Archive for the 'Op/Ed' Category
RateSpeed Licensed Mortgage Professional vs e-Loan
July 11th, 2008 Categories: Op/Ed
Sorry, this was supposed to be the second post in a series comparing loan results between a RateSpeed mortgage professional (who provides direct wholesale, transparent, anonymous mortgage rates and pricing quotes) and another online lending giant, e-Loan.com, then I was met with this screen:
Since I’m not willing to give up my identity to be spammed, telemarketed, and/or have my mailbox stuffed with solicitations all to get a peek at what mortgage rate I may qualify for, I’ll have to pass. Still waiting for the armed guard to pop out and ask me to pee in a cup, supply a drop of blood, and stick my eyeball up to my video camera for a retinal scan.
What personal information does RateSpeed ask for?
…and we’re moving this field to the results page.
Next…
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Transparent Wholesale vs Retail Lender Mortgage Rates and Pricing
July 7th, 2008 Categories: Op/Ed
Great question in the form of a comment from a recent post:
I like this, but I don’t see how it is any different than the likes of what Amerisave, e-loan, theratesmart.com are currently doing. Nor what your competitors are doing and have been doing for much longer; Nylx, LenderFlex, etc…
Maybe you can enlighten us to why I would choose your product over a company that is more established and been in the field a lot longer.
Depending on who the company is, the differences range from night and day, to small but vital nuances. Websites and companies that redisplay mortgage rates are ubiquitous, all of them look very similar making it difficult for the average person to tell what the real differences are, who is really showing ‘the real rates’? Overall it’s a losing proposition for the consumer and ethical mortgage professional trying to navigate through the mish-mosh of compromised information being pimped under the guise of ‘trust me’.
First, the most important aspect of ‘how’ we are different rests in RateSpeed’s core value propositions:
- Maintain the integrity and purity of information between the wholesale/correspondent lender and the consumers eyeballs, while keeping the mortgage professional in the middle of the transaction.
- We are not a lender nor do we originate mortgages in any way, shape, form or fashion.
- We do not sell (or buy) leads, period.
- Create an even playing field, win-win environment for consumers and mortgage professionals to negotiate business on.
- Our sole interest is to become the most respected provider of the most authentic, accurate, unaltered, unmanipulated, uninflated mortgage program, rate and pricing data in the marketplace for the consumer through the licensed mortgage professional.
These value propositions allow us to remain a completely objective 3rd party that concentrates on transparent mortgage program, rate and pricing search.
Second, as to why someone should consider RateSpeed over a perceived competitor who has been in business longer, has more experience etc. our back end technology and architecture is extended via an exclusive relationship with a long time, well respected, patent-pending mortgage PPE (program and pricing engine) provider called who has been in business for 5+ years.
On most occasions, running a side by side analysis, using identical submission criteria between a licensed RateSpeed mortgage professional and another ‘mortgage rate website’ will be enough. In other cases some intricate nuances will have to be expounded upon, as they’re not nearly as obvious but just as important.
This will be the first in a series of posts that will attempt to point out the differences between RateSpeed and perceived ‘like services’. Amerisave was chosen first, in the order of the comment above.
Comparison #1: Transparent Wholesale vs Retail Lender
Both scenarios were run on July 5, 2008 at ~2pm pst.
Amerisave is a direct lender who’s primary business is the origination and sale of mortgages.
RateSpeed is a PPE (Program and Pricing Engine) software program that is configured to the broker or bankers existing wholesale or correspondent relevant direct data feeds, and runs consumer front facing on their respective websites. The Broker/Bankers who run RateSpeed on their web/blogsite have no ability to manipulate the information disclosed in the application between the wholesaler providing it and the consumer seeing it. Why the last sentence is important can be evidenced below:
Amerisave Search Criteria
RateSpeed Search Criteria
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Granted our UI needs (and is getting) some much needed make-up, don’t be superficial and instead notice the far deeper quality of information RateSpeed is collecting on behalf of our search engine for subsequent crawling. Better information in = better information out.
The Credit Crunch cliche refers to the far more highly scrutinized nature in which mortgages are approved compared to the not so distant past. Credit scoring, more specifically: what credit scores cause an increase in pricing and higher interest rates, weighs heavier than ever. The difference between a 679 and a 680 score can have large financial repercussions.
