I am not an online lender, I use online tools like my website quite a bit, but I am not an online lender. So do I have a vested interest in telling people local lenders are better? Yes. Are local lenders better? Yes!
I recently blogged about what the inherent problems are in a “lead generator” website, like Lending Tree. You can read that again here. But more importantly, online lenders are not immune from doing bad loans for good people.
A judge awarded damages of $2.2 million and attorneys fees of nearly $600,000 to a homeowner who said Quicken Loans Inc. gave her a predatory loan in 2006. The homeowner ended up owing multiple times what the balance of the original loan was after refinancing her loan with Quicken Loans! The judge also found that Quicken made false and misleading statements and engaged in unfair and deceptive practices by not lowering the client’s interest rate, even though she had paid nearly $9,000 in closing costs to buy her rate down. They also did not disclose that the loan had a “40/30” feature with a $107,015 balloon payment due after 30 years. Even the appraisal on the home was fraudulent since it exceeded the property’s market value by a multiple of almost four.
If you are considering using an online lender, you can ask any local Realtor their opinion about online lenders, and then duck. They’ll start screaming and throwing things, and almost demanding that you do not use an online lender. OK, that is an overstatement. The Realtors representing you really can’t direct your loan, its not legal or ethical to try and steer you. They can suggest, but that is as far as it goes. But if you ask any Realtor not affiliated with a transaction, they’d openly cringe at the thought of you using an online lender. Most listing agents would literally refuse your offer if you were making an offer to buy a new home, if they found out you were using an online lender. This mistrust must mean something! It comes from a long experience with problems with online lenders such as misquoted terms, delayed settlements, lowball appraisals by appraisers that are not local to the marketplace, or complete lack of execution.
I just got a 10 minute lecture last night from a listing agent who was unfamiliar with me, who was questioning my pre-approval letter for a buyer client of mine. I had to educate her that I was a local lender, have been in business for 25 years, and she still wanted to know where my appraisers were based and who they were, and she wanted confirmations I was not an online lender. And she was not unique, this happens all the time. Realtors do not trust loans that go to non-local lenders who use massive Appraisal Management Companies with appraisers coming from way outside the local marketplace. After assuring this listing agent of what she wanted to hear, she said, “I would not have even considered the buyer’s offer if their financing was coming from an online lender.”
Online lenders (as well as large banks), suffer from using large Appraisal Management Companies, where random appraisers are chosen from large pools of appraisers. You can read more about all of that and the new appraisal rules here and here.
At different times in history different types of lenders have had the upper hand in providing the best mortgage experience for the consumer. There was a time when large banks were the best place to go for a loan, back in the early to mid 1990’s. Then for most of the early to mid 2000’s mortgage brokers were the best place to get a mortgage. I can tell you emphatically, online lenders have NEVER been the best place to get a loan. They may have their day, but its not now and its not coming any time soon.