[photopress:693_kick_tire.jpg,thumb,alignright]What? I’m writing about something I don’t agree with in principle? True. I think that many people are spinning their perfectly good wheels in order to try to find a rate they cannot have unless they’re prepared to lock at the precise moment they are shopping. But, the practice of rate shopping and kicking the tires of Loan Originators appears to be a necessary evil in the mortgage process.
Here’s my advice, if you feel you must shop rates.
Step 1: Contact at least three different people you trust financially and ask for referrals. I suggest family members, friends, co-workers, your real estate agent, CPA, Financial Planner, etc. Ask your sources what they liked and did not like about their Loan Originator. Gather their contact information and visit their web sites and blogs, if they have one.
Step 2: Prepare your personal financial story. You’ll need to retell the exact scenario to each Loan Originator so they can each provide you a rate based on the same information. If you just want to see how skinny someone will quote a rate to you, you can make up a vanilla story of “I’m putting 20% down on a $500,000 house. My mid credit score is 700 and I would like a 30 year fixed rate with no origination or discount points, please. I would like the loan priced with a 30 day lock
Just went through this, and was shocked by the huge disparity in rates between local brokers, banks, and e-loan/etrade.
I have a very simple situation, 30% down on a superjumbo 30 year fixed loan, with excellent credit. I wanted 0 points, 0 origination.
I got quoted rates everywhere from 6.875/1 (Countrywide..which had my existing loan!), to 6.125/0 fixed 500 closing (E-loan, who I eventually went with). Local brokers were all over the place…and ALWAYS heavy on points and fees.
So..I could see a mortgage broker being helpful for a first time homebuyer, or someone with poor credit, but other than that, what are they good for exactly? No broker could even come CLOSE to E-loan, or E-trade..Many tried to convince me to go with an “option ARM”, or other wierd products. The 30 year fixed just doesn’t seem that popular anymore..probably because it has the lowest profit opportunity for the brokers.
All comparisons were made on multiple days,and for the most part moved up or down with the markets in lockstep. Eloan had the lowest points, lowest fees and they got my busines. Thats what really matters in the end. The funny thing is? They turned around and immediately sold my loan back to Countrywide!!
So..Countrywide lost out hugely. They retained me as a customer, but at the cost of having to pay Eloan a significant cut. Why the hell didn’t they just offer me that low rate directly?
Oh..and I NEVER give my SSN or credit info out to anyone while shopping rates. Just tell them “assume excellent credit”
Proteus,
There is a difference in rates from what retail (the bank), a broker or correspondent lender (no easy to way to find out who is correspondent without asking) can provide with rates. Correspondent Lenders typically get better pricing because we’re taking the risk in our credit lines. I often beat Countrywide, WaMU, Wells Fargo, Chase, etc. and then sell the loan to that source! It just happens that way.
I’m glad you did not go directly to Countrywide, imagine if you would have assumed you could trust them because they’re a bank and because you were a previous client. They would have made so much $$ off your loan, it’s gross…or should I say gro$$.
I’ve heard that wholesale lenders are paid more with Option ARM products. And, actually, unsavory LOs are if they are jacking up the margin on the ARMs (that’s where the rebate is).
As I’ve mentioned before many times on RCG, I’m 99.9% against Option ARMs. 30 year fixed rates have been great.
Congrats on making the right choices with your mortgage.
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Great post though I would like to point out that consumers should tread lightly when it comes to giving ficticious info to lenders (credit scores, etc). Some lenders are better with certain financial situations, credit scores and loan options while some are better with others.
If you do give them random information, make sure that it’s pretty close to what your actual situation is. If you don’t, you may find out that once you give them the real scoop, the actual rate, etc., may not be even close to what originally quoted.
I’ve seen it happen with plenty of clients that gave random (if not completely incorrect) information to their lender(s) when getting quotes. Then they ask me why the GFE is off…?!
Danilo, excellent point. The intention of providing a “vanilla” scenario was for shopping rates only. If a borrower knows they have a credit score of 600 and they do not have any money for a down payment, then doing the “vanilla quote” is moot. The “vanilla quote” is best used if a borrower is not fairly certain of their situation.
