Instead of responding to numerous emails I’m reducing my quick and dirty thoughts to this post… so please excuse the mortgage speak without detailed explanations and definitions…

Move created a mortgage ‘decision engine’ that effectively processes relative financial, credit and other risk based factors to generate mortgage rates, their costs, as well as subsequent pre-qualifications and approvals for consumers.  They simply tweaked a different loan qualification system and turned it into a mortgage specific version.   They’re a big technology company that employs smart people, so I’m sure they’re doing a good job with that.  Move then passes this neatly wrapped exclusive lead to Cornerstone Mortgage, the licensed mortgage banker who processes the rest of the required paperwork and closes the mortgage with the borrower.

I’m sure they’re are all sorts of reality TV worthy details to air, but I don’t know nor do I care about Move and Cornerstone’s internal business relationship or how their offering screws with a given real estate brokerages internal lenders (since Move is integrating this mortgage tool with listings provided from real estate brokers & their MLS’s).

Automated mortgage qualification/decision/approval engines have been around for over 10 years, initially only used internally by those in the mortgage industry.  This class of technology has increased in efficiency and ease of use to the point where a slightly tech savvy consumers can now effectively ‘qualify’ themselves for a mortgage.  As such, mortgage lead curators like Google (Comparison Ads), Zillow & Lending Tree as well as bankers like DiTech and Quicken Loans have used variations of what Move is providing for quite some time… all in the name of capturing the Internet mortgage consumer.

The main degree of differentiation in Move’s offer to the general consumer is the exclusive relationship with a single mortgage banker, Cornerstone, allowing the pairing to monitor and control the consumer experience much more efficiently.  I suppose their user interface is real nice and fresh too.  Otherwise you’re not likely to find anything new or novel about MortgageMatch.

Let me explain in terms that are easier to understand, in dollars and sense.

Below are the rates & costs for a given scenario (highest credit quality, provable income and assets, low risk loan & property factors) on Mortgage Match:

MortgageMarket Rate and Program Quote

Points to note:

• 309,000 Loan Amount
• 4.5% interest rate
• Fee for 0.750 point = $2317.50
• Lender Fees & Closing Costs = $6060.20

Next are two examples of what was available directly from the wholesale market using the exact same given scenario- High quality borrower and property qualification factors, in the same zip code for the same 30 year fixed interest rate within minutes of pulling MortgageMatch’s quote.  (I can’t tell you who’s providing the info so as not to compromise my sources, however, table B references what was available from Citibanks wholesale division earlier today… do not call Citibank and ask for their wholesale department, they don’t deal with consumers directly):

A. Large Mortgage Banker Direct Pricing

B. Direct Wholesale Rate Mortgage Pricing

Please draw your attention to the 4.500% interest rate in each table.

In table A. the price next to the rate is 100.706.  In table B. it is -0.721%.  Two different formats but similar results that state this 30 year fixed 4.5% interest rate will yield or pay .706% and .721% (respectively) of the loan amount to the borrower.

Let me make this even clearer.

The price in Table A  yields or pays $2181.54 to lock this 30 Yr-Fixed 4.5% interest rate.   Borrower must still pay 3rd party closing costs.

The price in Table B yields or pays the borrower $2227.89 to lock this 30 Yr-Fixed 4.5% interest rate.  Borrower must still pay 3rd party closing costs.

In MortgageMarkets offer, they are charging the borrower .750% of the loan amount or $2317.50 for their 30 Yr-Fixed 4.5% interest rate.  Borrower must still pay 3rd party closing costs and additional Lender Fees.

So, MortgageMatch is really making ~$4500.00 plus additional Lender Fees, not 2317.50 plus additional Lender Fees (and 3rd party closing costs).

That’s expensive.

For me, its always been about unfiltered access to wholesale mortgage rates, directly from the source, subject to no manipulation by any 3rd party… pure information of the highest integrity… radically transparent.  Good customer service is expected, I want to know exactly what rates I qualify for and at what cost.  I want to pay a fair, clear fee for value received from a mortgage professional.

