Websites that list the rates of many mortgage companies are known as aggregator sites. These sites enable borrowers to make side-by-side rate comparisons.
Be wary of such sites, regardless of how professional they look or how long they've been in business. If you go to a popular aggregator site and look at 30-year fixed rates, for instance, you'll see maybe 20 or 30 lenders all touting their rates — and they'll be all over the map.
Some will quote rates with no points, some with one point, even some with 1.375 points. At the very least, it's confusing to the borrower. At worst, it's misleading. How can mortgage rates vary so much from one lender to another? In fact, they can't. That's because they price their loans on the same index. But they try and confuse buyers with various rate/point combinations.
You may want to use an aggregator site as a reference tool, but don't put too much stock in it. It's an advertisement. The rates may not be valid, even though today's date is right next to the rate. You'll find some rates that are legitimate and others that are not. You'll also see some very low interest rate quotes from mortgage companies that you've never heard of. Although their rate quotes can be enticing, to say the least, you can't determine whether the company — and more important, the loan officer you will be working with — is competent.
Another common type of website takes a loan application from you and then asks mortgage companies to “compete” against one another for your loan. Lending Tree pioneered this approach. It's certainly legitimate, but it's important to know there are other companies in existence that attempt to model the “bidding” process but in reality are only lead generators for loan officers.
Some loan officers don't develop and nurture relationships to drive their business. Instead, they pay for leads from a company that has names and contact information on people who want further information about mortgage loans.
It's no secret how lead-generation companies get their information: Some comes from public records, and some comes from potential borrowers who give their information to the lead companies.
When you're shopping for interest rates, you'll see various advertisements for companies that will take your basic information and then have mortgage companies call you directly. You fill out a form and submit your contact information, and then the lead company puts it in its database for sale to loan officers.
Oftentimes you'll be lured into giving your information based on an ultralow interest rate you saw advertised online. Even though you may know in your head that the rate being advertised is probably too good to be true, you decide, “Aw, what the heck, it's worth a shot!” Soon you'll be contacted by mortgage companies you've never heard of.
The simple fact remains that you have not applied for any mortgage so far, and the mortgage companies that contact you have no idea whatsoever of the advertised rate you saw. They only know that you may be interested in a mortgage.
I recall filling out one of those online forms for that very reason — because I saw an ultralow rate advertised. I didn't actually want a mortgage, but I did want to watch the mechanism to see what would happen after I filled out the lead generator's online form.
After a couple of days (which surprised me because I thought I would have been contacted sooner), I got one call from a woman who said she was referred to me and asked what I was looking for.
I told her that I had already indicated that on the form I had filled out after seeing the ultralow rate. She said she didn't have that information and repeated her request: “What type of loan are you looking for?” I said I wanted a refinance at the 3 percent rate advertised. She said that she didn't have anything that was 3 percent and wasn't aware of any rate being advertised by the lead company. I told her that it was advertised, and then I waited on the phone while she went to the very same website I did. That's when she saw the low rate.
She told me she was sorry that she couldn't get that rate but did have some very competitive programs and would I mind if she reviewed them with me? I told her I did mind and hung up the phone.
There is no reason to use an online company to get your financing. You'll be working with people you've never heard of (and whom you're likely never to hear from again). Such mortgage companies close a loan, then go back to the pile of leads they bought from a lead generator.
On the other hand, a loan officer who is local and who has been referred to you will do whatever it takes to keep her reputation intact. Loan officers get paid only when they close a deal. If they gain a reputation of screwing up deals, they'll find themselves out of work because no one will send business their way.
When using an online company, what do loan officers bring to the game? Do they care about getting more business from you in the future? Do they want you to refer them to your friends and neighbors? Do they have a relationship with your Realtor?
If you went to your closing table and found that the interest rate you'd been quoted was not on your loan papers or that previously undisclosed closing costs had magically appeared, do you think a local loan officer who had been referred to you and was thoroughly vetted would have misquoted you in the first place or done whatever it took to get things right? Of course, if you did your homework that's exactly what would have happened.
An online lender may not care about the long term, only the now. And if online lenders mess up your loan, they simply go back to the pile and grab another lead.