CHAPTER 15
Using the Internet the Right Way
The Internet provides unprecedented speed and access to information. Your loan closes in a matter of days, not weeks. Because of the Internet, “Google” is now a real word. Thanks to the Internet, it takes just a few seconds to get a question answered. Encyclopedia? Ha! Nothing is as fast and as handy as the World Wide Web, right? Doing things faster and with fewer people keeps costs down and helps to keep rates lower than they otherwise might be.
15.1 HOW HAS THE INTERNET HELPED MORTGAGE LENDING?
As with other industries, it’s changed the landscape. It’s fast, efficient, and highly productive. Just a few short years ago, even though people had the option of applying for a mortgage online, just a small percentage would do so. There were two obstacles that prevented lenders from getting the full benefit of using the Internet to speed up the process: universal language and consumer attitude. Now, however, there are two standards in electronic loan processing: Fannie Mae’s and the Mortgage Industry Standards and Maintenance Organization, or MISMO (mizz-mo), standard.
Do you recall, as discussed in the first chapter, how loans are now digitized? Under the same universal guidelines as established by Fannie Mae and MISMO, your loan is delivered electronically rather than manually.
When you apply for a home loan at a mortgage company’s website, your loan is downloaded and read by a universal protocol using these standards. Even though different loan companies may have different-looking websites and different loan origination systems, those loans are still based upon the very same language. These standards ensure that mortgage companies don’t have to have a particular brand of software or online application in order to read and review the application itself. Once the application is downloaded to the loan officer’s computer, she can do a multitude of things that would normally take days to do. In the course of about five minutes, a loan officer with a downloaded file can:
Order the credit report.
Order title insurance.
Order hazard insurance.
Submit for an AUS approval.
Third parties can also deliver documentation electronically to mortgage companies and closing offices because everyone now operates under the same MISMO standards—for electronic document delivery, electronic loan delivery, and storage.
15.2 SHOULD I APPLY FOR A MORTGAGE ONLINE OR MEET WITH A LOAN OFFICER?
That’s entirely up to you but you’ll likely do both. There is no right or wrong way, just personal preference. Some people feel more comfortable when they sit across the desk from a loan officer, while others would rather be eaten by ants than sit through a boring old 1003 interview. But for convenience’s sake, applying online is certainly faster and easier as long as you’re comfortable with the online process. Once you’ve selected your loan officer, you’ll be asked to apply, typically online. Few lenders today even issue paper loan applications to clients. The convenience of the web has slowly eliminated much of the paperwork required and the emergence of an entirely “paper free” environment is here.
When you complete an online application, you’ll get hard copies of everything you filled out on the website, as well as other required disclosures and closing cost estimates. Applying online doesn’t mean everything is electronic; it only means your lender or loan officer has taken your loan application in a way that was different from what it was just a few years ago.
If you feel uncomfortable applying online, there’s no reason to. Just ask to come into the office or have the loan officer fax or mail an application to you. If you fax or mail in a loan application, your loan officer will take that information and turn it into an electronic file to begin the loan process. Fax machines are quickly becoming a thing of the past in the mortgage industry as items are either digitized or scanned. I’ve heard of some loan officers who actually require the customer to apply online.
15.3 HOW CAN I USE THE INTERNET TO FIND THE BEST MORTGAGE RATE?
Carefully. But there are some good places to start. One of the best-known websites for interest rates in general and for mortgages specifically is BankRate Monitor, found at www.bankrate.com. BankRate Monitor both surveys area lenders for mortgage rates and provides a venue for mortgage companies—brokers as well as bankers—to advertise on the same page.
The mortgage section lets you select which major city and state your property is located in, and whether you want a conforming or jumbo quote. It also breaks down fixed- and adjustable-rate mortgages. If you live in San Diego, you would fill in your city and state, then click on your mortgage requirements, and voilà, lists upon lists of mortgage rate quotes appear on your screen. On these rate quotes you’ll see loan parameters, such as the rate, the APR, how long the rate is good for, and when the rate was posted, as well as any other comments lenders may add, such as, “We specialize in loans for hamster farmers!”
The problem with websites such as bankrate.com or other rate comparison sites is that there is no quality control check in place. You will see interest rates that seem too good to be true, and they always are. Such lenders have one thing in mind and one thing only: to get their telephone to ring so they can begin the sales pitch. And if their rates aren’t the absolute lowest, then why would you call them? Online advertisers know that and quote rates as such. You can certainly begin your rate quest on bankrate.com, but you’ll most likely end up at a local lender or someone you’ve been referred to.
