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Surveying The Shifting Mortgage Landscape


image courtesy of Lone Black Rider


And during the few moments that we have left, we want to have just an off-the-cuff chat between you and me — us. We want to talk right down to earth in a language that everybody here can easily understand.
-Malcolm X

Although the term transparency is uttered ad nauseum and comes in more flavors than Baskin Robbins offers ice cream, ‘clearing the fog’ is paramount to reviving an industry that has used the art of witholding information as a weapon of profitability at the expense of the unwashed…the effects of which we are now witnessing in the form of a sensational, market-wide correction.

The mortgage industry has been a shell game for almost it’s entire existence. Baffling people with bullshi* has been a rule, rather intended or not, enforced by the professionals that propagated a transactional ‘burn and turn’ mentality. Terms and language like amortization, annual percentage rates, caps, adjusters, and escrow…typically only used by and within a small sector of a niche industry… are spoken in a matter of fact fashion at people who will innately acquiesce rather than be perceived as naive.

In my experience the level of naivete about the mortgage industry and how it works is not limited to the consumer; the typical real estate professional’s mortgage acumen doesn’t reside much higher on the relative IQ totem pole. It’s been rather easy for a mortgage professional to belittle or appear far smarter than the average person simply because they have command of a vocabulary that more resembles a foreign language than simple economics.

These manipulative practices, along with bloated business models and frivolous lack of logical lending standards comprise the core of the current state of problems within the industry…all of which have either expired or don’t have a shelf life longer than warm milk.

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Consumer confidence is paramount to (continued) success for any industry. Currently, confidence in the mortgage industry is close to non-existent becasue we inherently don’t trust what we don’t understand.

Many mortgage professionals will have you believe that too much information is a bad thing, that ‘the public’ doesn’t need to see or know it all, that it only confuses people. I beg to disagree. We’re in the age of information, of instant gratification, people want it all and they want it NOW.

As such, mortgage pro’s would be wise to become teachers of how their industry and the products it peddles work rather than sales people pitching empty value propositions, embracing social (and other) media (and mediums) as an extension of themselves and their brand.

At the same time they should become students of the University of Enlightened Consumerism, a school with omnipotent instructers like Google, Wikipedia and a cornucopia of other resources available at one’s fingertips that delivers real time curriculum made possible by the transition into the Information Age. Practices described in the begining of this post that may have worked just a year or two ago will now get one deemed disingenuous or worse.

It’s time to get naked. Education in an open forum with access to raw information…interpretable and debatable by large crowds rather than a chosen few…is a proven path toward regaining the trust in the eyes of the perpetually enlightened consumer, and can help pull those willing to change through the massive ‘correction’ this industry is currently in the middle of.

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The consumer demographic growing the quickest has less to do with traditional factors such as age or race and far more to do with folks who are ‘information dissemination savvy’…thus the game becomes: He/she who gives up the best information the fastest wins.

Here at AG I’m going to do a weekly post on how to navigate through what’s left of the industry. More specifically: How to quickly identify mortgage professionals who have adopted and/or embraced doing business like ‘this’ with targeted questions, other mortgage market specific op/ed material identifying new trends and strategies in hopes of fostering a smoother transition out of the ambiguity and into a clear, open, articulate, transparent marketplace…which is a better place, the only place, for everyone to go.

Written By

Jeff started TheXBroker.com in August of 2006 to express his industry knowledge and provocative opinion. He’s been an adversary of traditional real estate and mortgage business since running his own brokerages. Formally educated in the biological sciences at Syracuse University and Barton College, once Jeff discovered how little entry level research science paid, he started his post collegiate career working for Branch Banking and Trust in The Triad area of North Carolina. He learned about the worlds of finance and real estate and began to personally purchase property at the courthouse steps. Today, Jeff is VP Operations and Business Development of ActiveRain Corp and still The XBroker

17 Comments

17 Comments

  1. Heather Elias

    August 1, 2008 at 2:10 pm

    Jeff…agreed that the ‘information dissemination savvy” consumer is looking for raw data, as well as help in how to decipher it. As both a Realtor and a consumer, can’t wait to hear more…information is power, and our clients know this. The more educated they are as they work their way through the homebuying process, the easier the experience should be for them. Clear understanding is a wonderful thing; educated decisions are even better…

    Looking forward to reading more, can’t wait to watch you keep rocking the boat… =)

  2. Jonathan Dalton

    August 1, 2008 at 2:19 pm

    One hell of a debut, X. Welcome aboard.

    And what you’re saying applies to the real estate industry just as easily on all counts.

