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August 9, 1999
"Now that you have
explained the many ways that lenders can take advantage of mortgage borrowers�,
why doesn�t your web site have a register of comments about particular lenders
from satisfied and unsatisfied borrowers? The auction web sites provide a
service of this type covering sellers and it works really well�"
I have thought about providing a service
of this type, but keep running up against problems for which I have yet to
figure out solutions.
One problem is that borrower perceptions
regarding how well they were served are heavily influenced by their experience
with individual loan officers. This may or may not reflect accurately on the
quality of the mortgage broker or lending firm that employs the loan officer.
In other industries, there is usually a
very close relationship between the quality of the firm and the quality of the
firm�s employees, to the extent that we seldom bother to distinguish the two.
In the mortgage lending industry, however, the relationship is much looser. Yes,
there are some completely sleazy firms that employ only sleazy (and often poorly
trained) loan officers, and there are some high-quality firms that demand a
proper level of conduct by well-trained loan officers. But most firms are
somewhere in-between, and their loan officers vary widely in character and
competence.
Real estate agents understand this very
well. When they refer customers to a "lender", the referral usually is
to an individual loan officer, not a firm. Indeed, loan officers often switch
firms without losing the allegiance of the agents, the only concern of the agent
being that the new firm provides the processing and other backup support
required by the loan officer.
This means that for a register of
borrower experiences to be useful to other borrowers, the register must cover
individual loan officers, as well as lending firms and mortgage broker firms.
Loan officers don�t handle many customers � on average, about 100 borrowers
in a good year, 50 in a bad year. This means that a register dependent on
voluntary submissions by borrowers wouldn�t contain many reports on any one of
them. Under these circumstances, the register could easily be biased by fake
reports from the friends of loan officers or their enemies.
Even if the information on loan officers
were valid, furthermore, drawing conclusions about their employers would be very
difficult. Many firms have loan officers that range from excellent to execrable
and in-between, and turnover in the industry is very high � especially for the
best and the worst of them.
The second problem is that the
perceptions of borrowers regarding how well they have been served are not always
accurate. Here are some illustrations:
Sam was very pleased with his
experience. It went quickly, the loan officer was gracious and a
fellow-golfer, and the mortgage broker fee was only �% on his $400,000 loan.
He ignored the 1% fee received by the mortgage broker from the lender, not
realizing that the fee was payment for an interest rate above the market. The
broker made $6,000 on a straightforward deal that involved minimal effort. Sam�s
praise was misplaced.
Charley had nothing good to say about
his experience. He paid 2 points to the mortgage broker on his $65,000 loan
and it seemed to take forever to complete. But Charley had a poor credit
report and the loan officer had to counsel Charley in getting some disputed
credit items cleared up, and had to solicit 4 lenders before finding one that
would take the loan. The $1300 received from Charley on this deal was scant
compensation for the time and effort that went into it. Charley�s complaints
were not justified.
The underlying problem is that some
borrowers have little sense of the time, effort and skill required to complete
their deal, which varies widely from case to case. Furthermore, most borrowers
do not know what they are paying for these services.
The charge for origination services
provided the borrower by a lender is wholly concealed in the commission paid to
the loan officer plus the costs of supporting them. The charge for origination
services provided the borrower by a mortgage broker is the total of payments
received by the broker from the borrower and the lender, which are reported
separately and differently.
My conclusion is that a useful
compendium of borrower reports on how well they have fared with particular loan
officers, lenders and mortgage brokers, must await a change in the way in which
borrowers pay for origination services.
Copyright Jack Guttentag 2002
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