Corn, Salt, Wheat and Mortgages?

May 12th, 2011

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Let’s do a quick lesson that may take us back to our school days. I want to make sure everyone knows what a commodity is and is not.

What is a commodity?

A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. The market treats a commodity as equivalent or nearly so no matter who produces it. Examples are corn, salt, wheat, petroleum and copper.
The price of copper is universal. It fluctuates daily based only on global supply and demand. Stereo systems on the other hand, have many aspects of product differentiation. These would the brand, the user interface, the perceived quality, etc. And, the more valuable a stereo is perceived to be the more it will cost.

Commoditization

Commoditization (also called commodification) occurs as a goods or services market loses differentiation across its supply base. As such, goods that formerly carried premium margins for market participants have become commodities. Examples are generic pharmaceuticals and silicon chips. And mortgages too?

I was sitting in a meeting of business people a few days ago. And before the meeting started we were joking around with each other. We were firing jokes at each other about our respective businesses. A friend of mine replied to me, “what are you laughing at, you sell a commodity!” OK, now the gloves are off! No more Mr. Nice Guy!

Mortgages are not a commodity

My reply was, jokingly, “not any more.” But I was not joking. I don’t know that mortgages ever were a commodity. Although we have certainly been treated that way. Maybe you could say with a straight face that in the boom market of the early 2000’s. That was when anyone with a pulse could get a loan, then we were a commodity. Those days are LONG gone. I have clients with 35% to 60% down payments who have trouble getting a mortgage!

Treating one of the most complicated transactions you’ll ever undertake as a commodity is a problem. We are currently in the midst of the most regulated market, which creates a painful process. And the most over analyzed mortgage underwriting we have ever seen! How is a mortgage transaction a commodity?

The simple fact is that people wrongly treat most everything as a commodity. We don’t want our own job, service, or product treated as a commodity mind you. But when it’s time to open our wallets we treat almost everything as a commodity. Then we shop for rock bottom price without any concern for quality. And then we expect top notch service! And we have the audacity to complain when we don’t get it!

Anyone can do mortgages!

Mortgage loan officers: I am well qualified! Anyone can get my loan through, right?

Realtors: Anyone can list my home for sale, all they do is input it into the computer and have a few open houses, right?

Mechanics: Anyone can fix my car.

House painters: Anyone can paint my house.

Roofers: Anyone can fix my roof.

I JUST NEED THE BEST PRICE! Right?!

When the mortgage is delayed or gets rejected, and the home sits on the market, and the car breaks down again, and the paint peels, and the roof leaks; we scream bloody murder. And we reach for the yellow pages to call a lawyer to sue people. The lawyer, of course, we’ll shop for their fees as well!

Stop. Slow down. Think. We all read enough horror stories about mortgages on a regular basis. Isn’t that a signal that choosing a mortgage provider by experience, reputation and referral, should be job #1? And shopping price should be job #2?

How many more nightmares do people need to hear to make them think they should start asking about experience? If I had someone call me and ask about my experience first, before grilling me about rates and terms, I think I’d pass out from shock. How about asking:

  • “how long have you been in business”, or,
  • “how do you differentiate yourself from the competition,” or,
  • “how long will it take to get this loan approved.”

The fact is that mortgages rates vary only a slight amount, maybe 1/8% in rate. There is not an enormous amount of money to save by shopping in the first place.

Conclusion

Buy any brand of salt or corn, I don’t care. But when it comes to something that is really important, like your finances, shelter, health and your future, shop service, execution, and reputation.

Mortgage guidelines can change at any time, so always talk to an experienced mortgage loan officer who will help you understand the current guidelines and how they might apply to you.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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