The fact that Amerisave assumes very broad score ranges between 661 and 749 leaves alot of tiered Risk Based Pricing (RBP) thresholds out of being considered in the rates they display. That’s a polite way of saying the rates and pricing results Amerisave is redisplaying is likely to have at least a marginal degree of inaccuracy. There are other RBP factors that Amerisave doesn’t consider in its application, the credit scoring aspect happens to be a very important and easy one to understand for most people. In this case, we’re saying we have at least a 750 FICO score by selecting Excellent Credit on the Amerisave interface and inputting 750 in the RateSpeed credit fields.
Lets look at the results:
Amerisave 30 Year Fixed Results
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RateSpeed Transparent Broker/Banker 30 Year Fixed
Lets look at the rate 6.375% and the subsequent pricing. With Amerisave 6.375% would cost you $2498.00 in Broker/Banker fees to acquire, not including 3rd party closing costs. The RateSpeed licensed Broker/Banker is offering 6.375% and will credit you $4540.00 (after paying their $2000 fee which may be applied toward 3rd party closing costs), a difference of $7038.00.
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Amerisave 5Yr ARM Results
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RateSpeed Transparent Broker/Banker 5 Year ARM
Under the 5 Yr ARM program, lets look at the rate 5.75% and the subsequent pricing. With Amerisave 5.75% would cost you $3564.00 in Broker/Banker fees to acquire, not including 3rd party closing costs. The RateSpeed licensed Broker/Banker is offering 5.75% and will credit you $1748.00 (after paying their $2000 fee which may be applied toward 3rd party closing costs), a difference of $5312.00.
There’s no need in stating the obvious about the difference between what this one Retail Lender is offering vs what a Wholesale Direct RateSpeed licensed broker is willing to provide. Even if the mortgage professional running RateSpeed had a flat (Broker/Banker) fee as high as $5000, the savings would still be over $5000 and $3000 respectively, no small coin.
Many professionals feel consumers shouldn’t shop for a mortgage based on rates and fees. That used to be a valid statement/philosophy mainly because access to clearly untaintable real time mortgage program, rate and pricing information was not available to them…that was, until now.
So, who says that big retail or direct lenders have an advantage over brokers or smaller bankers? Turn what has been kept inside on to the outside and wield transparency as an advantage instead of a hindrance.
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Risk-Based Pricing and Mortgage Rates.
July 2nd, 2008 Categories: Consumer Information, Op/Ed
Risk-Based Pricing (RBP) and Mortgage Rates.
Also posted on TheXBroker.com
Risk Based Pricing is quite simply, a pretty complex topic…so over a series of posts (I was going to throw up one long post but could hear heads hitting keyboards after trying to read the first 5 pages) I’m going to break down how each of these general factors and subsets effect program, interest rate and pricing for potential borrowers.
The opening cited** content below is paraphrased from Wikipedia. The driving reason for using this source is that I personally submitted much of the relative content to the online encyclopedia over a period of time.
Risk-based pricing is a methodology adopted by most lenders in the mortgage industry to mitigate the perceived risk of lending money to a given set of financial, credit and property factors.
Lenders effectively ‘price’ loans according to these individual factors and their multiple derivatives. Each derivative either positively or negatively affects the price/cost of an interest rate. For example, lower credit scores will yield higher interest rates (higher price) and vice-versa, a non-owner occupied (or investment) property will yield a higher price than a primary residence; providing less verifiable income documentation (due to self-employment or otherwise) will qualify for worse pricing (higher interest rate) than someone who fully documents all income appropriately.
RBP gets even more complex when you consider that one factor may depend on another factor to determine how price may or may not be adjusted. For example, ’stated’ or reduced income documentation will typically cause a pricing for the worse (higher rate), but if the credit score is high enough some lenders will offset the pricing hit with a correlating improvement in price.
A criticism amongst consumers and other groups has been that RBP can make ’shopping’ for the best interest rates very difficult and opens the door to potentially deceptive practices due to the relatively low education material available to exactly how RBP works. Further, program guidelines change often and the base price/cost of interest rates change daily (up to three times in some cases), so what may be available today may not be available tomorrow. It is almost impossible to tell at first glance if one is qualified to get an advertised rate or exactly what interest rate they qualify for at all. Risk-based pricing can be manipulated to wield deceptive marketing practices, such as the bait and switch.