  3. Henry Davidson

    August 1, 2008 at 2:29 pm

    Strong…very strong. Keep bringing it!

  4. Mack in Atlanta

    August 1, 2008 at 2:34 pm

    I agree with Jonathan, What a debut! Your take on “If you can’t dazzle them with brilliance, baffle them with BS” is so true. In the real estate industry many agents try to baffle prospects with all kinds of initials that don’t mean a hill of beans to the consumer. What the consumer wants is the information on their chosen topic. Those who supply that information will be the real winners in this market.

  5. Matthew Rathbun

    August 1, 2008 at 2:39 pm

    Well, there ya go….

    Here’s what I’ve found – Agents often forget that it’s their job to make recommendations and coordinate efforts of all the other industry “professionals” in a transaction. The good closing starts off with having the right professionals in place. Too many agents have treated the “just let the lender” work with them as a shortcut. Unfortunately, in our area the requirement to become a lender is even lower than that which is required to become an agent. Getting over the vernacular is fairly straight forward and is typically taught in pre-licensing.

    The second issue is that lenders do not like those of us who do have an understanding of the transaction, terminology and practice. Pointing out deadlines for GFE, the fact that the lender cannot charge more for say, an appraisal than what the lender was charged etc… are client level protections that a lot of lenders blow you off when addressed.

    I’ve heard a lot of agents say “the lender doesn’t want me involved.” Who cares? If the lender has nothing to hide and is a professional (assuming the agent is too) than it’s a team and we should all be sharing and working toward the same common goal – legally and ethically.

  6. Bob

    August 1, 2008 at 2:43 pm

    “How to quickly identify mortgage professionals who have adopted and/or embraced doing business like ‘this’

    Not many of them left.

  7. Nickie Rothwell

    August 1, 2008 at 2:48 pm

    Awesome Jeff!

    I can barely wait to see what else you have to share with us all!

    Education is so important; many people could have avoided trouble if they had a better understanding of things a couple years back. Real estate is so emotional and people get so wrapped up in the high that it is easy for them to get lost in the middle and make a less than great decision.

    Welcome Jeff!

  8. Andy Kaufman

    August 1, 2008 at 2:49 pm

    Hey Jeff – I love the term ‘information dissemination savvy’ consumer.. They’re exactly the demographic that I like to work with (probably because I’m one myself) and you’re absolutely correct in saying that even the most savvy consumers have problems figuring out the world of mortgage lending. It’s about time the industry evolves and I’m looking forward coming along for the ride.

  9. Mack in Atlanta

    August 1, 2008 at 2:53 pm

    I’ve heard a lot of agents say “the lender doesn’t want me involved.”

    Ask the lender what their agency relationship is with the buyer. Guess what, they don’t have one. We as agents do have an agency relationship with our buyers and our duty is to help them through the minefield of purchasing a home. It is our responsibility to be involved.

  10. Dan Connolly

    August 1, 2008 at 11:33 pm

    Every time I don’t get involved in the loan I regret it. I had a closing last week that was a classic. When I met the buyer he had a pre-approval letter from the lender, who said he could close in three weeks. It was a foreclosure, the Seller held the earnest money.

    The buyer was putting 20% down and had over 700 credit score. At the end of 30 days the loan still wasn’t ready to close, the buyer paid $250 for a two week extension, with the stipulation that this was the only extension and all monies would be lost if the property did not close during this extension. We didn’t get the HUD until the last day of the extension at 4:00 pm. The interest rate was 1/2 a point over the market and the closing costs were about $2400 higher than expected. There was a $2640 brokerage fee (3 points) for the originator who brokered the loan to a different lender, and regular closing costs for the lender who actually made the loan.

    In addition to all that, they disclosed the $2,700 yield the lender made on the back end for selling the higher rate. The lender was best friends with the buyer’s son. I told the buyer he was getting screwed, and the only thing he could do was not to buy the house. Guess what? He bought the house.

    I have always been reluctant to try to move buyers off lenders they seem to have a relationship with already. I respect loyalty and try not to make the Buyer feel that I am pushing someone (perhaps they would think I am getting a kickback). But that’s over, I am not letting a buyer use a untried and unknown lender again without a fight.

