Fine Print: Points May Be Included

Bankrate: Read the fine print

There are a lot of things that I do like about Bankrate. The layout is very user friendly and they have an informational section called 'Mortgage Basics' that I think is spot on.

Most importantly, I like the concept. Their tag marketing line is "Comprehensive. Objective. Free." I am passionate about educating people on the Mortgage Market and was very optimistic about a 3rd party publishing accurate information about what rates and lending packages would be available based on daily and weekly market values.

'Objective' to me (and the dictionary) means unbiased, or based on facts. Unfortunately, what I am finding on this side falls well short of objectivity: I have found the current incarnation of Bankrate misleading and advertisement driven.


Rates quoted on Bank Rate can only be attained by purchasing points; opening the door to bait-and-switch tactics used by many brokers and lenders. Also- I tried to use a rate comparison tool they offer. Instead of comparison results, I was introduced to advertisements from companies such as 'Lower My Bills' and 'Amerisave'.

Examples:

Bankrate posts a 'National Mortgage Rates' section. At a first glace I would expect it to reflect somewhere around a rate I could expect if I had relatively good credit:

What visitors see is a 6.09% average rate on a 30 yr fixed mortgage. For those of us who keep a constant watch on mortgage bonds we know a few things:

In very small light print it says "Rates may include points.' The misleading part is that it should read as 'These averages include points.'

Today- a rate of 6.09% would be possible if:

You paid about 3-4 points (3.4% of your mortgage loan amount), had a credit score of 700, and put 20% down.

Mortgage rates are based on mortgage bonds- period. The best rate available today if you have a down payment, great credit, is about 6.375%. If a bank had no employees, no phones, no Internet, and no office (eg- no overhead expenses) they might be able to give to a rate at cost: about 6.125%- but they'd have a heck of a time calling or emailing you with terms.

This is misleading and sets unattainable expectations. An honest broker would not try to offer you a rate of 6.09% without disclosing that you would have to pay about 2 points

If they had been objective and posted the national rate average that the average consumer closed with (all credit scores, all down payment scenarios) we would be looking at a number much higher.

But brokers can submit any percentage on a Good Faith Estimate and can offer any percentage they can dream of: Because rates can be purchased with points. Because the lowest rate offer has a chance of soliciting business. Because there is a time line on when you have to sign paperwork on the property you would like to purchase, and if a higher rate and previously undisclosed fees appear on your closing loan documents right before your house closes- chances are you will sign anyway. Because so much has been invested up until that point.

If Bank Rate truly was objective, they would post an average rate that consumers closed with, and alert their visitors to carefully question companies and brokers posting low rates to solicit business.

What seems to always get in the way of objectivity is often the need to generate revenue. Bank Rate, like any company, has to make money themselves. Maintaining a website takes a team of developers, and strategic marketing so that you know who they are and how to find them.

The question, 'Who is paying the bill' seems very apparent when you try to use any comparison tools offered on the site. For instance- 'Compare Mortgage Rates' provides you with a nice advertisement with each question you answer to produce your quote.

It's difficult to provide truly objective information when someone with a very specific agenda is paying your bill.

This post is not meant to tear Bank Rate to pieces- the concept is terrific and badly needed for people looking to compare mortgage loan companies. But the end product is misleading, and I fear possibly damaging. Even since legal action has been filed, it seems that Bankrate seems to be a sound off for bait-and-switch business tactics.

Many of our clients are putting everything they have into this very important investment. There is no room for higher than expected monthly mortgage payments due to unforeseen rate increases and fees disclosed only in the 11th hour. We give good faith estimates that include worst-case-scenario rates and expenses so that they are informed, prepared, and protected at the closing table- no surprises.

We believe that this is the way it should be and look forward to the day when this is made a standard practice within our industry.

An article about a lawsuit against Bankrate - Low quotes to get your business

There seems to be a solid theme from my past few blogs- so I'll try to turn my attention more to the Real Estate Market next week. I did want to post a recent article from Barry Habib's site- Mortgage Market Guide.

For those of you not familiar with Bankrate- this is a large website drawing millions of visitors. Their claim is to list companies and their rate and cost offerings for mortgage loans. Again, we are finding that lower-that-possible rates are being posted on this website, and in turn published in newspapers, in order to draw in clients.

Just like King Kong clutching the top of the Empire State Building…Bankrate, the "800-pound Gorilla" of online home loan rates is falling under fire. The Bankrate website draws millions of visitors, as it promises to give a listing of companies and their rate and cost offerings for mortgage loans, and even passes that information on to most of America's largest newspapers as fact. It proclaims itself to be a tool for the consumer, just delivering information and advice…but as many reputable mortgage lenders have known all along, it turns out that consumers are finding the reality of Bankrate to be a little different.

A lawsuit is in the works against Bankrate, after hundreds of consumers complained about lenders who failed to deliver the rates and terms they promised on the website. In fact, one lender actually told a Bankrate employee that a consumer would need a "direct pipeline to God" in order to qualify for the rates and terms they advertise on the site. Why would a lender post rates and terms they are unwilling or unable to honor? To lure in consumers who truly want to believe that they are getting an interest rate or cost package that is significantly lower than all the competition. And by the time the consumer finds out they are not getting the package they were promised, they likely have wasted enough valuable time that they feel somewhat stuck to use whatever terms the lender hauls out.

Of course there are real reasons that the terms of a loan package can change mid-stream. When working with a reputable lender, it would generally only be caused by a change from what was submitted on the loan application. Some examples of this include a change in credit, income, employment, debts or assets.

So are there any reputable lenders on Bankrate? Yes, of course. And some of those lenders were the ones who prompted the lawsuit in the first place. As they were posting real interest rates and terms they could actually honor, they could see that consumers would instead be contacting the less-reputable lenders who were posting completely unrealistic rate and cost offers. And the consumer might not find out the difference until it was too late. Mortgage lenders get their money from essentially the same places - so anytime there is a very large difference between quotes on identical programs, it pays to ask some questions.

Bottom line - the internet at large can be a great place to gain basic trends and information about a home loan, but the Bankrate lawsuit illustrates the need to work with a Trusted Advisor. A home loan is generally the largest financial transaction of your entire life - working with a real professional who can advise you on correct strategies and programs for your needs is a must. And like your mom or dad always used to say - you get what you pay for, and solid advice from a real professional may cost more than a bargain basement operation.

Most importantly, remember that the absolute lowest rate and terms on the WRONG financial strategy or loan program for your life will prove to be far more costly than a competitive rate package on the RIGHT strategy, which correctly fits your financial goals and needs.