You might find this odd, coming from a man. But I soooo love deals and I actually like different kinds of shopping, especially when I find great deals.
Overall, most of us love a great deal or what I call, "a great steal". Because of today's economy, I think we seek deals more than ever before. And to capture a great savings gives us a great feeling of joy.
Just the other day I read a blog by another loan officer that advised consumers to negotiate for their mortgage. If you were able to negotiate for your mortgage, typically that would mean that loan officer already charged you more than they should have. I knew a loan officer that added extra charges to the good faith estimate and then would put a line through them, telling the borrower that he wanted to give them a great deal. Perception ....But wait, what is to much?
Negotiating power can back fire on you if you aren't careful. Especially when it comes to shopping for a mortgage. This is what the loan officer stated.. "applying for a mortgage loan is like buying a car, buying a house, shopping at a flea market etc. It involves the art of negotiating. While negotiating , the person who speaks first and lets the other know what he is willing to pay usually loses." Huh??
Cartoon from www.cartoonstock.com
So, applying for a mortgage is like buying a car or a home. Do you negotiate with a doctor? In that case I would ask for referrals and or the best doctor. We have a false sense that doctors are expensive. But should you put a price on your life? If I had a brain tumor, I would want the best, otherwise I could die. The same with mortgages, that you would want the best. But don't worry, if you chose someone average, you wouldn't die. But you could lose money, time, get stressed, etc, etc. And how would that happen? Maybe if you missed a settlement date or worse, that your loan never closed. I could give you 100's of examples just from my own experiences with borrowers and their bad choices that they made.
How do you make a bad choice? It's very easy to go for someone that makes promises that can be broken. Someone that wants you to feel comfortable and not to worry, so they tell you what you want to hear. This happens more than you would think. You want to see a good example? Darin Osenberg writes, When good faith estimates go bad!! Picking a loan officer because maybe they gave you the best rate? It could change on you. It happens. sometimes because that loan officer is so worried about losing you, that you negotiated with them, that they gave you something that they shouldn't have given. Yes, you make negotiations on homes and cars, but it's not the same with a mortgage. Here is why this loan officer thinks this way.
This loan officer goes on to say this.... "if a client tells you initially that he is looking for a $720 payment on a $120,000 loan that would give him a 6% rate. What incentive does the loan officer have to offer him the 5.5% rate should he qualify for that if he already knows you would pay $720?"
There are so many ways to look at this. But one major thing missing is that this person leaves you with false assumptions. Another sales tactic in my opinion. I wrote this blog the other day, Is a lower rate just a quick fix? It talks about the fact that we as loan officers should be asking what payment you are comfortable with. In the above statement, there are 3 things missing. Every rate comes with a specific price. I will be writing about this in the next day. Example (this is just for show, it's not today's rates) : At 6.0%, I get 2 points back that you don't see. I can use those 2 points anyway that I see fit. I could pocket them or use part of them to pay for your closing costs. At 5.0%, it's costing me a point. Everything comes down to 2 things. What is my profit margin and how much money you have to work with. The second part being the most important. Why? In the example above, how do I lower my rate from 6.0% to 5.0% if you don't have the money to pay a point or so??? Secondly, you still need to know taxes and homeowners insurance to build this into the equation. So, knowing payment is a lot more important than knowing rate at first.
Conclusion : I can't stress the importance of dealing with a true mortgage professional and not one that talks circles. Yes, many of us have our own ways of interviewing a potential borrower. But a loan officer that doesn't put a lot of emphasis on a question, such as payment, could be dangerous for you. You need a professional loan officer that is going to walk you through the process, and educate you along the way. Payment should be talked about in the first 5 minutes and your focus should not be rate. This loan officer would make you think that I go this route because it gives me a better way to make more money off of you. Don't you think that we should make money like a doctor? I am not talking about how much they make. Yes, it comes down to costs and rates. But more so, it comes down to service, ethics, knowledge, trust, and education. Because that promised rate that is broken later, could end up costing you more money later on. Ask the people that this has happened to..... FYI - Shopping & negotiating are two different things.
Happy and Safe Mortgage Shopping
- FHA Loans - USDA Loans - Conventional Loans - VA Loans - Experience & Knowledge at its BEST !!!
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Copyright © 2008 by Jeff Belonger
This is good information, especially for inexperienced homebuyers but even for real estate professionals. I know I'm always looking to learn more about the mortgage side of home buying. Thanks for sharing.
This is good information, especially for inexperienced homebuyers but even for real estate professionals. I know I'm always looking to learn more about the mortgage side of home buying. Thanks for sharing.
It sort of comes back to - "you get what you pay for" - not meaning you have to pay an arm and a leg, but like your post alludes to, you don't shop an attorney because of his craig'slist ad for being the cheapest atty. in the world. You chose him for his expertise. (And I'm still shopping at GoodWill when I can - I'm not too proud!)
Jeff,
I've always negotiated my own loans.....and did pretty well...even in 2005 I negotiated my loan even though I paid top dollar to buy the home...but I still sold my other home for top dollar but I did it after owning it for 9 yrs. Although I now hate the lender due to other issues with my clients....I will be staying with it. Even when rates went a bit lower...there was a thought about refinancing but it ain't happening...I don't want to disrupt anything and wouldn't trust anyone so I can definitely live with it.
I feel sorry for the average consumer... with all of the bait/switch jerks out there, how can they compare apples to apples.
You, sir, are correct. People should get a referral from a trusted family/friend/coworker.
...and as you have said many times before, consumers should always get a good faith estimate (gfe) from anyone wanting your business. If a lender hesitates in providing one, you should be leery of them!
I realize you where just trying to be as brief as possible but the need for a gfe is too important to not continually over-emphasize!
Gerry Suarez, Jr.
Your FHA Loan Pro!