One thing you’ll notice is that there are a great many lenders who advertise on the Internet, and you’ve probably never heard of most of them. Is that a bad thing? Of course not, but you do need to scrutinize them with a tad more diligence than lenders who were referred to you by your agent or your friends. Is Big Shot Mortgage offering an interest rate of 4 percent while everyone else is offering 7 percent? Do you think Big Shot Mortgage has a special edge on the mortgage market? Of course they don’t. But there are some ways to help qualify those companies you see advertising on the Internet.
TELL ME MORE
First, visit the lender’s website. Easy enough, right? But you’re not looking for claims such as “We offer great rates” and “We offer great service” or any other such patter. Instead, compare the interest rate quotes on their website with others that are advertised on the Internet. Do they match up? If they do, are they for the same date? You can’t compare interest rates unless they’re for the same date, and even then the markets may have changed. If you get interest rates that are much different on the company’s website than you see advertised in other places, take the advertisement with a grain of salt.
Another thing to determine from lender websites is whether they’re in compliance with federal Truth in Lending laws by quoting interest rates in the correct and legal manner. If you see a rate quote, do you also see the corresponding APR quote? Do you see the loan amount used for the quote? If you see a lender or broker quoting interest rates on their website without complying with federal statutes regarding rate quotes, you might think of moving on.
Are they operating legally in your state? Most states have licensing laws for lenders and brokers. If someone is advertising in your state, are they doing so legally? A broker’s website usually lists the states where the broker is authorized to do business. If you find no such list or nothing about their licensing, don’t consider this lender or broker. I know this sounds a little tough, and quite frankly, there are probably some very good lenders and brokers out there who might get dropped from your list because they didn’t advertise properly or disclose their licensing authority. But think about that for a moment if you are tempted to apply with someone you’ve never heard of just because they advertise a great rate while at the same time they’re in flagrant violation of federal Truth in Lending laws. Do you really want to take that chance?
15.4 WHAT ABOUT ONLINE COMPANIES THAT ADVERTISE THEY WILL HAVE LENDERS “BID” ON MY MORTGAGE LOAN?
What a change from just a few years ago. Today you can fill out a single application online and have several lenders or mortgage brokers provide you with their best quote after reviewing your application. You may not get anything better than what you can get locally, but you still get four mortgage quotes without having to complete four different applications.
Lending Tree is perhaps the most famous, but there are countless others that will send you “spam” that says the same thing: “Fill out one application, let lenders fight for your loan.” These online companies are nothing more than lead services. If you apply on one of these sites or fill out their online form, you’re doing nothing more than letting a lead-generation company know that you’re in the market for a home loan. That company, in turn, sells your name and information to a lender—or even another lead company.
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Before the advent of various “mortgage bidders,” it was unheard of for a consumer to have multiple mortgage applications out at once. Not that it was illegal or anything, it was just that if one lender found out that you had applied somewhere else, then the lender wouldn’t approve your loan unless you canceled the other ones.
Not so today. Nowadays, some websites actually encourage you to apply, not using several mortgage applications, but just one. After you complete the application, it is sent to a select group of lenders or brokers for their review. They’ll see how much money you make and what your current debt load is, and they’ll get your credit report along with your credit scores. After an evaluation, those lenders will make an offering, which you can accept or reject.
This is a relatively easy process for making multiple applications. Sometimes, however, you don’t know who’s going to be bidding on your loan or who will see it. You might see a list of approved lenders, but you might also come back with a quote from someone you’ve never heard of or who doesn’t have an office in your city.
The mortgage process has been made both easier and harder at the same time. As the loan approval process becomes more efficient, lenders and loan officers can find themselves in a more difficult situation when it comes to marketing. After all, a loan is a loan is a loan. Lenders have turned a mortgage into an off-the-shelf commodity, making it harder for them to differentiate themselves from other lenders. In most cases, anyway.
15.5 WHAT HAPPENS IF I CHOOSE AN ONLINE LENDER BUT THE CLOSING PAPERS ARE ALL WRONG?
That depends upon how “wrong” the papers are. If it’s something minor that your settlement agent can change, it might be fixed right there at the closing. But what if you were quoted 3 percent and all of your documents show 5 percent? If you’re at the closing table getting ready to move into your new home that day, there isn’t a whole lot you can do about it. It might be too late. Sure, you can walk away from the closing, but you also might lose any deposit money you placed up front. You just might be stuck. Why would a lender do this? Maybe because they can. They’re totally out of compliance, and the TRID does not reflect the Closing Document.