Here’s a scenario that I understand isn’t all that uncommon; buyer- 700+ credit, more than adequate income and LTV, happy with the GFE the LO provided, signs off on app and goes forward. The wholesale lender’s underwriting deparment comes up with some incredibly irrelevant last minute conditions that seem designed to bump up the rate on the assumption that buyer is too far into the process emotionally to back out. Buyer pulls plug and goes through the process again with a different wholesale lender but this time the added inquiry on the credit dropped him just under the score needed for a preferred rate. In essense what this does is penalize the consumer for shopping the loans and forces consumers to put up with some pretty shady business practices. Some LO’s tell me that Countrywide is notorious for this practice and they’ll avoid them like the plague. Perhaps some regulation prohibiting hits on your score for just inquiring should be in place. Since the credit industry pays the freight for the credit reporting agencies, it’s not too much of a leap to construe this practice as way to keep the bar low and stifle competion among lenders.
JD, since I’m correspondent (close in our credit line and sell to banks afterwards, like Countrywide) I don’t run into that scenario. Sometimes after funding, we’ve had appraisal issues with Countrywide (having to provide an additional comp, for example). I do have my favorites I like to work with and that bank is not one of them…I refuse to send a loan to WaMu for the same reason. Mortgage inquires within a short amount of time is not “suppose” to impact credit scores, however, as I mentioned, I think having your credit pulled by every lender your shopping is allowing too much of your private information exposed to people you don’t know and you may not even proceed to do business with.
I’ve never had it impact a rate for a client. I’m not saying, of course, that this has not happened to your clients. Just has not been my experience.
Recently, with a refinance, I had an appraisal come in low. This was a cash out refinance, non-owner occupied. This did not impact the client’s credit being re-pulled. We just adjusted the loan amount and at a higher LTV, the same rate cost more in fee.
If someone has 700 credit scores and 20% down, what stands out most to me that could cause a rate change would be if their income or assets were not fully documented. Otherwise, it’s inexcusable. Conditions should be dealt with upfront…not last minute.
Perhaps you don’t see it because you’re a lot more savvy about the industry than the average bear and they know it. In this case client first went direct to CW retail, got a load of LMBS and pulled out. Next stop, a financial advisor type who happens to do a few loans. His relative lack of full time experience as LO must have been apparent because they raked him and the buyer over the coals yet again. Client finally finds an LO who knows her stuff and happens to be pretty straight up to boot. Clients FICO drops just enough by this point to knock him out of a really sweet program. That this happened at all suggests that the the practice of dropping the score for inquiries is a self serving practice that the CR agencies do for their credit clients with little or no basis in a reality where shopping the lender is just smart consumerism.
Credit reporting agencies LOVE to have consumers get their credit report ran by every LO they talk to…at about $18 a pop. Even if the consumer never sees a bill, the LO will.
Believe me, if pulling a CR on a client didn’t produce a hit on the record I’d gladly pay the $18 to to know what I was working with long before I sent them to a mortgage broker. The hit is still an artificial hit on the score that benefits the industry far beyond the $18 hit the LO takes.
The consumer is not hit at all if they pull their own credit report from http://www.annualcreditreport.com
But it would if I as a real estate agent did. Besides, when was the last time you processed a client who brought in his own CR?
I can’t. We need to pull our own credit report to process. But, for rate shopping, the client can provide a credit score.
Back to the issue of shopping rates; there’s a huge variation in intelligence and the number of products available to any given LO. When a client that trusts me to watch their six finds a better deal than one of my preferred recommendations could give him, I feel like I haven’t done my job well enough. Consequently, I encourage my clients to shop you and to give me feedback on any referral they’ve talked to. As I become more knowledgeable about the mortgage business, the pickier I am about who I’ll refer. As it is now the best friend your industry has is the plethora of ignorant newbie agents sending you business.
Don’t forget about the plethora of newbie LOs as well. And depending on the type of company (bank, credit union, broker or correspondent); different products and programs are offered. Even if they are available at the company, that does not make the LO an expert. For example, we can do reverse mortgages at my company. I have not done one and until I am fully educated on the product, I wouldn’t dream of it.
Also, the lowest rate does not mean you have the most qualied LO to see you through a transaction smoothly. With that said, I don’t think someone should pay 0.25% more in rate or hundreds more in closing costs if they can receive the same product and great service.
I still think you shop the individual person and their qualities first; if the person has been referred, the competitve rate should follow.
Am I too Pollyanna? 😉
*Too* Pollyanna? I guess that’s possible; I know that I expected the best out of every referral I’ve ever made and I’m usually satisfied but now and then I get one that drops the ball perhaps thinking that the work they did to *get* my referals was all it took to *keep* them. In the words of a former Russian leader I can’t name at the moment on perestroika or glasnost; “Trust but verify”
Dang, Rhonda that reminds me, I promised you a post about different lending institutions.