So true. I always advise my clients to talk with a few lenders. I have a lady I like and she is very up front and even told a few people they were better off fixing their credit and saving some more money before buying.
Thanks, Jeff. I was just on the phone with a borrower and talked about how it's obviously in their best interest to get a mortgage with the lowest rates and fees. This is a no-brainer. The problem happens when the borrower chooses a bait-and-switch artist or someone who just plain doesn't know what they're doing. I will try and be competitive to a point. Then my professionalism takes over and I will make every attempt to educate the borrower about what is best for them. That should be our mantra. Ultimately we are in the trust business and we should only be telling our borrowers what we can in fact deliver. Thanks again!
JENN.... . there are way to ineperienced buyers... but the problem, way to many loan officers that can't communicate, lack knowledge, or make the consumer believe that their way is right and nothing else. Basically giving very bad advice... yes, there are different ways to sell. Neal below negotiated his mortgages... okay... but if I have already given him a great deal, there is nothing else to negotiate. I truly believe that loan officers with that sales person mentality, feed this into their borrowers. Not everyone is going to agree with me, but I would say that what I am talking about is in the right direction. and thanks for the compliment.
STEVE.... . exactly, you are shopping for expertise. As rude as it may sound, I would give everyone the best deal ever, but my service is going to suck. You can't survive on a profit margin that is slim to nothing. If I was like a lawyer and charged by the hour, in many cases would I make a lot more. My time is there for all to use... I am available. There aren't to many times when you can't reach me or I don't get back. I think the perception that some loan officers give to the average borrower is very bad. Thanks for your input.
NEAL..... . that's great and I am sure you did well. But until you and I have a 1 on 1 conversation, getting into details of what you negtotiated, it's hard to make that statement. Did you get the lender to eat the commitment fee? Okay, it's all built into your rate anyhow... I don't have to charge clients that... but it comes from some where. If you were to tell me that you got a rate of 6%, but negaotiated down to 5.5%... I would say, Neal, that is awesome. But wait, why did they have you so high of a rate to begin with then. They had a lot of profit and since you were questioning them and they didn't want to lose you as a client, they dropped their rate.
Overall, I see your point... but first off, the average borrower could not pull this off. Secondly, it all comes down to profit margin. I will stand by this 110% and so will most others in here, that are loan officers.... if you negotiate a mortgage, in most cases, you were over charged to begin with. Telling someone that you aren't going to pay their $78 tax service fee.. no biggie.. so they waive it... but if they were making $8,000 on you, now they are making $7,922. Now you feel good because you got a discount, but in reality, that lender still made money.
In any case, I understand what you are saying, but you can't look at the sticker price as you can with a car. That is my whole issue with this other loan officer.... how can you call it negotiating??? But I do thank you for your input, so I can try to explain this better, since my blog was getting to long to begin with... thanks
TOM.... . bait and switches?? lol We have talked about this and a few people that we know that this happened to. I have 2 new clients today that this happened to. In my opinion, it's called education.... walking the consumer through the process. If you the type of loan officer that needs to sell rate... rate... and rate... and tell the consumer that many loan officers want to take your money... they should run from that loan officer.
GERRY.... . if you read my link above that says good faith estimates... I do talk about this and I have written a few posts about this. That has to be my number 1 pet peeve... loan officers not offering up gfe's when they have qualified the borrower. Sad, very sad,,,, they don't want you to shop them correctly then.
LISA..... . that is what you need... someone trusted and not just looking to take the consumers money. The example that I talked about in my comments on other blogs or in my blogs.. I have a woman that was told yes and no problem 2 months ago... but she had to give them $600 upfront and pay for the appraisal of $350... just this week, they can't do it now. And she loses her money.
PAUL.... . bait and switch artists will always be out there, just as I told Lisa, above you... I have one right now, that got took for her money... it's sad and scary... and you hit the nail on the head... to be competitive... anything less than that, just throwing crap up against the wall, hoping it sticks. I know a loan officer that lost a deal yesterday to a Countrywide rep... $170,000 mortgage, conventional, with 40% down and 700 credit score. They said they were locked in at 4.625%, 30 yr fixed with 1 discount point and $1,246 in fees.... ouch, I could barely do that at 5% yesterday.. the loan officer is probably playing the market... and if rates don't drop, he will be in big trouble and it will cost him a lot of money. This will happen if the borrower has a rate lock agreement with CW... CW is big so they will honor this, unless the loan officer pulls a dog and poney show... thanks
Even after being in the real estate business for many years, there are still things to learn about the mortgage industry. Hopefully, we'll see a lot of the non-professionals leave the business.
Many homeowners don't know what to ask or what to look for. The only question people really know is "Whats the rate". Its a pain sometimes because they feel annoyed when you ask them questions, but they don't realize thats part of the process. In order to make things accurate, questions must be answered. Hopefully, the LO is good enough to provide an accurate quote and actually sticks to their word.
Spoke to a gentleman today. Two quotes... one for 5.625% and $3382 fees... the other quote 4.75% and $4480 fees. Long story short, I explained to him the differences. Obviously the 5.625% is making quite a bit of YSP and still charging the Orig. The other seemed a little low (oh yeah.. this is a Texas Cashout). It took some time, but he at least knows what to look for and consider. He just didnt know what to make of such a large difference.
Jeff, one of the things I like about you, is that you stick to message! You stay on target, you have demonstrated a strong desire to "stick to your guns", and more than anything have chosen your NICHE! I dont think there is anything wrong with that, and this article re-affirms all of these things!
All hail the santa hat guy!
D-Money
btw- Well done and thought out! Do you close loans too, or are you just addicted to AR?? Wanna start a company together?? I know what the music can be for our TV ad campaign.......
IIIIIIIIII dont wanna work, I just wanna bang on my drum all dayyyy.....
