Choosing a Lender

08.20.09
By Randy Johnson

I just spent a little time with two friends who are trying to get mortgages. These are social friends, and I make it a policy not to solicit friends. I do not want to confuse a nice relationship by inserting business into it. They know what I do, and if they want to contact me and ask for help, I am happy to comply. My point here is that my rule allows me to be an observer, a perspective that is different from being a participant.

Both friends are, I believe, well qualified income-wise, have good credit scores, and have equity in their homes. So why are they still waiting for their loans after three or four months? The answer is complicated, but it starts out with the structure of the industry.  

The biggest lenders in the country today are Bank of America, including what’s left of Countrywide; Wells Fargo, including what is left of Wachovia which had previously absorbed World Savings; Chase, including what is left of Washington Mutual; GMAC, and Citicorp. These lenders account for about two-thirds of mortgage originations in the country. So we have a significant concentration of power unlike any we have had before.  

I am not an anti-trust expert and I do not know if this concentration of power is even close to being an illegal restraint of trade. Probably not, and besides, these combinations of lenders were, effectively, shotgun weddings arranged in Washington. But it is clear that consumer choice has been drastically reduced. I’m pretty much a free-market guy, and with what went on in late 2008, I believe that the moves taken to salvage the financial industry were necessary. But it is clear that consumers have fewer choices today, while it’s arguably true that consumers get a better deal when there is more competition and more choices.

The other strange thing about this concentration of power is that most of these lenders have eliminated their wholesale loan departments, the ones that dealt with independent mortgage brokers. They all have made almost simultaneous decisions to originate their mortgage loans with their own personnel rather than deal with what are referred to as third-party originators, like mortgage brokers.

Now, I am the first to acknowledge that there were a lot of bad mortgage brokers out there. There were more bad mortgage bankers and there were a lot of careless, reckless banks who made stupid decisions to “approve” doing business with some simply awful companies. No bad mortgage broker ever did business with a lender without having been approved first.  

At the same time, there were (and are still) honest, trustworthy mortgage brokers that provided excellent loans to their lenders and terrific service to their borrowers.

So here we have more of a monolithic mortgage industry today with the consumer having fewer choices. And how do those big companies run their businesses? You can bet that they care more about controlling costs than they care about customer service.

One way of keeping costs low is to hire young people who will work for low wages and train them how to answer the phone. In some cases, you teach them how to use an FAQ database. This lists possible questions consumers might ask and provides the trained employees the ability to give quick answers to something “close to” the question you have asked.  

Let me say this as nicely as I can: This is NOT a substitute for talking with someone who really KNOWS the answer to your question. It is also not a substitute for helping you by volunteering answers to important questions that you didn’t even know you were supposed to ask, especially when the answers could save you a couple of thousand dollars.

Then combine this with the volatility that comes with a cyclical business where employment demands can increase and decrease dramatically and you can have chaos. When volume doubles in a service industry, you need twice as many people, maybe more because the newly hired people aren’t as productive as older ones.   

Then you just have to look at what happens when volume surges even more, as it did this spring when rates got below 5 percent. One executive at one of the large lenders told me that there was a period when they got 20,000 applications EVERY DAY. An executive I know at another one of the big lenders listed above told me one day this spring that they had over 200,000 loans in the pipeline. They just couldn’t possibly gear up for this.

Bottom line: When you structure your company like this – and they are all like this – the ability of the organization to CARE about individual customers gets lost.

Here’s my advice on how to cope with this reality. There are loan officer “heroes” in every town. Your job is to find one. It does not make any difference who they work for. Ask ten friends, and you’ll find one of them that worked with a hero. You should too.

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Ask ten friends, and you'll find one of them that worked with a great mortgage lender.