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If you chose an online lender who doesn’t have a physical office in your area, then you can bet that office doesn’t call on your local bevy of real estate agents. They don’t have a local following. They don’t have loan officers in your town. They don’t have a reputation to uphold. So what if they screw up your deal—what are you going to do about it? Tell the real estate agent? File a complaint with their state agency? Local lenders, or at least lenders you know and trust, keep a keen eye on their marketing and sales efforts. If they continually mess up deals, then guess what? No more referrals. Their business reputation is tarnished and they could find themselves out of business. Not so with an online lender. If they mess up and you’re mad at them, so what, right?
When there are things that are not accurate at the settlement table, there’s nothing else you can do except reschedule your closing. The offending lender will need to have the closed loan in compliance; otherwise, it won’t be eligible for sale in the secondary market.
I am not suggesting that you should never, ever use someone you found online. I ran an online division for several years. It’s simply that if you are compelled to use Big Shot Mortgage Company, do your homework and watch your step. You might very well get a better deal, but you just need to make sure they follow through with their offerings. Research the company first, as outlined in Chapter 11.
15.6 SHOULD I AVOID ONLINE-ONLY LENDERS?
When you work with an “online-only” lender, there is no physical office where you might meet your loan officer; instead, you speak to a customer service person at “1-800-whatever” to get your questions answered.
You need to establish a working relationship with your loan officer and have someone who is there when you have questions or things go wrong. You could use an online lender to help the loan officer down the street sharpen her pencil, so to speak, but if the rate quote from the online company is too low, you’ll probably not get much cooperation from your in-town loan officer. Your loan officer will simply tell you the rate can’t be guaranteed and if you want an online lender then go right ahead.
The trouble with the Internet is that every single lender and mortgage broker has a website, which makes it difficult, if not impossible, to learn about the mortgage company based upon their site. Just as mortgage bankers can spend millions of dollars on marketing only to have an incompetent loan officer ruin it all for them, so, too, can a flashy website make mortgage lenders appear to be more than they are.
There’s just no way to evaluate a company by looking at its site. Mortgage websites try to overcome this problem by providing testimonials from previous clients and pictures of happy homeowners, but even those can be faked.
The online-only business model has been tried to some extent, and there are a few national names that command the online-only space, but they have never taken over the market as many once feared. With all the standardization of online applications, instead of online lenders putting traditional lenders out of business, it happened the other way around. Traditional lenders put up their own websites. The best model is using a local loan officer using the company’s website to apply for a loan. You want a relationship, not simply a transaction.
15.7 I KEEP GETTING EMAILS FROM COMPANIES WITH SOME VERY COMPETITIVE OFFERS. SHOULDN’T I AT LEAST EXPLORE THEM?
No. You’re wasting your time. The emails you get are nothing more than spam. As a matter of fact, they’re rarely from mortgage companies. In connection with an article I wrote about the practice of mortgage “spam,” I decided to answer one of the many emails that appear in my in-box nearly every day.
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I finally responded to one of these emails that guaranteed me the lowest rate and here’s what happened. First, I hit the “reply” button and said “thank you,” but I got an error message saying the email address wasn’t valid. I then clicked on the link embedded in the original spam and went directly to a website quoting interest rates that were a full 1 percent below the market. In clear violation of federal advertising guidelines, I might add.
I then clicked on another link on that site and went to a form that asked me to fill out some information. I filled out the form, saying I wanted a refinance for my home in Austin. About three days later I got three different emails. Two of the emails said “thank you” for the information request and had a link back to their own website. Again, when I tried to reply to the emails, I got an invalid address. I also got a telephone call from a local company I’d never heard of. “Hi, Mr. Reed, I’m Linda Loan Officer and I’m following up on your request.” I called her back and she wanted an application, but before I complied I asked for her interest rate quote. Sure enough, it was nowhere near what was quoted in the fake advertisement from the original email. That’s because she was only supplied my information when she bought my name and phone number from a mortgage lead service—the owners of the original mortgage spam who kept themselves secret from me. She had no idea about any rate quotes sent through the email but would be more than happy to quote me one from her company. Yeah, right.
If you respond to one of these emails, be wary, and whatever you do, don’t complete an application with sensitive data such as your Social Security number or bank account numbers. Identity theft is big business these days, and one of the easiest ways people can steal someone’s personal information is to have them complete a phony loan application. That information could then get stolen, sold, or otherwise used and misused. If you don’t know whom you’re dealing with, don’t respond to their email, and certainly don’t fill out their “loan” application.
