Saturday, July 28, 2007

Grandfather's Advice: Buy Local and Finance Local

I found this article today with what I think is a spot-on take of the consumer's perspective when shopping for home loans on the internet. It is worth reading. The borrower starts by using LendingTree and BankRate to shop for loans via the internet, but ultimately fulfills locally.

I believe my grandfather once told me to buy local and finance local. Hesitant to deal with lenders over the internet, and disappointed in our national banks, I turned to the local banks. Small local banks, the theory goes, know the area they are lending in. Local banks tend to only write loans in their geographic area. They may have more favorable terms since they lack the resources to compete on location and convenience against bigger banks. In my case, this adage turned out to be correct. After doing due diligence by stopping by various bank branches and getting rate quotes, I was up to 15 different offers.

Tuesday, July 17, 2007

The Reverse Mortgage Boom

HUD announced today as part of the Expanding American Homeownership Act of 2007 it wants enacted, that millions more seniors would be eligible for its reverse mortgage program (HECM), if congress increases the maximum loan amount to match FNMA/FHLMC conforming loan limits. According to HUD the volume of reverse mortgages it has funded has increased 10 fold in the past 6 years. However, eligible seniors have been limited to very modest FHA loan limits. This will help bring the product into the mainstream.

Tuesday, July 10, 2007

Bankrate Bait-and-Switch Lawsuit

From Inman News:

NovaStar, other Bankrate clients hit with $46 million judgment

In a June 27 judgment, Orange County Superior Court Judge Michael Brenner agreed with American Interbanc's claims that attempts by other lenders to prevent the company from using amounted to an unlawful restraint of trade, subject to triple damages.

American Interbanc's lawsuit against several lenders who used to drum up business was filed in March 2002. The lawsuit alleged that the lenders' failure to grant loans at the promised rates amounted to false advertising.

The lenders allegedly pressured into barring American Interbanc from using the lead-generation site. American Interbanc added Bankrate Inc. as a defendant in November 2002, after it refused to renew the lender's contract to advertise on the site.

Flashback to pre-internet days of mortgage lead generation: You opened your hometown newspaper's weekly real estate section, and found a mortgage guide where several local lenders displayed rates, in a table or display ads, showing only rate and APR. The posted rates typically showed very low rates attainable only by paying a large amount of discount points, obscured but reflected in the APR. To make things even more opaque, publishing deadlines demand ad copy, and thus rates be delivered 2-3 days prior, rendering the advertising bait, relatively meaningless.

Circa 1996, Bankrate takes this game, and puts it on steroids by making rate-ad bait a national game, not a local one.

June 2007, over 10 years later, the successful litigation finally holds some of the bad-players accountable, but what is to come? The bad-actors here seemed to go beyond simply practicing false advertising and were convicted of conspiring to prevent another lender from doing business in good faith. This is simply not enough. BankRate's mystery shopping audits are not enough. Hopefully this press will get the attention of the regulators who need to start enforcing and hopefully even giving some more punitive muscle to Regulation Z. Doling out small fines and slaps on the wrists, like this will never change behavior.