Consumer-rights advocates also believe that risk-based pricing in the extreme hurts financially disadvantaged and vulnerable consumers by cutting them off from reasonably affordable capital and exposing them unwittingly to soaring interest rates and unsustainable financing schemes that erode equity and may lead to default. The fairness of these lending practices, more specifically the proper disclosure of such within the mortgage industry is being investigated by Congress.**
The primary risk based factors (and their subsets) considered by lenders that dictate what mortgage programs and interest rates a given borrower qualifies for include:
- Loan Type
- Property Type
- Property Use
- Property Location
- Credit Score and History
- Debt to Income Ratio (Gross Income vs Monthly debt obligations disclosed by the three main credit bureaus.)
- Loan Amount
- Appraised Value/Purchase Price
- Loan to Value/Purchase Price
- Documentation Type
In this post, I’ll cover common Loan Type/Purpose and Property Type factors.
Loan Type/Purpose
Subsets:
- Purchase
- Rate/Term Refinance
- Cash-Out Refinance
Purchase loans are deemed to contain the least amount of risk and thus ‘price’ purchase loans most favorably, yielding lower interest rates.
Rate/term refinances are priced similar, usually identical to purchase loans, with no price increase. The purpose of a rate/term refinance, as the name implies, is to reduce the interest rate, payment, and/or overall term of the mortgage. To qualify as a rate/term refinance the cash received by the borrower at closing may typically not exceed $2000.
Cash-out refinances are deemed to have a higher risk factor than either rate/term refinances or purchases due to the resulting increase in loan amount relative to the value of the property, thus risk-based pricing typically mandates a pricing increase (higher interest rate) for this loan purpose.
Property Type
Subsets
- Single Family Residence
- Condo/Townhome
- 2-Unit (Duplex)
- 3-4 Unit
- Modular
Single Family Residence (SFR) is considered the lowest risk of property types, so no increase in risk pricing (and rate) is implemented.
Condo/Townhomes are often risk priced the same as a SFR especially if the Property Use is a Primary residence. Price exceptions for the worse are common if the property is above 4 floors tall, reasons include disparity in construction quality, as many ‚hi-rise’ properties were converted from hotels or other mixed-use purposes. This is a very lender specific risk-price adjustment and can vary widely.
2-Unit properties or a Duplex will typically risk price for the worse, resulting in a higher interest rate.
3-4 Unit properties typically risk-price slightly worse than a 2-Unit duplex.
Modular built properties have evolved substantially in overall quality over the past 5 years to the point they rival and can even exceed the quality of a stick built SFR. For this reason most modular homes have no risk price increase. Modular homes are pre-manufactured off site, usually in a large warehouse and delivered in pieces to the home-site where construction is completed. Recently built modular homes are almost impossible to identify vs traditional ‚stick-built’ construction.
The term ‚manufactured home’ is often mistakenly interchanged with ‚modular’ homes. Manufactured homes typically encompass the definition of a mobile home, which are risk-priced substantially worse than any other property type and/or do not qualify for conventional financing. Talk with a licensed mortgage professional to determine how a specific ‚pre-manufactured’ or other property type is risk-priced.
Next I’ll cover Property Use and Property Location…
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The Need for Transparent Mortgage Rate Search
May 2nd, 2008 Categories: Op/Ed
Originally posted on The XBroker March 30, 2007
I’ve had some heated (and circular) conversations with many in the mortgage industry regarding how unregulated the industry actually is, how it would be near impossible for legislation to clean up the mess. The Mortgage Industry needs something more than new Statements and Policies from regulatory agencies, with a few sacrificial lambs served up for show. Does anyone see the parallels between the Enrons, WorldComs and the mortgage industry? These books are cooked ‘X-tra well done’…ahhh, I can hear the paper hum of all the paper shredders as I type this.
Via my blogging here and ActiveRain it’s become very evident that unless you are inside the mortgage industry, you’re an outsider, and if you’re an outsider, you pay in cold hard cash. Even Realtors, designated and educated real estate professionals, have little idea about how the mortgage industry works. This amazes me since most Realtors tried to tell me how to do my job..? 
There’s no other industry that makes you pay for what you don’t know quite like the mortgage business. Michael and I like to call the greater traditional mortgage shops out there: The Mortgage Cartel.
