. Every loan we do has those same set fees. That's the costs of doing business. But a GFE is so much more than just my fees. It also includes many other 3rd party fees. Title and escrow, the appraisal, recording fees and so on. Then there is the day of the month that you close on. Close at the end of the month and you'll have the fewest days of prepaid interest. Close on the beginning of the month and you'll have the most. Do you know at the time of the application when you will actually close? Of course not! I have seen GFE's from other loan officers that have 0 days of prepaid interest. They do that on purpose to minimize how the bottom line looks. It isn't real, and in effect they are flat out lying to their clients. The same goes for all the 3rd party fees. Since they are not my fees I can practically guess at what those fees might be. If I'm wrong nothing happens. Do you see where I'm going on this?

o Long story short, a loan officer can flat out lie on the GFE. The loan docs you end up signing in the end may have absolutely no resemblance to the original Good Faith Estimate. They will lie to you for one reason, to get your loan. There are a lot of bad people out there in all aspects of the real estate world, and there are a lot of good people as well.

o So what does the consumer do? How do you protect yourself? How do you compare? How do you shop? It's tough. There are so many hidden items stacked against you. So many things that you would never know. The best thing I can say is that still in this day and age, you have to trust your instincts. You have to use someone you trust. Someone who you have the confidence in. Someone who has your best interest at heart. A lot of people say they do. It's become a buzz word in the industry. But saying so doesn't mean they really do. Be careful out there. Use someone you know and trust.

Here's a PowerPoint version of a recent seminar we did on the topic. http://www.patagoniafinance.com/gfe.pps