Jeff,
Unfortunately many consumers have been taught to rate shop, and there are many ways to confuse the issue in mortgages. For instance, are impounded taxes part of the fees or are these not mentioned up front because they make the costs too high? Does the consumer care that they aren't loan fees if they are coming out of their pocket?
I've seen my mother have to compete against this and have people say her costs were too high until they realized she was actuslly including all out of pockets in her estimate.
I was just on Midori's post about RESPA changes finalized in 2010. I would say, I have fought enough junk fees for buyers to know they still need to use a reputable l/o to get a deal that's right without hidden junk (usery) fees. Period.
I watch the fees and points. There are a lot of junk fees involved with many places.
I actually had the car dealers finance department and my credit union get into a bidding war for the loan on my wife's van a few years ago. By the time the smoke cleared, I drop 1.5% off my loan. And all I did was to tell the dealer I already have the loan lined up with the CU.
Jeff, I often have this discussion with my wife. I don't believe there is such a thing as a steal, or the unbelievable deal. Whatever you agree to buying is what that service or object is worth. It may cost less than it did the week before or will next week but is really worth what you are paying for it.
Should it be such an exceptional value (the steal), you should be able to turn around and make a profit on it the next day. That's my litmus test.
Jeff,
I'm not going to go into much detail with this whether or not my opinions are right or wrong...plus the mortgage I have was from 2005 so I can't really remember my negotiations. It was basically a 30 yr fixed with no points and no prepayment penalties. This guy I dealt with has handled my past ones as well...basically he gave me a few rates based on fixed 30 yr or fixed 15 yr as well as an interest only which I'm glad I didn't take due to what happened later to people. The quote was under 6% and I ended with 5.875...at that time it was a fair rate. I never have any penalties on any of my loans because my credit score is in the 800's so I'm probably a good customer and can get a fiar rate. The only thing I can remember is it wasn't a very long conversation and I settled for that and I have no problem paying it. I probably got burned with the value because of the market but I still have equity because I put about 35-40% down and if we had to sell today we would still walk away with a few bucks....that's it in a nut shell so there isn't anything to discuss.
Maybe I just missed your point or didn't fully read the blog carefully so if there is any miscommunication on my end...I'm sorry.
Of course paying a point does not change the costs, really... just pays it up front rather than over the course of the loan... it is just a way to ensure that the loan officer gets paid the same regardless of the rate offered to the buyer...we advise our buyers and borrowers against paying points...
But there is more to it than the rate, for sure...
And of course, as with a Realtor negotiating a commission with a listing prospect -- a negotiation that impacts the earnings of the agent -- negotiating with a loan officer SHOULD be about impacting their earnings, and not just about whether a point is paid now, or later, without impact to the loan officer, and really not saving the borrower much of anything...
I assume you guys all know that too... right?
And from what I hear, there may be new regs regarding whether points can be paid/charged at all... and about how wide that yeild spread can be, and on what sort of products...
UNKNOWN..... . well, I think we have seen many, but not enough. The problem, we have lost some good people also. Because of this and our market, I am looking forward to 2009.
JOHN...... . bingo... and just a fyi, why I have been more successful in the last 5 years because of your input, I educate the consumer on the difference in the first 10 to 15 minutes. But John, in many cases, I don't have that problem much because these borrowers read about me online, read my blogs, and they can see through everything else. Sure, not with everyone, but for the most part, it has allowed me to help my clients more than spend countless hours in trying discredit the other loan officer that is blowing smoke up their arse. You know... when the borrower says, "well, the other loan officer can do that"... when you know it's not HUD's guideline... it comes down to proof, education, and awareness.....
In regards to your examples... that is why for the most part, I don't charge fees. It comes out of the gross... it's easier for me to have my clients compare and still get a lower rate.
DARIN aka One Source Mortgage.... . I appreciate that... and it's not because I am brain washed and won't change my mind.. it's because I not only believe my message, but that I have looked at it from 3 or 4 different angles. Ex.. I just don't say that zero points is cheaper, because you need to compare apples to apples and know the clients goals and assets... but many loan officers don't do this and they paint a pretty picture. Hey, how about those commercials by Bank of America... the no closing cost loan... or was that CW... but they never tell you that the rates were higher. Peception and message... and when I try to deliver it, I try to give the consumer feedback from all sides, from more than a few different angles...
In regards to starting our own company... I would love to... it sounds fun.... but more work than many thing... and in this ever changing market, I would not like to take that risk with my money... thanks for the compliments....and feedback.
CHRISTINE.... . yes they have... but you know what, many of the loan officers don't help either. They allow for this... they don't fully educate the consumer in regards to the difference. And in regards to your example.... your slick sales person will leave things out... or not cover all issues or costs... leaving things out and the definition of closing costs, is a misused word and abused... thanks
REBECCA.... . the problem with that is, define junk fees... what you might think is a junk fee is actually a true cost... yes, believe it or not.... but what happens, the average person doesn't compare everything... they look at part of the transaction. At least that is what I have noticed in my 16 years.. thanks
MIKE..... . yes, there are some with many junk fees... but please read my comment to Rebecca, above you. And you can't compare this, mortgages and fees, to cars. It's just totally different. This is where a great loan officer will take control of the issues and examples... thanks
GABE..... . I will disagree and agree... example... Polo shirts always cost $65 a shirt... just an example... they have sales and you can buy them for $50.... but one day, you get it for $25... that is a steal. Yes, people need to make money. Yes, Polo shirts are 'A grade' quality, and maybe a little higher in price... but as many have said, you get what you pay for... same thing with mortgages. But to discount a mortgage for someone? Only if they were way over charged from the get go... the profit margins with mortgages are different with cars... and you can't compare any of this to when buying a home. That was the point that I wanted to make in this blog. Thanks for your feedback and input.