  11. Jed Lane

    August 1, 2008 at 11:51 pm

    Jeff,
    Consumers want information and yes they don’t want to have to pay for it. But they don’t really want it raw. They want it formatted and easily viewable and some might even want to be able to export and analyzie it. But one thing is certain they don’t want to have to go out and gather it and produce it.
    Up comes a new kid on the block that can compilate it and display it and maybe even mash it up with some really cool applications. Everybody likes the way this kid does it and he gets backing to grow. He will eventually have to produce a revenue stream and it’s not going to come from the conumer of the displayed data so the kid has to find another source. Well, who wants to be the first person called when the consumer has consummed enough data and now needs someone to help them “to decipher it”. The kid can charge them for placement and leads.
    I know that this position is counter to the main thrust of 2.0 but I’ve been around longer than most yet I am pretty comfortable with the medium. There is no business that gathers data to give away. Governments do that, not businesses.
    I don’t think we should all be singing “Oh what a wonderful world it would be, if all the data were free”. Because it won’t be free. It might not cost the consumer anything but we will be paying for clicks, ad words, enhanced listings, neighborhoods, zip codes and any other way that a third party can figure to insert themselves into the transaction.
    All of us, the early 2.0 adaptors, need to create a method that will give the data to the consumer and bring the contact directly to us when it is time to be contacted. I say we create a new ReBar NAR Camp. Kind of a joke but NAR is 100 this year and it got me thinking about it’s origins. Bunch of guys, no women at the time, got together with a better idea or came up with the better idea and created a mutually beneficial, client and professional, business model.

  12. Mike Taylor

    August 2, 2008 at 4:44 am

    “the typical real estate professional’s mortgage acumen doesn’t reside much higher on the relative IQ totem pole.”

    Too funny, but true. We as real estate agents are not doing our job if we cannot sniff out these subpar lenders or mortgage brokers. It does seem like the mortgage industry is one of the least transparent professions out there.

  13. Jose

    August 2, 2008 at 5:07 am

    Great post. No one should be afraid of giving information for free. Consumers just want to know the essentials, they don’t want to become one of us. I would even say that they want to know why they need us and that providing great content is the way to justify our commissions and our professions.

  14. Glenn fm Naples

    August 2, 2008 at 6:04 am

    Jeff – really a super first post. Looking forward to your follow-up post on identifying the best mortgage professionals.

  15. Bill Lublin

    August 2, 2008 at 11:37 pm

    Jeff; Ok, so you’re not just a pretty face 😉

    If you can’t dazzle them with detail, baffle them with Bullsh** is the way I learned the phrase from a mortgage guy a long time ago. But that was back in the day when real estate agents were generally the first point of contact, and the good agent always worked to get “their” mortgage lender used because the agent knew the LO would get the deal done for the client. We weren’t worried about predatory lending as much as we were worried about incompetent lending.

    As the lending industry became more sophisticated, and it became easier to get into that industry, you are 100% on the money – the shell game began, the mortgage industry start placing themselves earlier in the transaction so they could capture the buyer prior to the purchase, and the relationship of the agent and the loan officer became different. When I was an active agent, I knew the processor for every loan officer I worked with, and spoke with them regularly. And if I didn;t know the officer’s processor, I would find someone I knew who did, and get an introduction. And getting the buyer approved was a cooperative effort. But the stales werent; as high as they becamse over the last few years.

    Both the real estate and lending indutries need to remember their responsibility to wards the consumer- to educate them and help them through the process as a team that has the consumer’s best interests at heart – and remove the fog of confusion they face.

  16. Ginger Wilcox

    August 11, 2008 at 9:56 am

    The mortgage industry has been like the Wizard of Oz. I look forward to seeing you lift the curtain so we can see the substance behind it. Welcome to AG.

  17. Seth Taylor

    August 25, 2008 at 12:36 am

    He/she who gives the best information the fastest wins is a great statement and has always served me well in this business, as I have always played by this rule. But I just don’t understand how the mortgage business isn’t tranparent already. I cannot think of one business that has more disclosure at the beginning, middle, and end of the transaction. The problem is that most people cannot learn all this information in the time it takes from the loan application to the closing.

    Please be careful about villifying all mortgage brokers as purveyors of a shell game, as most provide a great service that has resulted in benefits for buyers and real estate agents alike. A lot of what I read in this post could apply to other bloated business models as well, including most sectors of the real estate industry. Buying a home is choice and not learning about it is a choice.

    It may seem like the best option is to migrate all business back to the local banks and credit unions but the main reason that mortgage brokers had a rise to 70% market share is because they provided better rates, lower fees, and better service. In addition mortgage brokers actually provide more disclosure than banks, especially in regards to the yield spread. As we know, banks don’t disclose yield spread.

    All of the information is out there for people to learn. If they choose not to learn or can’t learn it, perhaps they should pay a few hundred and have an attorney explain it to them. Anyone who wants to learn the terminology can go to – and use the glossary.

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