The mortgage industry blogosphere is all abuzz with the release of a survey on the shopping styles of consumers looking for home mortgages.
The survey implies that most borrowers are leaving money on the table by not “shopping” aggressively enough. It continues to state that higher income borrowers have a tendency to shop a bit more and receive more favorable mortgage terms and fees than those who do not get multiple quotes from multiple sources.
Today we are in recovery from a mortgage marketplace where consumers made purchasing decisions too often based on misinformation provided by some questionable players in the industry. Yet consumers are still being told to shop based on fees and price rather than knowledge, integrity and trust. In reality, when it comes to the mortgage industry those qualities are all that the consumer should be looking at.
Mortgage lenders today are held to a much higher regulatory and professional standard. The mortgage financing process is a complicated and cumbersome one that requires a level of expertise that was not needed five years ago. The regulatory burdens have done a lot to help and protect the consumer but have also made “shopping” for a mortgage a more difficult project.
For example, today's Good Faith Estimate of Closing Costs GFE has specific tolerances for dollar amount changes. If the fees at closing are higher than those disclosed at the start of the process the lender must issue a refund to the consumer. This is a good regulation; consumers should close on the transaction that they applied for weeks earlier.
The GFE also has a comparison chart presumably for consumers to complete when talking with lenders as a way to evaluate various mortgage options. However, by regulation lenders cannot issue a GFE to a consumer until they fully complete an application for a mortgage. So in order for a consumer to compare GFE's from more than one lender the consumer is required to apply with more than one lender...YUCK; applying for a mortgage is not a fun, easy-to-do exercise!
As a mortgage lender I only want to go through the application process for those consumers who are committed to working with me because doing a thorough application with full documentation can take the loan officers a couple of hours, then additional hours for the loan processor to review and disclose. That's a lot of work to have to perform for a “shopper.”
Consumers need to evaluate their mortgage lending decisions based on trust and integrity. Without those features fees and rates frequently do not matter. They certainly won't matter if the loan does not close because of lender incompetence. Those of us active in the industry today deserve to be treated as the professionals that we are and not commodities as we once were.
So how should a consumer shop for a mortgage?
The ideal way to select a mortgage lender is through a referral from the trusted people in your circle who have had a recent positive experience with that lender. Start by asking people in your life who they work with for their mortgage financing needs. Ask parents, co-workers, or other trusted professionals like an accountant, attorney or real estate professional.
When you speak with mortgage professionals ask to get their offering/s in writing so that you know the rate and the costs. Even though by regulation a lender cannot offer a GFE prior to official application they should be able to detail closing costs accurately. If after application the fees, rate or costs vary from the initial offering you can simply withdraw your application.
Make sure that you are clear on the required dates of your transaction up front. Consumer's greatest complaint about their mortgage experience is that it takes way too long! Unfortunately, this is the nature of the industry today. The process is more detailed and painstaking than ever, there are too many loans and not enough people to manage them, and the industry at large is backed up.
The lenders willingness to speak with honesty and sincerity is vital to winning the trust of a consumer. Don't go with the lender who tells you want you want to hear, go with the lender who tells you the truth, explains the process and goes over the details and timing with you.
As long as consumers are being directed that fees and rates are what to “shop” for when looking for a mortgage they will get what they pay for. We have created layers and layers of regulations to protect consumers from every financial boogey man, but we cannot save them from themselves if they refuse to treat the purchase of a home with the seriousness deserved by the largest financial commitment they are likely to ever make.