NEAL..... . I agree... and it's not like you are right and wrong. I sometimes have a hard time getting my point across in a blog or comment. Sometimes it's easier on the phone. I think you can honestly think that you have negotiated for your mortgage. Sure, could you talk to the loan officer, making sure that you should get a fair deal? Yes, but the context of which this other loan officer used negotiations was out of place. My point, in many cases, if you got your loan officer to come down in rate or costs, and it was a huge difference, not a very small difference, you could say that you negotiated a good deal.
Overall, I know you and have spoken to you.... you have a good business sense. My blog post was to make the borrower-consumer aware of how some loan officers might sell... how some, in this case, that this loan officer is using the word 'negotiations' as her sales pitch... throwing the borrower off topic... the main topic, should be payment, not rate and costs... we get to caught up in rate and costs, when many loan officers just put something down on paper when you are shopping, to get you into the door. I just think you can't negotiate on a mortgage like you can on a house or car. In my opinion, it's not the same and that was my basic issue with this... thanks for stopping by and your more in depth feedback.
PAUL aka Rhode Island real estate..... . You made this statement... "Of course paying a point does not change the costs, really... just pays it up front rather than over the course of the loan... it is just a way to ensure that the loan officer gets paid the same regardless of the rate offered to the buyer...we advise our buyers and borrowers against paying points..."
I am really going to disagree with you on that whole statement... people paying points does change the costs. You said it doesn't. What you need to compare and to understand is what does paying that point get you. There is a spread between all rates and in order to get the lower rates, you need to pay points. What it comes down to is the consumer getting that same spread as the loan officer.
Secondly, you said that it is just a way to ensure that the loan officer gets paid the same regardless of the rate... again, false. It comes down to the value of what I am officering. If I give a lower rate with those points... the client gets a good deal. But wait, it comes down to what I am making on the deal... if I am not taking advantage of them. Hey, in most cases, there is a total of 6% in real estate commissions... that is known... that is the problem with mortgages. You don't know.... someone could make 2%, 4%, 8% of the mortgage amount... it's an unknown and to many people assume, as you have done here.
Lastly..... to advise people to not pay points at all, in my opinion, is a reckless statement. Every borrower is different... each borrower has different goals.... each borrower has some more assets than the other. With all of that said, I get upset when people tell the consumer that, when you need to know the variables involved...
About the things that you have heard, about not allowing lenders to charge points or getting yield spread... some of what you have heard is rumor, bad rumor... some of it will only effect brokers, not bankers... but most people don't have a clue on that they future has in store for this topic... besides, my .02, based on how money is bought and sold on Wall Street, you could not allow lenders not to charge points.... it would make all rates the same. Unless you know how money is sold on the market, you couldn't allow this to happen. Just my .02... thanks for your input...
Hi Jeff, The bottom line is always refer someone that you trust. I often get 'rate shoppers' I educate them by telling them about a client who tried the same thing & the disaster that resulted. They usually get it!
Jeff - your last paragraph really summed it up--- Work with a true mortgage professional- Education should be part of the process and rate should not be the first and only topic! I cringe when my clients insist on working with someone I have never heard of----it almost always has an unhappy ending---or at least one I have to salvage. This topic cannot be overdone. Thanks for the post!
Jeff, having been a securities attorney on Wall Street for many years, I think I understand how money is loaned. I disagree with your remarks that charging points somehow helps the consumer, and I disagree with you that it is about anything other than the broker/lo/lender making pay... I also own a mortgage brokerage, and I do believe I understand how this works. You are saying that to get a lower rate I have to pay points, and I am saying that the only reason this is so is to allow the loan officer to make the same money either way... since, even by your discussion, you indicate that it is you that loses if the client does not pay the point. this is because you make your money either on the yield spread, or if not there, then on the points being paid. There is absolutley nothing to stop you from charging less on the yield spread and NOT taking it up in points. The wholesale price remains the same either way, and it is only the loan officer, brokerage, or bank that makes the difference.
Yousay that commissions in real estate are generally 6%, but that changes, and is on average less than that today. Out of that, two agents are usually paid. You then say that the yeild spread could be from 2% to 8% and nobody knows... actually they do know, when it shows up on the HUD< and SHOULD KNOW long before that, as with the listing agent... this lack of transparency is what irks me here, and the comments made here seem to support that lack of transparency... and that is why the changes in the regulations are needed... and likely to come.
So in negotiations, a consumer could, just as with real estate listings, negotiate down that profit on the loan... it is perfectly feasible, and perfectly legitimate to do. Perfectly. If I were getting a loan today, I would most certainly use this approach to save me money... just as I would negotiate the commission with a Realtor for a listing. Same thing, precisely...
It is the sort of thing that lacks transparency in the mortgage industry, and it is why there are discussions about eliminating these things... which for sure there are, not just rumors. And I think we should make the fee structure more transparent, not less, and I support the notion of negotiation in loan fees, to make it not only truly competitive, but also transparent to the consumer.
In the current state of affairs, it is neither... and the consumer loses, being unable to compare apples with apples.
One of the problems that LO's come up against every day is that the web based mortgage companies such as e-Loan, Quicken loans, and even CountryWide emphasize price in their national advertising. So it was predictable that consumers have been brainwashed into thinking that rate and cost ("no cost") loans are the starting places for a conversation about a mortgage.
I repeat to my customers, clients, friends, associates and family that you need to deal with a local LO that you can reach across the desk and throttle if needed. It is tough to do this with a voice on the phone from an office across the county. Very often the terms and conditions of a loan change at the last minute -- especially when dealing with a remote office -- so I believe that it is imperitive that a borrower has the opportunity to deal face to face with his LO.