15.8 CAN I GET MY LOAN APPROVAL ONLINE?
You can, but lenders won’t hand you the keys. The only thing that’s really done online nowadays is taking the loan application; a loan officer will then call you back. Lenders learned a lesson with online loans and “instant” approvals when borrowers began questioning just how good their approvals actually were.
Loans will still have to be documented and lenders will feel better about issuing an approval after review of the physical file. When you see a website that says “Get approved in minutes!” or something similar, understand that they operate in the very same way as anyone else. They don’t have a corner on the instant-approval market.
15.9 IS THERE ANY WAY I CAN CHECK ON RATES WITHOUT CONTACTING A LENDER?
Do you want to check current rates or get a history of where interest rates have been for, say, the last 10 years? Do you want to compare interest rate trends or see how volatile an interest rate index has been over the past few years? There are various websites that provide historical rate data at no charge to the consumer. Perhaps one of the most extensive sites is HSH Associates, or www.hsh.com.
At this site you can view various ARM indexes and compare them to one another. Are you looking at a one-year treasury ARM and a LIBOR ARM? Then go to the site and compare where the rates have been over the years. This is a valuable tool not only for comparing historical rates but for spotting potential interest rate trends. Are rates currently at a high spot? Then maybe an ARM or a hybrid is a good choice. Do rates appear to have bottomed out? Then perhaps it might be a good time for a fixed-rate mortgage.
The HSH site is for consumers because it offers plenty of tools you can use to help you with your mortgage selection. Besides historical rate trends there is a lot more useful information, including multiple financial calculators, a loan library, and a host of other free stuff. You’ll also notice that there is the ubiquitous interest rate survey similar to ones found at BankRate Monitor, where lenders and brokers advertise interest rates. But the real value of this site is to get a sense of where interest rates have been and to be able to compare them side by side.
Do you want to get current interest rate information? There is no single source for you to track mortgage bonds or mortgage-backed security data; in fact, I don’t know of any place where mortgage bond pricing can be viewed. Instead, you’ll need to follow trends by watching a 10-year treasury or by hooking up with a loan officer who follows mortgage bond pricing. Lenders pay a lot of money to get mortgage bond pricing for use by their secondary market and production managers, so don’t expect this kind of information to be lying around on eBay somewhere. You, as a consumer, don’t have real-time access to such quotes.
If you want to get national averages on mortgage rates—the same information that’s published every week in your newspaper—then log onto Freddie Mac’s website at www.freddiemac.com. Here is where Freddie publishes its weekly national mortgage survey that compiles the average 30-year and 15-year fixed mortgage rates for different parts of the country. Here you can compare your current rate quotes with interest rate averages found in your area. While this isn’t as good as getting real-time mortgage bond pricing, you can at least see if the quotes you’ve been getting are in the ballpark. Remember that this is a weekly survey, not a live quote, so keep that in mind when comparing your rate with the regional average.
Both Freddie Mac and Fannie Mae (www.fanniemae.com) have excellent websites for home buyers. They won’t quote you mortgage rates because they’re not mortgage lenders, but they do have a wealth of information about their respective loan programs.
15.10 CAN I TRACK MY LOAN APPROVAL ONLINE?
That depends on whether your lender has the type of system that lets you do that. If a lender or mortgage broker has the ability to let you track the status of your loan application, they’ll let you know at the beginning of your loan process. You’ll also choose a user name and password to use when you log on. There are variations on this theme, but in practice, most systems allow you to log onto your lender’s website, type in your loan number or password, and see a status report on where your loan is in the approval process and what has or has not been done.
Be careful here on two points: First, lenders do a lot of stuff in the background that’s considered part of the loan process. They order flood certificates and tax certifications, but you won’t necessarily know when and whether they do. All loans have to have a certificate stating whether your house lies in a flood zone. That’s pretty important information, fair enough, but it’s not necessary for you to ask your loan officer if they’ve ordered your Flood Cert.
All that being said, online status systems won’t reflect absolutely everything that’s in your loan process; just expect to see the “biggies” in your file, such as appraisal work being done, approvals issued, loan papers drawn, and so on.
Second, if you log onto a loan status site and see that some things haven’t been done yet, don’t panic. There will be times when a lender simply makes a mistake and forgets to order your appraisal, but things have to happen in order.
