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Special Financing Supplement:
Modest Incomes, Big Dreams
Counseling Homebuyers to Succeed
Choosing a Lender
Credit Scoring
Cross-selling Mortgage Financing
| | BY MICHELE LERNER
When his homebuying clients are looking for mortgage financing, Peter Rubin gives them the names of lenders he’s worked with before—even if he doesn’t know upfront all the loan products and terms those lenders have available.
That’s because for Rubin, as for many veteran real estate practitioners, having a trusting relationship with a lender is as crucial to the success of a transaction as the loan products available.
“A good personal relationship is more important than anything, because you need to work with someone you can count on to do what they say they’re going to do,” says Rubin, sales associate with RE/MAX of Cherry Hill, Cherry Hill, N.J. “And that relationship depends on honesty.”
But loan products and the way loans are processed and serviced are key, too. That’s why it’s important to know the pros and cons of working with different types of lenders. The products and services available from your favorite local lender may not be the same as those from a national lender, a mortgage broker, or an Internet lender and may ultimately be a better fit for your client.
“Practitioners should be able to suggest a range of lenders,” says Jack O’Donohue, 2001 chair of the Northern Virginia Association of Realtors®. “Different lenders bring different strengths to a transaction.”
Nationals Make Size Count
If there’s anything that lenders with a coast-to-coast presence have to offer, it’s the diversity of their product lines and their in-house funding and processing capabilities, say practitioners. National lenders’ access to capital is also crucial because it gives them a competitive advantage on pricing that local lenders typically can’t match.
“A national lender has access to capital in all economic environments,” says Brad Blackwell, national sales manager for Wells Fargo Home Mortgage. “Smaller lenders or brokers sometimes find their funding sources dry up—and that affects their ability to provide loans.”
Competitive pricing is only part of the equation, of course. Smooth application processing and loan servicing are also important, and those are things lenders with coast-to-coast reach claim as a strength.
“National lenders can provide service for the loan from start to finish in the same company, unlike many smaller lenders who often sell the loan,” says Blackwell. “Selling the loan can create difficulties—escrow problems, lost payments—for borrowers.”
What’s more, national lenders can bring a whole lot more to the table than just home loan services, says Blackwell. Borrowers who have a loan with a national lender can often get other financial services—checking accounts, home equity loans, car loans—sometimes at preferred rates.
Practitioners benefit, too, because the lenders’ national database of customers could be a good source of referrals for brokerage services. “These lenders have access to a huge database of customers, some of whom may be looking for a real estate practitioner to work with,” says Blackwell.
But there can be drawbacks to working with national companies if you’re not careful about establishing a strong one-on-one relationship with a representative from that company, says Rubin. “Our experience in dealing with some [national lenders] has been mixed,” he says.
“When customers talk to someone in a bank about a loan, often their information gets transferred from person to person to person.”
That’s a problem that Countrywide Home Loans, one of the country’s largest home loan lenders, thinks it has solved by giving its national company a local face.
“Our branch offices have local underwriting authority, so that the people customers deal with in that branch are the ones approving the loan, rather than having the application sent to a centralized location,” says Doug Perry, first vice president of Countrywide.
From Perry’s point of view, having a national company with a strong local presence gives borrowers the best of both worlds. “Most customers don’t choose a lender on the basis of size, but rather on service. Because of our size, however, we have the ability to satisfy the needs of every borrower,” he says.
Local Lenders Offer Accessibility
For local lenders, success or failure largely rides on personal relationships, so practitioners can count on a strong business ally once they find a lender they can work with.
“I like the personal touch I get when working with local people,” says Jan Barnes, a broker with Century 21 New Millennium, Lexington Park, Md. “I think it’s important to feel there’s a hands-on person there, someone I can call if I have a question or need an answer.”
What can you expect from a local lender who wants your business? Good communication, say practitioners.
“I expect weekly reports from lenders when I work with them, either written or by phone,” says Barnes. “That’s why the one-on-one relationship is so important, so that I can call if there’s a problem with the loan or even if my client’s just confused about something.”
That kind of personal service isn’t something local lenders have a monopoly on, of course, but their reliance on local business makes them responsive. It also drives them to map out a niche as a way to stand out from big lenders that offer a product for every type of borrower.
“I sometimes shop the lender according to the personality of the borrower,” says Barnes. “Some lenders are better than others at holding the hand of first-time buyers. Others are better at streamlining the process for more experienced buyers,” says Barnes.
Given the range of niches and emphasis on customer service of local lenders, practitioners should include them in the mix of lenders they work with regularly, says Rubin. “If you’re working with a good local lender, you don’t necessarily need to work with a national lender,” he says.
Mortgage Brokers Shop For You
One characteristic common to national and local lenders is their direct source of funds. The lenders fund their own loans, so they limit their products to their own offerings. That’s not the case with mortgage brokers, who may represent a dozen different lenders. Therein lays one of their competitive strengths.
“Brokers can do the shopping for the buyer,” says Noel Shepherd, a mortgage broker with National Capital Associates. Washington, D.C.
The ability to shop a loan around can make the difference for some buyers, particularly those whose credit profiles don’t let them fit neatly into any one lender’s underwriting parameters.
“We have access to many different lenders and programs, so we have a greater ability to get an approval” in those hard-to-fit cases, Shepherd says. “If a borrower doesn’t fit with lender A, then he might fit with lender B. We know who will approve a loan under difficult circumstances, and who won’t.”