Show me what I truly qualify for and set the fee to process my mortgage in simple dollars rather than ambiguous ‘points’ that have nothing to do with the interest rate.  If Joe Mortgage charges $2000 and John Mortgage charges $4000, John has to justify his larger fee with a tangible explanation and he’s gotta back it up with references.

This dynamic still does not exist in the marketplace and until it does all these ‘new’ offerings are doing nothing but increasing the velocity of the same old convoluted, untrusted mortgage model.

I really look forward to the day when the greater mortgage industry implements technology and practices that comply with true full disclosure policies rather than financial charades.  In the meantime, if you need a reference to a mortgage professional who discloses things as I’ve described, hit me up.

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Move Launches MortgageMatch- Same Cat, Similar Spin

According to Nate Moch from the Zillow Blog:

Since launching Zillow Mortgage Marketplace a little over a month ago, we’ve received all sorts of recommendations and feedback from our users. We have been busy fixing a few things since then, but we’ve also recently added features the our lender community has asked for. We appreciate the great suggestions we’ve received and hope the new offerings we added will be useful tools for the 2,000+ lenders in the marketplace.

The improvements: a Quote Pre-fill, Loan Quote Flags, and Lender Leaderboard attempt to address some of the inefficiencies within the community, specifically the latency and accuracy of information from participating lenders and consumers.

Quote Pre-fill reduces redundant data entry for the mortgage professional making the act of filling multiple, similar consumer quote requests more efficient.

Loan Quote Flags allows the professional community to police itself from traditional mortgage gamesmanship by reporting obvious grievous actions.

Lender Leaderboard ranks professionals by the number and quality of reviews they’ve received.

The big Z has also begun to offer some nice intuitive calculators…

All in all, a positive direction for the community, though probably still not enough to increase the viability of the Marketplace to a point of an acceptable client pull through rate ratio, for the upper end professionals.

Zillow still has to markedly improve on a couple areas before they become a viable community for anonymous, transparent lending a.k.a. Mortgage 2.0:

Decreasing and normalizing the latency in information exchange between the consumer and professional.  ‘Vanilla quotes’ come back within an hour, but quote requests that deviate from the conforming norm take substantially longer or go unaddressed.  Both time frames are far from ideal.

‘Accurately and efficiently quoting a myriad a loan scenarios’ is an oxymoron.  With the market changing daily as far as product availability, a professional who’s not diligent in their research may misquote unintentionally and get flagged even though they were genuine in their actions.

Zillow is still completely beholden to their professional community to provide the most critical information, rate and price, in a truly transparent fashion.

IMHO the big Z is addressing this dynamic one step too late in the infochain-link:

Wholesale Market-Professional-Zillow-Consumer

Ideally:

Wholesale Market-Zillow-Professional-Consumer

would be far more effective, alas far more difficult to pull off…

Today Zillow is still closer to Bankrate 2.0 than Mortgage 2.0 (I’m throwing 2.0’s around here) but they’re trying hard and getting better, taking continued important steps to ultimately getting it right…

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Zillow Mortgage Marketplace, Cultivating a Better Crop

Searching Wikipedia, Transparency has no less than 17 definitions; focusing on the ‘Economics’ classification:

“In economics, a market is transparent if much is known by many about:

1. What products, services or capital assets are available.
2. What price.
3. Where.

A high degree of market transparency can result in disintermediation due to the buyer’s increased knowledge of supply pricing.

Transparency is important since it is one of the theoretical conditions required for a free market to be efficient.”

I was going to delve into it’s philosophical definition and application, but that would cause too many peoples heads hitting their keyboard out of boredom.

‘Web 2.0′ is all about augmenting the speed and lucidity of delivering #’s 1-3.  The very expensive technologies that ‘disintermediated’ traditional commodity brokers on Wall Street are now readily available at far less cost to most any industry that deals in information, this much we know.  I can today, while being out of the industry as a practicing mortgage broker, monitor what’s going on in the industry better than I could when I was in the day to day grind.  Much of the valuable information that was available in ‘expensive’ short supply just 2 years ago is now readily available in buckets.