For example, most lenders don’t like to order appraisals until the inspection has been completed. After all, there’s no sense in ordering an appraisal for a property where the roof is falling in. If you log onto a status website and something’s not checked, make sure it’s a situation of there not being time to perform a particular loan function rather than someone having forgotten about your deal altogether.
On a similar level, there are web-based applications called transaction management systems (TMS). These Internet applications are usually separate from a lender’s software but can be accessed by not just the lender and customer, but also by the title companies and settlement agents. Here you can log onto a website, type in your code, and see a more extensive list of process items and their status.
Such systems are designed to assist the real estate agent, lender, and title company communicate more easily on a loan transaction. When a lender wants to order an appraisal and title report, the lender logs onto the site, uploads the property and borrower information, and all the various orders are placed at once, at one single site. Then, as the other parties in the transaction complete their work, they, too, return to the website and upload their work, and a check is marked next to their name showing everything as “completed.”
There are other TMS applications designed for the real estate agent that help track their closings and check the status of their files. There is now an application that combines a Multiple Listing Service (MLS) and a TMS at the same time. Now, when an agent lists a home and an offer is accepted on the property, the sales contract is sent to the title agency and the lender automatically. At that point, the lender can forward the contract directly to an appraiser while at the same time ordering the title report. When the appraisal is completed, it’s sent as an electronic attachment to the lender.
The customer can log onto a special site that tracks the status of his loan application and tracks various documents floating throughout the system. Is my appraisal in? Check. Is my loan approved? Check. Can I view my closing papers? Check. These systems aren’t widely available and not all MLS systems have this feature. In fact, as of this writing, there was only one MLS that also had a TMS embedded in the program.
15.11 WHAT ARE SOME GOOD WEBSITES CONSUMERS CAN USE TO HELP THEM?
There are probably thousands of them. Really. Your own real estate agent’s site should be chock-full of consumer information. Besides Fannie’s and Freddie’s sites, which I already mentioned, let’s review some of the websites that provide useful home loan information without also trying to sell you something.
www.realtor.comThis is the official website for the National Association of Realtors and is a good place to start looking for a home if you have no idea where to start. Here you can type in your desired location, how much you want to pay, and so on. You can also find a list of realtors if you don’t have one yet. And you can find a lender, or a mover, and pick up some handy consumer information about home buying.
www.hud.govThis is a big site, paid for with taxpayer dollars, which gives you all you need to know about FHA loans—buying, selling, owning, renting, you name it. It’s very consumer-friendly and a nice starting place if you’re thinking of getting an FHA mortgage loan.
www.nahb.orgThis is the official website for the National Association of Home Builders. It’s very much like the site at www.realtor.com, but it only lists new homes or homes under construction. You can view new homes by location and price range, as well as look at new home plans online. Need some names for a builder? You can find that list here as well.
www.va.govThis is the website for VA loans. There’s lots of information on VA loans and how to qualify for them, along with forms that qualified veterans might need. This section is actually a subset of the Department of Veterans Affairs, but there’s a direct link from the main page to the home loan section.
www.fsbo.com“For Sale by Owner,” or FSBO (fizz-bow), homes are listed here from all parts of the country. Here’s a place for homes that never make it to an MLS, where people want to save some real estate commission and sell the home themselves.
www.realtytimes.comThis consumer site is chock-full of articles and tips, written by industry experts, on everything from how to clear up your credit to what’s happening in Washington, D.C., on mortgages. There is also a site specifically for real estate agents, www.agentnews.com.
www.myfico.comThis site is owned by Fair Isaac Corporation, the company that developed the FICO score. It has information on credit, credit scores, and credit reports. Even though consumers are allowed to get one free credit report per year, there may be times when you need a second one.
www.aarp.org/revmortIf you’re considering a reverse mortgage, you need to start here. This site explains the reverse mortgage process and the Home Equity Conversion Mortgages (HECMs) better than anyone and offers commentary and consumer tips from the AARP.
www.bbb.comThis is the site for the Better Business Bureau. You can type in a company’s business name, its website, or its telephone number, and the Better Business Bureau will research records to see if there is any information or complaint on that company. While this isn’t foolproof—a scam artist can still be a scam artist whether or not there’s a BBB complaint on file—it’s a good starting point.
There are countless others. Perhaps too many. But almost all of them carry basic consumer information with tips on their particular area of expertise. You won’t get any advertisements on VA and FHA sites, but you’ll certainly get your share on other sites. Some sites also have old information that doesn’t apply in today’s world, so be careful.