Wouldn't it be great if you really could depend on the saying "you get what you pay for". When I hear this, I check my wallet because often this is an attempt to justify a higher price. I have received good value for not too much money, and bad value for way too much money in many of my dealings and purchases.
I agree with Thomas that one should use a local loan officer to handle a mortgage... and I also agree that "you get what you pay for" sends an alarm up my spine...
There is some premium I am willing to pay for any service I buy, for added service levels, more transparency, etc., but as with search engine optimizers that make things sound more voodoo than science or art, making it appear that one moves mountains when in fact one is merely looking in a different direction, I get concerned that the snake oil is not even as good as that...
I do business with people I trust, and who are transparent to me in what they are doing... mumbo jumbo does not fly with me, and certain aspects of the non-transparent mortgage business strike me very much as simply ways to bamboozle the consumer...
We really NEED more transparency in this business, not less.
Jeff: Are you saying that THE ONLY way a client could get a lower rate, and thereby a lower monthly payment, is to pay points to buy down that rate? Seems to me a Loan Officer could simply lower the amount of the yield spread, achieving the same result for the consumer... yes? Of course, then the LO makes less money...
In real estate, we negotiate fees based on the amount of work and expense we estimate it will take to bring a client to closing, whether on the listing side or the selling side. If I came you with 780 (Middle) credit scores, high six fugures income, several million in liquid assets, little debt compared to my income, and a purchase for a home well within my means, it is, as we say in the business, a vanilla loan, A Paper, etc. etc. and requires very much less work to place than say, someone with 580 credit scores, high debt to income, and no assets... if I were the former person, I would negotiate down the origination fee, and should of course be well aware of what that fee is, because I know it is less work, and the LO makes decent money on it... If I were the LO, I would estimate that the second person will require more effort, and so ask for a higher price, or origination fee, given it takes much more time, etc etc... in other words, run it transparently, like any other business, and charge more for more work, and less for less work... you would expect to pay according to the job done if it were any other business, Yes?
I realize that many loan officers will not support this view... but I do, and have seen the business from most sides (bank, brokerage, legal counsel to the bank or brokerage, derrivatives issuance and portfolio management, LO, broker, realtor, and consumer) and would say that lack of transparency, at most levels, is the largest single problem in the mortgage industry as a whole... from the derratives on down to the sub prime LO...
For that, flame me if you like...
MARIAN.... . I will agree... those referred to you are usually the best kinds of transactions for both sides. But I will say that some people still don't do a good job and they still get referrals. I have at least 5 examples of that... I had a client that was referred to me by a realtor, after he had already used the referral of his friend. That first loan officer lied and made promises that never came true. So, this can be debated,... but I would hope the majority of those that get referred truly give the good to best service and advice.
PAT..... . you and I are both on the same page when it comes to working with a true professional. And that education should be priority and rate should be 2nd or 3rd.. people just don't understand the true value of mortgages... and want rate...
In regards to your second issue though.. I will semi disagree. Just because you cringe when your client is dealing with someone that you don't know, doesn't mean it should go bad. Do you know that 85% of my transactions this year were those that found me on the internet? Meaning that all of those realtors didn't know who I was... and keeping this in mind, that 80% of my transactions are not in my state of New Jersey.. they are out of state.. my whole point, there are some great, true professionals that can handle this out of state and without knowing a sole during the transaction. And about 30% of these realtors involved have now called me or were totally impressed, because not only did I come through, but that I kept everyone in the loop.. and that the consumer got what I promised them without a hitch... yes, I know it's rare and I am not trying to talk about myself as the king of mortgages... but it's not all bleak when dealing with someone out of state or someone that you never heard of. But I will agree, the numbers are usually stacked against you and the borrower... thanks
PAUL aka Rhode Island..... your very first paragraph semi confuses me and if I understand what you are saying, scares me even more. I will be honest with you... Trying to be polite here, because I don't know you... but I don't really care if you were an attorney on Wall Street and that you own a mortgage brokerage. Example... just because I would say that I am a doctor, doesn't mean that I would know what I am doing or that I would be very good at... or that what I say is the best out there. Every mediacal school and every law school graduates someone last in their class. Just my .02 on that... and how people throw titles out there, to say that they are correct. Yes, we all have our own opinions.... but when I can prove it with numbers and figures.... it usually shoots those opinions down. I will explain it a little now and I will write a blog about this either tonight or tomorrow.. and you are more than likely to chime in then..
Now.. my examples below are not to include lenders fees and junk fees and to confuse this issue with today's rates. It's just an example of what you are telling me..
1. Let's look at this statement that you made.... "You are saying that to get a lower rate I have to pay points, and I am saying that the only reason this is so is to allow the loan officer to make the same money either way... since, even by your discussion, you indicate that it is you that loses if the client does not pay the point."
My response is this.... let's start with YOUR PROFIT margin... let's keep things simple... If I was to say that I need to make $2,500 on that deal. Now, you are giving your client a rate of 5.75% and it pays back 2 pts... and that 2 points gets you your profit of $2,000.
Now, here is were I disagree with you and I really can't see where you are going with all of this. So, let's take your comment and say that I could give them a lower rate, but with what you said, I shouldn't charge points then. So now I give them 5.25%... but now I am only getting 1/4 point back. Now my profit goes from $2,000 to $250. End result, I lost time and money, just because I shouldn't charge points?
Personally. I think you are getting to engulfed on the terms YSP and SRP... and try and use this as your selling point. Read many of the comments in here. It comes down to service and education. To much weight is placed on RATE. I never said that you should not give a good deal. But define the best deal? Unless I was a millionaire and didn't care about money, you need to make a profit. I never said that I should make $10,000 on each deal... in which case, would make some of your point, in regards to what points are charged or not. Besides, you can't compare what I should charge on each client. If you know your math correctly and that you need to make a profit, you would have to charge points on a $50,000 mortgage, even if you were getting 3 points back on YSP and after SRP was used. So I truly think you are confusing the point. But I would love to know what you are trying to get across to me. Please answer me this. Are you saying that you don't have a profit margin? Based on my example, are you saying that you would give the lower rate and still not charge points? To me, that is a blind statement. You are missing X. X being loan amount.