To a great degree, the resourcefulness of the trusted crowd in the re.net space allows me to maintain a keen perspective about the industry in a fraction of the time.  Any consumer who reads the mortgage websites indexed under my re.net tab could assimilate 90% of the knowledge they need to select a mortgage product that is fit for their personal situation.

It makes me smile when I read affluent bloggers post about how valuable their advice is as they simultaneously give it away.   Here’s six figures worth of advice, for free.  I’ll even expound on Roberts advice:

Next time you take out a mortgage, commit yourself to making the payment a 30 year fixed amortizing loan yields (20 or 15 year fixed payments are even better if you can afford it) that your situation qualifies you for.  Execute a 5 year ARM Interest Only (or ‘cheaper’) product, take the difference between your ‘qualifying payment’ and your actual payment, and invest it.

Thats valuable counsel, now its out there for free…I just disintermediated myself

The mortgage industry, with it’s migration into the Mortgage Backed Securities arena of Wall Street, is square in the same cross hairs that pre dot bomb ’stock brokerages’ found themselves.  The environment is strikingly similar: market has recessed substantially, quality information is getting easier and cheaper to find, and its ‘brokers’ are fighting for their careers.

Remember when stock brokers repeatedly uttered how ‘people need my advice’ to choose the right investment vehicle?  If someone would have told them then that they would be selling mortgages (or real estate) in the near future, they’d have laughed so hard at you they’d cry.  Speculative investment vehicles are far more difficult to evaluate risk in compared to a mortgage, yet I hear many of todays current mortgage practitioners repeating the same ‘people need my advice!’ jargon.  Mark Twain said, ‘History may not repeat itself, but it does rhyme’…this is straight-up Nursery style.

Brokering information inherently gets easier, faster and cheaper.  If you’re in the mortgage business and you can’t deliver more information to consumers easier, faster and ideally cheaper than your competition, your value is diminishing.  The quicker a mortgage (and real estate) professional learns to become an uber resourceful information broker, the more ‘future proof’ you and your business becomes. Banks have already clued into this, they’re positioning themselves to crush the small to mid size shops, continuing to keep Washington in their pockets by lining it’s pockets, to keep the unscientific disclosure laws in place.

How does one compete in an industry that has disparate transparency/disclosure rules?   Get lean, efficient and be more transparent than the next guy.  It’s always been about survival of the fittest, today is no exception…you must offer more information, be quicker, better and cheaper than your competition.

Mortgage professionals had best stop trying to refine their image on the outside and instead get real personal with how they do business internally, or it’s on to yet another career…

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The Economic Realities of Transparency for The Mortgage Brood

There has been much debate about Yield Spread Premiums (YSP’s), from overall required disclosure policies to their potential abolition.  All mortgage professionals have a personal opinion on the topic, some resort to denial when it comes to their relative importance in relation to the overall mortgage transaction, others will get down right hostile regarding the topic of proper YSP disclosure and use.

Regardless of status-quo industry opinion, YSP disclosure is a vital component to address amidst the mortgage mess we’re in. Many other industry pundits have writtten about YSP’s, opinions vary as widely as the colors of the rainbow, most of the articles I’ve read were written after this article was posted on the Active Rain real estate social network.  The post pales in comparison to the comment thread, which is most entertaining.  The same article is linked internally (below) as well…

I started writing about YSP’s in early 2006, even before this site became a ‘blog’.   They’re an interesting and important topic because Yield Spread Premiums drive business transactions in the mortgage industry, this is a hard fact.  As a former mortgage broker (owner/operator), YSP’s were a focal point of who we did business with as a matter of practical business economics.

The wholesale lender who offered the ‘best pricing’ (paid the most in YSP’s for a given set of products) often got a bulk of our business, unless their processing was so terrible it caused closing dates to be missed or something of that magnitude.  Any broker or banker who tries to represent otherwise is either lying or talking out of both sides of their mouth.

