FireDream

Transparency and Homeowner Responsibility Can Change the Mortgage Business

“You looked hard to find the right house.  You negotiated the right price and shopped around for the best mortgage rate.  But you’re not done shopping yet.”

So begins the article by Washington Post reporter Renae Merle, recently republished in the Chicago Tribune.  Noting that a study conducted by HUD early this year shows that minorities and those without college degrees, among others, pay higher closing costs, the article encourages homeowners to “eliminate junk fees and ask for discounts”, do their research and really become involved in the loan process.

Merle’s other suggestions include frequently asking about the loan status, asking a lot of questions about the closing costs, and requesting a settlement a week before closing to review the costs.

Wharton professor Jack Guttentag, also a Post contributor, thereafter wrote a column in which he at times praised the new Good Faith Estimate being redesigned by HUD and at other times calling it “disappointing”.  He claims that an “odious network” of relationships exist between lenders and third-party service providers, such as title companies, which should be eliminated.  For instance, Guttentag suggests that “if lenders want title protection, they should buy it and pay for for it, passing the cost to borrowers in the rate and points.”

In reading these articles, I couldn’t help but be stunned that the two could appear in the same publication.

Guttentag broadcasts the same tired diatribe: mortgage providers are one step off (I’m not sure whether it’s a step up or down) of Beelzebub himself.  In Guttentag’s own words, lenders will charge you “as much as they can get away with”.  He also suggests that any changes in pricing practices which would (gasp) benefit the borrower would surely alienate and be opposed by mortgage brokers.

Merle may lack Guttentag’s curriculum vitae, but she has presented a far more reasonable and rational view.  While far from promoting mortgage lenders as the greatest thing since sliced bread, she encourages homeowners to ask questions, to search out the best opportunities and to monitor their loan closely in order to make sure that they get the optimum loan.  She suggests that despite the extra legwork needed, homeowners must take the time and the responsibility to find and do business with the mortgage providers not only with the best pricing, but the ones that will clearly show the costs that are being paid.

To Guttentag especially, I would suggest he look into the self-policing that many in our industry-yes, including yours truly-are espousing.  It was not Guttentag and his Wharton colleagues (many of whom are the greatest minds in academia and have my admiration) who developed the transparent pricing model that is rolling out across the U.S.  It is coming from the industry itself.  (Seen a RateWindow™ box around anywhere?)

Likewise, there are many mortgage professionals who have long offered reasonably priced mortgage loans, passed through actual third party costs and never utilized “junk fees” or abused the YSP to enhance profit.  And while I and those like me don’t believe that individual lenders should be restricted by the government in the amount of fees that they charge, we absolutely belive that there should be both clarity and transparency in lending.  (Back to that pesky RateWindow™ thing again.)

Why?

Because with transparency, it is easy for consumers to find the best rate, the best price, the best deal and the best lender for them.  Those who provide lousy service, astronomical costs and ridiculous rates will go out of business.

I know, I know-I didn’t graduate from Wharton, and the whole capitalism thing is probably just a crazy idea that happens to be a few hundred years old.  But you know, it just might work…