2. In regards to your statements about commissions and yield spreads... you took everything that I said out of context. It was an example... I was trying to prove a point. Besides, you obviously don't know everything about mortgages then and how money does operate. You said this... "You then say that the yeild spread could be from 2% to 8% and nobody knows... actually they do know, when it shows up on the HUD< and"....
Yes, it shows up with you... you are a broker. It doesn't appear on the HUD if you are a banker. But again, you want to take this conversation into another direction. That is not what this post was about... besides, if you read what I wrote... "If you were able to negotiate for your mortgage, typically that would mean that loan officer already charged you more than they should have."
Now, in regards to my statement, you can argue that all you want. But my main point, each client is different... a good deal for one person might be different for another. If I have to spend countless hours on your file, maybe like 15 hours, outside my normal time that I spend with all of my clients,..... and I still give you a good rate with no fees... hey, are you going to be upset with me if I made $5,000 on a client, outside my normal $2,000? Sure, you might be the type of person to argue this because you were a lawyer. But wait, don't lawyers usually charge by the hour? So maybe we just reconstruct the payouts on a mortgage... you make #1,500 per deal no matter what, on the first 30 minutes that I spend with you... any time after that, I charge you $200 an hour? Do you know that in many cases, that it could cost my client more in the long run.
Sorry, but I think you are arguing a mute point and misusing transparency. I really do.. you need to start with your profit margin first, before you come in here and try to debate me whether someone is charged points or not...
3. You then go on to make this statement... "So in negotiations, a consumer could, just as with real estate listings, negotiate down that profit on the loan... it is perfectly feasible, and perfectly legitimate to do."
Again, I will say this... in most cases, if you negotiate down a cost of a mortgage, you are typically charged to much. You can't put this kind of value on anyone... Again, each client is different. Some are more difficult than others. Some might take weeks to help with credit, credit letters.. etc etc... so, are you telling me, that everyone of your clients get the same rate and costs on each and every loan, no matter how large the loan amount or no matter how much work one takes than the other? Because that's what it sounds like then, in your debate. If not, I apologize, but please break this down then. Because in regards to this topic, it can only be one way or the other... there is no 3rd solution or rhyme to reason that I can think of... that I can think of. And here is why I say this...
In regards to real estate negotiations, you know what the percentage is... in regards to mortgages, you don't know the true number of what we make on the rate. But here is a great point to make... if you talk to excellent realtors and loan officers... in most cases, they don't bend or break anyhow... and here is why.
"You get what you pay for"... "buyer beware".... If my service, professionalism, and educating my borrowers is not worth a dime, then I can give it for free. Hence why so many deals don't close at settlement. To many people think they can negotiate... if I give you a price and it's not out of whack, it's very resonable... but you want something better now...how do you expect to give you the same service.... better yet, to give you my level of service which is usually better than the average loan officer.
The same for realtors... if realtor A is going to market your home in 6 different ways, using 6 different services.... and charge 6%.... but realtor B is going to use one service (one way).... the chances of Realtor A selling your house is going to be 75% better than you... but realtor B is willing to cut their commission. This has been my argument from day one. But you keep twisting it... and making it sound like people should cut their dollars that they make, their profit, but you never talk about service and the education that comes with my service. I don't tell you what you want to hear, I show you different methods... I share with you my knowledge and expertise.
In any case, you have your opinion. We will not see eye to eye on any of this, because you are taking a different road that is not even in the same state as I am in. Meaning, you are taking a different path than I am and that you don't even address my points.. but if you could answer any questions that I ask, then we could see where each one of us is going with this.
And getting back to the transparency issues that so many have, yet I think it's an over used and over abused term... you talk about negotiations and transparency in the same paragpraph. Why would you need to negotiate if you knew what you were paying and agreed to that?? I know what you are going to say... but again, I offer more value to my clients than many other loan officers do... and why should my cost be the same to that client than the loan officer that can't be reached by phone after application... that the consumer doesn't understand the process... that they might have been placed in a bad loan.... or best of all, settlement is delayed or never closes... and now it might be to late or rates went up? That is what should be talked about and not transparency.... unless you want to be a UMB... part of the upfront mortgage brokers association... I know some that offer this, but they still don't give value... so you paid less, but you were given a bad rate... a higher rate and didn't pay points.. which I know you are against points, which I totally disagree with now.. more than ever. I could show you at least 2 different reasons that points might be better for the borrower.
Lastly... I still need to fully address your statement of not paying points, period... you could hurt your borrower by giving that advice and I can prove that with facts...
THOMAS... . you make an excellent point in your first paragraph. But I will still disagree about your point in your second paragraph.... here is why, it shouldn't matter where your loan officer is, it should be on how you pick them. Yes, I will say that I am not the norm.. please read my comment to Pat, above.. I see your point, but I am going to disagree with that advice. Especially since I just picked up 3 new clients that are more than 700 miles from me in all directions.... one is over 1,000 miles away.... it comes down to how I treat people... but this is a whole other topic of discussion and we are getting off point with the term "negotiating"...
But yes, it would be great if you could truly believe that phrase, "you get what you pay for", that if you paid for good service, that you received it... but in those cases, you pay more, you tend to not get good service...or honesty. You get a good deal,which means that you didn't pay as much, but you get great service. Maybe we should change that phrase to... " you get great service when you don't pay for it" and "you get poor service when you pay too much" lol What do you think about that one?
