Unless you are a yokel, borrow local. Near the end of the last century, I was at a mortgage conference in Spokane, Washington. The conference had mortgage professionals from across the nation and was a great opportunity to see what was going on in the industry. The industry was changing and a topic of much discussion (and fear) was the impact of internet lenders and the big national banks. Supposedly they were going to use economies of scale, centralized processing, and underwriting to dominate the market. Unbeatable rates, great customer service, and quick closings. While not directly mentioned, I wondered if this would also not reduce global warming and promote world peace. One small problem. As my friends in the military say, “Brilliant idea, sir. I just do not think it is tactically executable”.
One of the company’s top mortgage originators was serene throughout the discussions. I asked her why she was not the least bit concerned. Turns out she had been doing some “secret shopping”. She lived in a western state and a lot of her clients and realtors were excited about the prospect of the whole world competing for the borrower’s loan. She had a first time buyer come into her office with a number of realistic questions and wanted a quote. She answered all of his questions and gave the borrower a written Good Faith Estimate. The borrower asked if she could compete with the giant nationwide banks. Sly old fox that she is, she invited the client to call and talk to the big national bank from her office on speakerphone. The borrower asked the same questions and noticed the loan officer either did not know the answer or gave incorrect answers. These were simple questions that any first time buyer might ask. Why do I need an inspection when the property is being appraised? Will the mortgage insurance make my payments if I loose my job? Would an FHA or VA loan be better when you consider my circumstances?
The bank loan officer kept talking about how low their rates were. The borrower at this point was smart enough to know the rate on the mortgage is only half the equation. The rate AND closing costs are what matters when comparing mortgages with similar features such as the term of loan. When the Good Faith Estimate arrived the borrower said he felt like he just missed being run over by a stagecoach. He noticed that while the rate was a little lower, the closing costs were much higher. Before considering the time value of money, etc, it would take the borrower almost 14 years to break even. He noted that the product knowledge and analytical skills of the bank loan officer were limited and seemed more interested in writing a loan up quickly, rather than seeing what was best for the borrower. He wisely went local and got a great rate, service, the right mortgage, AND closed on time.
I see the same thing today with internet lenders and big banks. When refinancing a mortgage it is inconvenient for the borrower, and much worse on a purchase transaction. Sometimes borrowers are required to use a bank’s mortgage company when the property is owned by a bank. The last deal I saw like this was typical. Underwriting and processing were out of state and customer service was pathetic. Fortunately the loan options for the borrower were limited, so the bank did not have the opportunity to select the wrong mortgage. In this instance the real estate agent and buyer got lucky and the deal actually closed on time. One of the more amusing comments from the out of state lender, after they finally returned a phone call to the listing agent, was that they were sure that if the wire did not arrive in time for the closing, it would not be more than three days late.
I have seen other loans that sat for weeks or months and never closed. A prominent real estate agent told me that he would not accept any purchase offer from a nationally known lender that supposedly specialized in VA loans because of their performance on the last three deals. The first two deals never closed, and the third deal closed only after the contract was extended for three weeks. The loan had been in process for 6 weeks with the out of state lender who suddenly discovered they could not do the loan because of a minor problem with the borrower’s credit report. Three weeks after the deal was transferred to a local lender, me, it closed.
There is an old saying that the best friend you can have is an incompetent enemy. That is why I love to compete against the internet lenders and big banks, that have their mortgage operations centralized and out of state.
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