Jillayne, I’m sure it will be worth the wait. 😉
First, please note that FICO scores are only affected ONCE in a 90 day period when shopping for rates. That being said, always pull your report first (no hit) so you know how to shop. Tell them your true score. The lines between “excellent” “good” and “poor” credit vary widely by vendor. Also note that you’re ALWAYS paying the broker, no matter who it is. Its usually a .25-.375 points, with extra kickbacks for the more profitable ARM loans. This can work in your favor, especially on a jumbo loan. The more you borrow, the more the loan broker gets paid…remember, if your situation is good, and the loan is simple, everything is negotiable
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As to where to go, well, all I can say is check E-loan or E-trade. They GUARANTEE all closing costs, flat fee, in writing, and no last minute games. Or check with your local credit union…although those tend to be higher.
Both E-loan and E-trade will also match almost any other offer. If you have excellent (725+) credit, and a reasonable downpayment (10%) and your income ratios are in order, everything is negotiable, and YOU have the power. If for whatever reason you feel uncomfortable dealing with someone remotely, then I can highly recommend Washington Federal savings. They are the “anti-internet” company, but they are solid, and have the best local pricing for basic (80%LTV, 30yr fixed) products.
That being said, brokers are excellent and necessary for more complex situations or loans. But ALWAYS check with Eloan/Etrade first..if only to get a baseline as to what things should cost.
“Too many inquiries can have a negative impact. Looking for a mortgage or an auto loan (rate shopping) may cause multiple lenders to request your credit report within a short period of time.
The score counts multiple inquiries in any 14-day period as just one inquiry. The score also ignores all inquiries made in the 30 days prior to scoring. If you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. One credit inquiry will usually take less than five points off a score.
Inquiries can have a greater impact if you have very few accounts or a short credit history.”
Everything I’ve ever read says 14 days or 30 days. Where did you get “90 days” Proteus?”
1) You get qualified before you make an offer on a house ONCE
2) You rate shop in the first 3 days of getting signed around, and apply for your mortgage within 5 days.
No need to rate shop before you find a house and screw up your score, if it takes months to find the right house. Plenty of time to make those calls when you can actually lock the rate, when you have a signed contract.
“No need to rate shop before you find a house and screw up your score, if it takes months to find the right house. Plenty of time to make those calls when you can actually lock the rate, when you have a signed contract.”
Ardell, I completely agree witih you until the above statement. 80% of borrowers (my est.) should get preapproved BEFORE shopping for a home. And, they should have all ready have done their shopping and interviewing of mortgage professionals to determine who they are going to have provide them their financing.
If it takes months to find the house, any ping from the credit being pulled from the lender should be recovered. Plus, the credit report is often good from 90-120 days (varies by lender).
There is more to selecing a mortgage professional than rate. That’s like saying someone should work with the real estate agent who is going to charge the lowest commission.
Proteus, you’ve been misinformed. I’ve already watched mine decline progressively over a similar timespan with no other changes in my circumstances than inquiries.
Ardell, getting qualified once before you buy locks you into whatever changes the wholesale lender’s underwriting department comes up with. A consumer should be able to pull his loan and try else where without getting hit at all on the FICO. There’s no logical reason that I can surmise to be penalized for inquiries. It’s just a way to punish good consumerism.
JD Blackwell,
I hate the whole FICO score system, but there’s no reason to shop rates if you haven’t found a house yet. As Rhonda has said, rate shopping when you are not locking is useless and a waste of time.
Regardless of whether or not you feel it is fair, it is true. And people need to act responsibly and not authorize multiple lenders to rung their credit score.
As they say “Buying a home is your most important investment”. Running around having everyone pull your credit score is not worth the risk of reducing your score and raising your interest rate as a result.
“…getting qualified once before you buy locks you into whatever changes the wholesale lender’s underwriting department comes up with”
I don’t get that at all. If the one lender who pre-qualifed you plays that game…don’t use that lender. There are plenty to choose from.