PAUL..... aka Rhode Island Real Estate... I will address your other 2 comments later.... thanks for your input and feedback...
Jeff, having been a securities attorney on Wall Street for many years, I think I understand how money is loaned.
With all due respect Paul, current performance is an example that a Wall Street background is not a strong credential for lending expertise. Witness the modeling purported by the rocket scientists at Lehman, Bear, and Merrill...but I hear ya. I"ll assume you understand this game quite well.
I disagree with your remarks that charging points somehow helps the consumer, and I disagree with you that it is about anything other than the broker/lo/lender making pay
Actually, paying discount fees most definitely affects the retail rate a consumer negotiates. There is an inverse relationship between points (and all settlement costs for that matter) and final consumer rate. What you're suggesting is that deception is practiced by all originators to pad their margin.
Compliant broker originators fully disclose their compensation, as required by law, within three days of application. Certainly, we charge discount points to lower the consumer's rate...if it makes sense in relation to their expected holding time...but you know that already.
Your argument assumes all brokers and originators are not compliant with TILA. I can tell you, from personal experience, that your assumption is not accurate and your argument is tainted by that inaccuracy.
Jeff
Excellent points! When shopping mortgages and professionals it is very important to find one with whom you feel you have a a good rapport. Too often people are afraid to ask tough questions. Excellent post.
America's #1 Mortgage... my experience on Wall Street was more as legal counsel to lenders and investment banks... and my point was that I understand how mortgages are made and how lenders come up with loan products and derrivitives...
Really, my entire point is that consumers should be able to negotiate with lenders on rates just as they negotiate with other vendors, such as agents, or virtually any other service provider... yes yes, I know, we dont normally negotiate with our doctors, but yes, we do with lawyers and accountants... and other professionals, and I see no reason to NOT do so with my loan officer, if I am borrowing...
Some may say they "need to make x dollars" on the deal... I say I am not so much concerned with what you need to make, as perhaps your cost struicture is too high, and so the need is too high... and if I can get someone to do my loan that has a lower cost structure, and who therefore can pass that savings on to me, why not do so?
Just business as usual, in any other business, and this one too...
I am not focused on the cheapest price, but on the most efficient delivery of service. If I am more efficient than the next guy and can thereby charge less and make the same or more, why not do so... ? It saves my clients money, and makes me more likely to get more business.
It has nothing to do with providing less service or charging more than I should have been... and my clients should know that they have every right to negotiate the rate... why not?
PAUL aka Rhode Island Real Estate... I still need to get back to two of your comments, which I will do this afternoon.... but maybe I will hold off, considering that I took a long time to reply to one of them with comments and questions, but you never answered them.
BRIAN aka America's #1 Mortgage Broker..... . that is a very direct statement, much better than what I had stated. .. very direct and to the point.
In regards to paying points or not... two big issues that you struck a cord on. Yes, there is full disclosure, if not, it's illegal. Even at settlement, there is full disclosure. Secondly, there is a need to pay points which will lower the interest rate. And as long as the difference is explained properly to the borrower, then there is nothing assumed or hidden.
ALLISON..... . I totally agree, people find it tough to ask questions... very good point... and thanks for the polite compliment.
PAUL aka Rhode Island RE.... . I understand what you are trying to say in regards to negotiation, but again, I will disagree. The reason being, each client is different. Because my profit margin is slim at the point of offer and because I already know most of what I am up against, there is no room... and in most cases, no wiggle room. If my borrower, especially a very tough case, they are more than welcomed to go to that person lowering the rate and points.. or that so-called discount broker... because you know what.... 9 out of 10 times, that loan officer will either drop the ball of missing the settlement date, not closing at all, or actually charge a higher rate and or fees at the very end. And I know this because it has happened to many of my past clients... and half of them have actually come back to me last minute.... On another note, I have actually closed 11 deals just this year, all out of state, that had closing dates missed, loans denied last minute, and or rates and fees raised... after that loan officer promised them a sweet deal, because that borrower "negotiated" a lower deal and the loan officer probably didn't want to lose them. That is my argument to why we shouldn't be spreading around the phrase, "you can negotiate" for your mortgage. I truly think it is a dangerous idea and concept. Most people will disagree with me on the fact that you should be able to negotiate, but look at my examples... that is why you shouldn't ... because a truly experienced loan officer will usually have that specific loan priced accordingly....
On another note, I found it very odd that you commented back to Brian, aka America's #1 MB.... about negotiating... when 80% of his comment was about your comment in regards to paying points. But you didn't bring this up at all or defend your stance. I am just very curious in what you have to say and agan, find it out that you didn't reply to it, but wrote a book about negotiating.... thanks
Sorry for the length of this post:
Jeff: First off, I dont market our mortgage brokerage based on price, but rather based on a high level of service. Second, I believe I had responded to your response to me... you say: "... my main point, each client is different... a good deal for one person might be different for another."
I agree, Jeff, that each client is different, but I do think that transparency is an issue, and for example, that the HUD should reveal the originators fees and payments... and that these should be discussed with the borrower up front, transparently, as it is done (and must be done by law) with all other parties on the transaction and HUD... and I do believe I understand what is on the HUD and what is not... I have seen thousands of them, and have written at least hundreds...
Do your consumers understand how you are paid? In simple terms, Yield Spread is the difference between what the wholesale rate on a loan is to the brokerage vs what the consumer pays... the difference, or spread, is what constitutes the profit of the loan originator... So say the loan wholesales at 5%, and the consumer pays 7%, the Loan Origination firm makes 2%. Now, say you want to "buy down the rate" by paying points... this is a way for you to get a 6% rate instead of a 7% rate by paying 1% up front to the loan origination firm. This enables you to get a lower rate by paying the commission on the loan up front. You did not really save any money, and the loan originator made the same profit as he would have if you paid the higher rate. I am saying that as consumers, you can negotitiate this fee, as you would with any other aprty to the transaction. Efforts to conceal how they are paid should indicate that you should go somewhere else.