Finding the right loan for non-standard borrowers is definitely a role mortgage brokers can fill, says O’Donohue. He sometimes recommends his clients work with mortgage brokers in cases when the broker has a track record helping credit-impaired buyers.
“We have a group of lenders we trust to work well with buyers with weak financials,” he says. “The way we avoid predatory lenders is to work with people we know.”
Mortgage brokers’ reliance on outside funding sources, which is the source of their competitive strength, can also have a downside if application processing or some other aspect of the process hits a snag. That’s one reason Rubin would sometimes recommend buyers work with a direct lender, whether local or national.
“Try to work with someone actually giving the loan rather someone than selling it before it’s even placed. That way you know where the loan is going and can have more control that way,” he says. “Mortgage brokers don’t control fees when they are selling a loan.”
Internet Lenders Tout Virtual Virtues
There’s no doubt that the arrival of Internet lenders has spurred conventional lenders as well as real estate practitioners to think hard about what buyers want from lenders.
Internet lenders are still too new for consumers and the real estate industry to know what their ultimate impact will be, but one thing is already clear: Internet lenders can be valuable sources of information.
“The Internet is useful as a tool to compare loan products and their costs,” says Jim Liptak, chair of NAR’s Conventional Finance and Lending Committee.
It’s safe to say that Internet lenders want to be more than just good information providers, and already, they say, they’re showing they can offer buyers the trustworthiness of conventional lenders and new choices on products and pricing.
E-LOAN, a direct Internet lender launched in 1997, provides in-house funding and underwriting for its loans and serves as a mortgage broker as well.
“We’re not limited to our own products, so we can offer the most competitive products out there,” says Chris Larsen, CEO and company founder. “We’re a low-cost producer, with our loans generally costing about 30 percent below the average of other direct-consumer mortgage loans. Our price guarantee is that we will offer the lowest lender fee, the lowest interest rate, and the lowest points.”
E-LOAN doesn’t charge lender fees because it factors in the full cost of its loans in the interest rates and points. It likes to call its system “high tech and high touch,” meaning that while it relies on technology for efficiency, it is also essential to have people behind the technology.
“Our customers can either handle the entire process online or they can call and talk to someone to input their data into the system,” says Larsen. “The funding decision will be made within minutes, and then we electronically give our borrowers full disclosure of the loan terms.”
One concern shared by real estate practitioners and consumers is whether the information they provide online is secure.
“People need to realize that whenever they apply for a loan in today’s world, their information will be transferred over some type of computer network,” says Larsen. “The online players are probably better than traditional lenders at maintaining privacy and security of information. We have the best encryption available and even have privacy audits to make sure we’re doing everything we can to maintain customer privacy.”
To be sure, pure Internet lenders such as E-Loan represent a whole new choice for homebuyers, but the Internet is populated with hybrid lenders as well. These are lenders that blend a conventional presence with an Internet presence, giving them a way to reach out to different customers based on customer preferences.
Countrywide and Wells Fargo are two examples of these hybrids. “Whether via the Internet, our phone center, or our branch offices, borrowers can work with us in the way they feel most comfortable,” says Perry, the CEO of Countrywide.
Having a foot in both the conventional and the online arenas is also a way to avoid the weaknesses from relying exclusively on one mode over the other. The biggest weakness of Internet lenders so far, in Blackwell’s view, is their inconsistent ability to close loans. That’s something a big hybrid such as Wells Fargo says it can avoid, because it brings its track record closing loans in the conventional loan market to the online arena.
“The most important factor when buying a home is closing that loan, not getting the lowest possible rate,” says Blackwell. “Working with less-well-known Internet loan providers raises the risk of having the loan fall through.”
The range of loan choices and lender types clearly is making homeownership more accessible. That’s a plus for home sales, but it means that it’s more critical than ever to stay abreast of the advantages of working with different types of lenders.
Building Your Lender Contacts
It would be difficult to have a successful career in real estate sales without developing close contacts with trusted lenders. The challenge for practitioners new to the industry is finding those lenders.
How do you get started building that all-important Rolodex? Your colleagues should be your first resource, say veteran real estate practitioners. Your other sources are only as limited as your imagination.
Here area few ideas to consider.
Start with your broker.
“Don’t be reluctant to seek out the advice of your broker or you’re your peers.”—Jack O’Donohue, 2001 chair, Northern Virginia Association of Realtors®.
Pay attention to lenders at settlements.
“Keep tabs on mortgage lenders that buyers have worked with, because past experience and the quality of the lenders’ follow-through are more important than anything else.”—Peter Rubin, RE/MAX of Cherry Hill, Cherry Hill, N.J
Attend lender seminars.
“Lots of local lenders hold open houses or classes, and I think it’s a good idea for new associates to meet people there and see if their personalities mesh.”—Jan Barnes, Century 21 New Millennium, Lexington Park, Md.
Get fee breakdowns.
“Talk to three different lenders and have them break down their fees and explain them to you. A professional, upstanding lender will be straightforward about its fees.” Jim Liptak, chair, NAR Conventional Finance and Lending Committee.
Tap other professionals.
“Ask other successful practitioners and title officers to recommend lenders that will do their best for you.”—Brad Blackwell, Wells Fargo Home Mortgage. | | |
