Or How the lack of mortgage rate transparency costs borrowers billions of dollars every year…
There is a lot of reform going on in the mortgage industry today. Sub-prime and predatory lenders have graced the headlines more often than not lately, giving the general public a better idea of how the mortgage industry works (or doesn’t work). One thing that is very hard for the public to get from lenders is their mortgage rates. This article is about Realtors doing their due diligence, buyers wanting more information, and lenders happily clouding the numbers that determine your family’s financial security and well-being.
The unfortunate way buyers borrow money…
Let’s face it. Borrowing money is a pain. A prospective homeowner has to show up (usually physically) at a local branch of their lending institution (the one they bank with most likely) and give every piece of information they possess along with their first-born child to the loan officer to get an idea of the rate they can expect to pay for a home mortgage.
The loan officer says…”You’re going to have to pay X.” and the buyer either says okay or not. If not, the true glutton for punishment heads to the next institution to go through the entire process again. Et cetera, ad nauseum.
- How many borrowers get the best rate?
- How many get the best terms?
- How many get the best service?
I’m afraid the answer to the first three questions is…NOT MANY and the answer to the last one is…MOST
What’s the real reason for the lack of transparency in the mortgage industry?
“A home loan depends on SOOOO many different factors…we couldn’t begin to quote you a rate over the phone”
I think we all understand that a loan rate and the associated fees and points depend on the risk and situation of the borrower. I even understand that companies specialize in different types of mortgages and different types of borrowers. One company may do mostly conventional thirty year loans while the next may specialize in FHA, VA, RD, or a host of other loan types where they can give the borrower a better rate…but only on a specific type of loan.
I’m not discounting that. What I am saying is…borrowers should be able to easily compare lenders’ rates. Right now…they cannot do that and have no way of knowing if the rate and the fees associated with the loan are the best deal they can get. Why not?
Lenders don’t like to be shopped…
When a borrower shops for the best rate it means a lender has to compete with other lenders. The fact is, as it stands, lenders DO NOT compete with each other on any real scale so they can charge almost whatever they want.
I did a quick study of rates last week from a number of local lenders and found out what their par or prime rates were.
The base rates of 20 local lenders varied from 4.375% up to 5.50%. None of them would give me an APR
As a Realtor, I’m supposed to look after my buyer’s best interest. It is not in the buyer’s best interest for lenders NOT to compete. Lenders need to start competing for business just like every other industry. There is no reason they cannot disclose an apples to apples standardized rate and fee structure. They simply don’t want to….because then they would be easily compared by Realtors and their clients.
I’d love to hear some thoughts on this situation…how it got this way…why we aren’t doing anything about it as Realtors and borrowers…how we could change it. What do you think?