Choice is power when shopping for mortgage

Don't rely on lead generation sites for accurate interest rate and loan fee combinations

By Inman News Feed
Add Comment Add Comment | Comments: 1 | Posted Oct. 31, 2011

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Don't rely on lead generation sites for accurate interest rate and loan fee combinations

Jack Guttentag
Inman News™

Mortgage lead generation websites (henceforth LGSs) have become a major part of the home mortgage distribution system. LGSs collect information from potential borrowers visiting the sites, and sell it to mortgage lenders. There are dozens of LGSs, perhaps hundreds; I haven't seen an exact count. Among the largest LGSs: LendingTree.com and LowerMyBills.com.

How lead generation sites work

An LGS attracts borrowers to its site primarily by promising to provide mortgages at attractive rates with one-stop shopping.

A prospective borrower visiting an LGS fills out a questionnaire covering the loan request, property, personal finances and contact information. The completed questionnaire is the lead that is sold to lenders.

Each lender participating in the site fills out a form indicating the features of loans they are looking for. This "filter" covers credit score, loan size, loan-to-value ratio, property ZIP code, type of property, and other factors. The LGS sells a lead with a given set of features only to lenders who have indicated that they want those features.

In general, LGSs sell leads to the lenders who will pay the most for them, subject to volume-based discounts. The sites commit that they will not sell the same lead to more than three or four lenders, but skeptics abound.

Lead generation sites from a lender perspective

Lenders view LGSs as one more way to market themselves. They can advertise online and in a variety of media, hire more loan officers to solicit business from real estate sales agents, invest in affiliated business arrangements with title agencies or others that will refer customers to them -- and they can buy leads.

While each approach has its advantages and disadvantages, for many lenders the purchase of leads appears to be a relatively attractive option for some part of their marketing budget.

Lead generation sites from a borrower perspective

Perhaps the major question of interest to borrowers is: Will an LGS will help them shop effectively? Relative to the ways many if not most borrowers look for a mortgage, the answer is "yes."

Borrowers who would otherwise respond to an advertisement, accept a referral from a real estate sales agent, follow the recommendation of another borrower, or randomly select lenders from the yellow pages might well do better using an LGS.

It is quick and easy; the lenders sent by the LGS are interested in the loan; and there is no reason to believe that they are any worse, or any better, than the lenders the borrower would contact elsewhere.

Relative to shopping with an Upfront Mortgage Broker (UMB), however, the LGS falls short. The Upfront Mortgage Brokers Associations, which was founded around my principles of consumer advocacy in the mortgage process, has membership by mortgage brokers whose interested are said to be "aligned with those of the consumer," according to the group's onlne description.

Selecting a UMB is as easy as selecting an LGS, and the UMB has access to three or four lenders, sometimes more. The major difference is that the UMB helps the borrower identify the best deal offered by competing lenders and the LGS doesn't.

The LGSs put forward that selecting the best deal from three or four lenders is like selecting the best price from three or four car dealers, but it really isn't. Once the specs of a car are defined, there is a single, unambiguous price that the buyer can almost always rely on.

The mortgage price, in contrast, has two dimensions -- interest rate and loan fees -- and adjustable-rate mortgages have several more. Part of a UMB's job is to help borrowers sort through the pros and cons of different combinations of interest rate and fees available from different lenders. With an LGS, the borrower is on her loan.

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1. Anonymous said... on Mar 31, 2012 at 02:11AM

“The mortgage price, in contrast, has two dimensions -- interest rate and loan fees -- and adjustable-rate mortgages have several more

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