Improper disclosure of YSP’s have had a staggering detrimental effect on this industry.  Very viable, valuable programs like Option ARM’s were destroyed because of improper YSP disclosure.  Brokers sold these programs based on the low monthly payment option they offer and then juiced them with margin that caused consumers to defer inordinate amounts of interest to the loans principle balance and caused future rate adjustments to blow people right out of their homes.  Similar dynamics exist within other mortgage programs as well.

I’m willing to step out there and say that improper YSP disclosure and use are the cause for many foreclosures in todays market.  YSP’s foster higher interest rates via higher margins.  Higher margins are especially apparent when an ARM adjusts, (can) cause substantially higher payments.  Higher payments, or payment shock, cause defaults and subsequently foreclosures.  It’s not a stretch to ascertain that proper YSP disclosure, implementation and greater consumer understanding could have prevented a number of foreclosures.

Its worth mentioning that I’m not here to lobby for the elimination of YSP’s…eliminating Yield Spread Premiums would be a catastrophic mistake, they are a vital tool for many consumers in the market for a mortgage.  The average mortgage broker(age) would close as soon as their current pipeline of grandfathered business dried up if YSP’s were outlawed, it would crush the small business owner brokerages, although this may appeal to big business and the retail banks.

Properly enforcing how YSP’s are disclosed and used is vital to a fledgling mortgage broker (and banker) industry. Many in the industry will argue that Wal-Mart or some other retail outfit doesn’t disclose how much they make on a given product so why should they?…Such analogies are akin to comparing apples to arsenic. It’s worth mentioning the ridiculous laws that allow for mortgage bankers (and retail banks) the leeway to NOT have to disclose YSP’s while mortgage broker must disclose them.  Hypocrisy isn’t a strong enough word here to describe the two-faced mug of the greater mortgage industry.

If their definition is as the first line of this post dictates, then every last penny of YSP on any given loan must be disclosed and credited to the consumer.  If a wholesale lender is offering ‘50 bps (.5%) in YSP for closing a 5 Year ARM Purchase’ as this months ’special’, that ’special’ must be credited to the borrower. 

Mortgage professionals must recognize that they are not entitled to YSP’s, they’re not a tool of personal enrichment, not a profit center, and are the business of the consumer. They need to drop the elitest attitude, compete on service and experience, and most importantly of all disclose interest rate pricing with 100% transparency, not 90% or 99%…100%.

For the mortgage professionals who say ‘I already disclose/do business this way!!’  Even if you are telling the truth in fact, nobody believes you.  Consumers should ‘trust but verify’, alas there is no way to verify using todays web-based tools; blind trust is something a consumer is less and less willing to afford a perceived perpetrator of deceptive practices.  A mortgage professionals value is in their service, fulfillment, and expertise levels, not interest rates.  Interest rates are a commodity, a good mortgage professional is not.

Running a mortgage business under the Transparent monkier isn’t easy, you just don’t flip a switch…I was engaging David Podgursky via a Facebook convo, he was telling me that while he wanted to run with the Transparency movement, he was having a difficult time with how to ‘work’ this paradigm shift:

David:

I don’t know… I want to like transparency but I think that sometimes haziness is better … and it isn’t like I hide things but transparency in broad strokes seems to me would have implications that clients would shop based on the professional fees and that alone…
I work in Florida… we HAVE to disclose front and back end… so it is transparent! that BS HUD change makes it even more so!!

TXB:

Transparency in any marketplace causes that marketplace to have to figure out how to run more efficiently, so they can cut costs to accomodate the ever enlightened and discerning consumer. Its a nebulous, tricky proposition but an eventuality none the less…
The way traditional mortgage shops run, split % based commissions and all, are counter to participating in a transparent marketplace. This is where change needs to happen, at the core of the business model.

It’s professionals like David that inspire and motivate me.  He does business the right way and wants to be as transparent as possible but the fu*#ed up system gets in the way.