Now, I am not saying that you should get good service for no fee and the LO should make no money... that is ludicrous... but I do see that while this is not disclosed as it is with the other fees, it makes for non-transparency, and this is bad, in my view, leaving the way open to unreasonable fees and a seeming inability to negotiate these fees... Note that this issue of transparency is not a misuse of the phrase... it is just a somewhat different use than the usage of the English word that describes a lack of clarity on loan terms... another issue of transparency... but that does not reduce accuracy of the use of the word here.
So my point is that borrowers should be able to negotiate with their loan officers for the best price they can get given the service they desire... just like they do with their agents, lawyers, sellers, etc., Why should this not be the case? I can think of no reason...
As for my remark to Brian, I believe that paying points is unneccessary in most cases, and in most cases it is simply a way of paying the loan originator now (points) or later (higher rates)... So to me, it seemed I did address the issue Brian mentioned, sorry Jeff if that was unclear. I advise against paying now, in most instances, that is my position... to my mind, paying points is part of the negotiation, and that is why I addressed the comments of Brian as I did... you may view the issue differently...
People: You can negotiate for price, regardless of service, and you can get both a good price and excellent service, if you shop properly and are well informed as to what you are paying in fees, closing costs, points, etc... I would insist that I know what I am being charged, and I would assume that the mortgage loan originator is equally subject to my negotiations as well as anyone else in the transaction: agent, lawyers, insurance, etc. Rates do impact your cost of money greatly, and are a fine subject for discussion with your loan officer...
When you pay points, where does that money go? Ask your loan officer... i fthey tell you that it goes toward buying down a rate, ask them whether the funds go to the bank/lender for that purpose, or to the originator, to cover their fees... and consider the response... and then ask if the fee can be reduced based on competitive quotes, assuming the service level is the same... there is great flexibility in the rates, as determined by the LO and the efficiencies of the organization you are dealing with... this pertains to brokerages more than to banks directly lending... but then, this is an advantage of dealing with a broker... they have more sources for funding, and can negotiate fees and costs more so than a loan officer at a bank...
So yes, I support negotiations for fees, and recommend highly that borrowers become aware of the fees that they are going to be paying, and where the money goes...
Many times, competition is a good thing, driving efficiency, innovation, and with cost effectiveness, can save the consumer money. Not doing this with mortgages is like making the commission paid to your listing agent a matter that is not on the table for discussion... how many people would thnk that is a good thing?
Jeff: I dont doubt that a good service LO is far better than a weak one, or one without your experience... your points are well taken, but I still think that fees can abnd should be negotiated in almost all businesses where that is possible. This keeps the market open and transparent, a thing I feel is of the utmost importance, given the current situation in our economy and financial markets.
And I still feel that paying points is not all about what many LOs say it is about... it is about paying the LO now or later, and we all know that... or at least, we should know that, and consumers should as well... anything less is dishonest...
PAUL aka Rhode Island... . I will try and reply to all of your comments later tonight. But I will stick to my comment.... I won't let clients negotiate when I already gave them a good deal and I already have a good idea on what I am up against. If there is no room, I am not going to drop a fee or a point, just to make half and to do the same amout of work or more. Again, I think if someone can negotiate your rate or fees, you charged to much to begin with. Unless you are talking about a $78 charge. But it goes back to what I charge. You don't see those nit pick fees on my GFE's... you see points and sometimes a commitment fee of $500... and that is it... nothing else. So again, they can't negotiate with me... if they do, the service level will drop off. As sad as that sound, there has to be some profit in it... and we can beat this dead horse all day.
You basically have your way to seel and I have my way. To possibly get a better understanding of how I explain things... and if you want to use the word sell, please read this post. :
First Time Homebuyer Tips : Understanding the total mortgage process -- Part 3 of 5
Jeff: I am not trying to say you should give your excellent service away for free, or even for unusually cheap... negotiations, as you know, dont mean that you cave in and give away the store... it does mean that the consumer can and should try to get the best deal they can... if you were getting a loan for yourself, you would do the same...
My comment does not attempt to describe the way we sell... just the way, in my opinion, the loan origination process should be handled... I would assume that if you got to the point where you are negotiating a fee, you most likely have the client in tow and are servicing them... once you get to that point, you should be able to persuade them of the value of your service as compared with others, and you should be able to display why that service is worth a premium... that is your hand in the negotiations, but I would never say that the consumer should not think that they can negotiate fees for a service or product that ought to be competitively sold, in my view.
The blog is great and a lot of the comments are also helpful. Keep sharing your advice. Im going to check out your previous blogs.
This is a great piece for a first time homebuyer! Well done!
Great Post!! This is some great info and advice! Thanks for sharing and Happy Holidays!
Several years ago when I bought my new home, I called my friend, a loan officer who had profited greatly from training my new agents and from my referrals, to finance my mortgage. I didn't ask for a special rate. However, I did think that by virtue of the many, many, many loans that I had sent to her, I would receive a good rate. Her service has always been outstanding.
What I did not bargain for was a rate that was not even close to competitors' rates. I called a couple of loan officers to check their rates. Her rate would have cost me almost $6,000 more than competitors' rates. I understand that sometimes lender's push certain products which means that they may offer a "special" so to speak but I have seen good lenders sock it to buyers who didn't do comparative price shopping. I certainly came close to becoming one of those buyers when I didn't check the rates offered by different lenders. I recommend that every one looking for a mortgage check rates with several reputable lenders before locking into a rate.
This week I received mortgage rates from two lenders working for the same mortgage company but they had very different quotes. It pays to use a professional but buyers should compare rates and closing costs before buying.
This is a very helpful post!