The Mortgage Cartel has been busy burning wagons and taking scalps since the mid 1980’s, with the dawn of the mortgage broker. It was the Wild West and the Gold Rush all wrapped in one. Brokers jumped claims and worked the angles including something known as yield spread premium (YSP). YSP was introduced by the banks as a way for borrowers to finance closing costs through a voluntary increase in their interest rates. At least that was the idea. It was only a matter of time before brokers hijacked YSP and turned it into a clandestine profit center financed by unwitting consumers who had no idea what interest rates they actually qualified for. It was a recipe for disaster.
The passage of Regulation X in 1992 defined and outlawed hidden lender kick-backs. Post Reg X, brokers were forced to be more creative in order to maintain their hefty back-end “rips.” While typical loan fees ranged from 1%‚3%, there was almost always another 1% - 3% in hidden YSP camouflaged by ambiguous documentation and verbal gymnastics.
The problem with Reg X was that it only addressed the mortgage broker‚leaving mortgage bankers, for all intents and purposes, untouchable. To this day, direct lenders like DiTech can lawfully withhold information from the borrower during the process of mortgage program and rate selection. Things were bad, but they were about to get worse.
By the late 1990’s, networked information technology had reduced the task of pre-qualifying a mortgage to a point and click affair. Online brokerages like Ameriquest, DiTech, and eLoan emerged, waving a red cape at a bull market of consumers eager to reap the benefits of the New Economy. By 2002, the Disinformation Age of real estate finance was in full swing.
Operating beyond the reach of Reg X, online uber-shills sucked billions of dollars in overpaid interest expense out of the economy through such notorious schemes as DiTech’s “$395 Flat-Fee Loana Trojan horse packed with up to 3 points in hidden yield spread courtesy of an inflated interest rate.
At the peak of the refi boom, the Mortgage Cartel had effectively turned the Internet against consumers making the process of obtaining a mortgage online nothing more than a faster ride down the same dark alley. The disturbing truth is, if you got a mortgage between 1987 - 2007, the overwhelming odds are your monthly payment harbors a broker’s secret payday. And if you got your loan through a direct lender, you can all but guarantee it.
With bankers on one side and brokers on the other, the consumer was bound to get squeezed. When comparing identical offers from a mortgage broker and a mortgage banker, consumers routinely chose the more expensive loan.
Faced with the most uneven of playing fields, many brokers rationalized a culture of deception. One look at a typical HUD-1 broker closing statement is all the proof you need. Nevertheless, it was the online direct lender that posed the most imminent threat to consumers.
Why? Because it wasn’t perceived as one.
Faced with the most uneven of playing fields, many brokers rationalized a culture of deception. One look at a typical HUD-1 broker closing statement is all the proof you need. Nevertheless, it was the online direct lender that posed the most imminent threat to consumers. Why? Because it wasn‚t perceived as one….
With slick user interfaces, no high pressure mortgage jockey, and the ease of ‘point and click’, e-lenders utilized the Web and their exemption from Reg-X to their full advantage, they appeared to be the solution from the ‘unscrupulous mortgage professional’.
What RateSpeed is doing on the finance side of the transparent real estate equation is nothing short of cataclysmic. If ever there was a poster child for disruptive web technology, the RateSpeed transparent mortgage engine is it.
Designed to enable anyone to pre-qualify their own wholesale mortgage using 10 simple questions (none of which involving name, address, phone or social security numbers), it uses an anonymous risk profile to pre-qualify against the wholesale rate sheets of any number of opt-in lenders. No nagging phone calls, spammed up inboxes…and in a matter of moments, you‚re staring at something you‚ve never seen before:
The mortgage rates and programs you actually qualify for‚ REAL RATES, IN REAL TIME
Including what it really costs to buy down your rate (points) and what the lender will pay if you elect to bump it up (YSP). Once you‚ve seen what you really qualify for, you can use the information to negotiate a better deal with your broker, or you can leverage the RateSpeed network to find a reputable broker willing to deliver your wholesale mortgage on a true, flat fee basis with a 100% full-disclosure guarantee.
DiTechs of the world: Watch your backs.
Also See:
e-Lenders: When Thieves Compete, you Lose
Transpareny in the Mortgage Service Industries
The Mortgage Industry’s internal Civil War
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