Ardell, I can see your point if it was a financing for a purchase. My rant stems more from shopping for a second or re-fi that I didn’t *have* to have. It’s been quite an education over the last few months, one I’d have never have gotten had an LO I’d sent some clients to not demonstrated more ineptitude than I want my clients to have to endure. RE agents are poorly trained in financing (OK, poorly trained) but I’m finding that there as many inadequately trained loan officers out there as well. I’ve found a few good ones but they aren’t the one’s who have control over what the wholesale lender comes up with. Now it gets down to having to find someone not only intelligent and ethical but aggressive enough to call BS on an underwriter who’s being arbitrary and capricious. I’m not so much shopping rates at this point as not rewarding this kind of behavior by pulling my loan. It wouldn’t take long for them to stop pulling that crap if fear of multiple inquiries or losing their deal didn’t prevent consumers from pulling out. The whole point is that it shouldn’t matter at all how many times my report gets pulled and I shouldn’t be penalized for it. To imply that allowing multiple lenders to run my credit is somehow irresponsible is preposterous. What’s irresponsible is letting the industry get away with it.
JD, regarding comment 22. Obviously I’ve never seen your credit report. One possibility that comes to mind is if you’re not using your credit. Then the credit scoring systems considers the accounts closed and your scores will lower (if there are no other changes) over time. You would think a consumer would be rewarded for not using credit or for closing their accounts when they’re done with their credit, this is not the case. The scoring system wants to see that consumers are responsible “users” of credit.
When I prequalify someone, we review their credit report to see if there is anyway they can improve their scores (or keep them at optimum). I often advise such clients to keep the older credit cards open and, if there’s no balance on the card, to buy a tank of gas and then pay it off. You don’t have to charge much to have your credit register as active credit.
The other culprit for bringing down scores of responsible credit users is if you consolidate your credit cards onto on card. Let’s say you’re offered an incredible low rate and you take two older cards and combine them onto one new card. This can ding your score if:
1) new debt is unfavorable to your credit
2) if you closed the old accounts (scoring system prefers older established debt)
3) if the new debt amount on the card is over 30% of the credit line amount
Of course, you probably know this, there’s the new car loan slap to your credit score. (I just explained this to a client and they exclaimed “but it’s a used car!” 🙂 )
Again, you may not have had any of these circumstances happen to you to cause your credit score to lower
“…getting qualified once before you buy locks you into whatever changes the wholesale lender’s underwriting department comes up with
So there are a few catch 22’s in the system. Trade one credit card for another with better rates, terms and service and you get a hit for closing the old account then you get another hit for “new” credit. Add to that hits for too many inquiries. It’s all counterintuitive to what a smart consumer would do. Why? There’s no doubt in my mind that the reporting agencies exist for the benefit of the credit industry and that these policies specifically benefit the credit industry for no rational reason. Maybe it’s time to start educating our legislators about this kind of practice. To end let me say that I know this kind of thing doesn’t originate from the level that you work the the industry but you get stuck working to those arbitrary parameters. DOn’t you think rational rules would be good for you? Maybe you should be emailing your US representatives as well.
Credit scoring is one of my biggest pet peeves. Add to that, the big three credit bureaus reselling your information the moment you have your credit pulled from an LO. Your clients start getting calls from LOs (so low they have to buy leads) with all of your client’s information (what’s on the credit report) provided to this LO.
If you’re going to call your US rep, be sure to bring up Trigger List.
http://www.raincityguide.com/2007/01/24/your-private-information-is-for-sale/
“Maybe it’s time to start educating our legislators about this kind of practice.”
I honestly thought there would be a huge public outcry the minute FICO scoring became the be-all-end-all to the interest rate one would be subject to. But no. The Legislators got behind “explaining it better to the consumer” and in some states, getting a free report once a year. But unfortunately, not anything more than that.
I think that’s because 99.9% of the consumers out there are pitifully ignorant of how it works. If they knew and understood just how much it impacts them I think they’d be screaming bloody murder. Oh well, I guess you can’t let real life get in the way of the next broadcast of American Idol.
Proteus – to echo Rhonda, your point about eTrade and eLoan being the best is definitely subjective. It really comes down to where an individual consumer places value – you place value on getting the “best” rate. Others may place value on making a personal connection with a live person who’s willing to walk them through the process.
To add to Jay’s comment, I’ve bailed out many consumers who thought they were getting a “better deal” via the internet…to find out this was not the case. Of course, it’s not often that I hear of success stories, like Proteus.
I’m working on a post right now and linking to this… just a quick note–instead of requesting a good faith estimate, you may need to ask for a “written rate quote”. Most LO’s will not issue a GFE without a property address/purchase and sales agreement.
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