Consumer demand is what can and will change how this industry operates.  Consumers are demanding greater transparency and lower costs…and RESPA law happens to back them up.  There are plenty of professionals who currently and/or willingly do business this way and I want to help.  My intent is genuine, purposely designed to enlighten the consumer and empower the maligned quality mortgage professional.

While this article is sure to be deemed as self-serving, since I’m about to launch an anonymous mortgage application that discloses a participating mortgage professionals wholesale rate pricing feeds, every penny of YSP unveiled, what shouldn’t be lost in translation is the importance of higher education and transparency for the mortgage industry.  No amount of legislation will fix whats wrong here, big biz lobbyists will make sure of that.

The mortgage industry still needs an enema and I believe I’ve got a potent one

Next:  How to Run a Successfull Transparent Mortgage Business

Also See:

Yield Spread Premiums, a Quick Study

Yield Spread Premiums, Capital Hill Testimony

RateSpeed, The Mortgage Rate Search Engine

Indecent Disclosure, Yield Spread Premium Class Action Lawsuits on the Rise

RateSpeed, The Automated Transparent Anonymous Mortgage Rate Pricing Widget

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Mortgage Yield Spread Premiums and The Transparency Thing

Novastar Home Mortgage seems to have hit the trifecta:  Part of a $46M judgment slapped on them as a participant in the Bankrate.com unlawful restraint of trade lawsuit filed by American Interbanc,  a class action lawsuit brought by it’s investors for not disclosing regulatory issues, and another class action suit for improper disclosure of Yield Spread Premiums to borrowers in Washington State.  Anyone who read my last article and wanted to know more about specific TILA violations that can lead to mortgage rescision, look no further right here.  It’s a white hot topic and lawyers love to play pile on…

A Novastar representative maintained they ‘appropriately disclosed YSP’s and that borrowers did not suffer any actual damages’.  Huh?  What part of selling a consumer a higher interest rate or charging more in closing costs than what was disclosed, is not damaging?  The mortgage industry needs an enema…it’s run by fools who think they’re above the law and don’t know when to shut up.  Pavlov’s canines learned quicker.

When will the light bulb turn on within this industry’s collectively dense head about disclosure issues?

It’s an industry that also has serious multiple personality issues.  Everyone sells the same products yet you have different rules of engagement for the resellers.  Brokers must disclose everything (but don’t), Bankers don’t have to disclose as much as Brokers, and Banks can pretty much keep it all on the inside…

It wreaks of greasy handed lobbyist poisoned politics.

As far as disclosing YSP’s, I have the solution:

Put a bright orange, legal sized page between the GFE and TILA  that says ‘Yield Spread Premium’ with a line for the dollar figure underneath it.  Underneath the dollar figure state:  “Use The Above Amount to Apply Towards Closing Costs”.  There, it’s disclosed, right out there for everyone to see…write it in large braille font for the blind to read as well.  No way to get around talking about it this way…

It should meet RESPA disclosure requirements and shouldn’t require an assessment by Ivy League educated pundits to discover if the new document is clear to the consumer, i.e. show the consumer the document and ask them how much money in Yield Spread Premiums were disclosed.  If they don’t answer correctly, promptly let them know they no longer qualify for a mortgage and call the No Child Left Behind organization.

The sad part is, those originating mortgages are usually not much more savvy than the consumers they serve, which is why the lending industry makes it easy for it’s resellers to tell how much in YSP is being charged.  A mortgage rate pricing sheet typically looks something like this:

OK, this is where the big math happens, so grab a calculator:  Multiply the % in the rebate column by the Loan Amount, i.e.  .625% x 300,000 = $1875.00

Ideally, a mortgage professional would simply show the consumer this chart and let them choose which rate they wanted…But they don’t.

Ideally, some ‘visonary’ would provide consumers and mortgage professionals a little tool that automatically did this to benefit and protect both parties.  Although I’m still partial to the bright orange piece of paper…

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Indecent Disclosure, Yield Spread Premium Class Action Lawsuits on the Rise