David Neal's Mortgage Blog

Last night I was asked by someone who is shopping around what the process was in selecting a lender after they got all the quotes. After we got off the phone, I thought about that a while and how to solve the problem. You're probably wondering what problem I'm talking about, so let first explain that.

The Problem is that the way people shop for mortgages is fundamentally flawed. It is the equivalent of say, in the process of hiring a new employee, choosing on the basis of who would work for the lowest hourly wage and not the persons qualifications or experience. Usually not the best hiring strategy, wouldn't you agree? It's my belief that this is one of the main reasons, so many have been put in bad mortgages, ripped off...or just plain ole had their mortgage botched. What compounds the problem even further is that most interest rates change daily, sometimes several times in the course of a day. So........when shopping for the best rate, say you talk to lender A on Monday and they give you a 6.25%, then you talk to lender B on Wednesday and they give you a rate of 6.125%... you would think the second lender is giving you a better rate, right? That's not necessarily the case, because if rates had been going down, Lender A's rate might very well be lower than Lender B's if also asked on Wednesday. Does that make sense? Unless you are able to get your rates from the different lenders simultaneously then the results aren't reliable. Then just to confuse the situation even more, when purchasing a house, people need to get pre-appoved before they start looking for houses to determine what the qualify for. So, in the time it takes them to find a house...the rates are changing again.

Let me give you a classic scenario...the lender knowing you are only getting pre-approved and starting to look for a house, quotes you a rate that they know they can't actually get, but because they have the lowest rate, you establish a relationship with that lender. Now, in say, two months, you find a house that your offer is accepted on and you're ready to do your mortgage loan. The lender now let's you know that rates have been going up and your rate is now say .5% higher than what you were originally quoted. It sound's reasonable because you as a consumer probably hadn't been tracking mortgage bonds over the last 60 day's, but what you don't think about is, that it just destroyed all your hard work in shopping around in the first place. The lender was able to pull you in will a rate that was unavailable, because they knew you couldn't take advantage right then anyway...and then when you were, raised it to a rate that they could get.

So, now you are probably saying to yourself....how on earth then, am I able figure out who has the best deal? In a nutshell, by going about the process completely different. If people selected a Loan Officer by their qualifications, experience and ability to work with other mortgage lenders besides just thiers. Most importantly by finding a professional that they can trust and verifying references, like from other customers or Realtors^®.

I'll end with this...If you were being sued for the price of your house, how would you choose an attorney to defend you....by who ever was the absolute cheapest or who you could trust and had the experience to protect you?

I am really looking at things in a different light than a lot of "experts" on the market right now. Maybe, I'm crazy, but I've got a knack for spotting things like this....so bear with me.

There are several forces working in conjuction right now, that I really think will amount to a little boom in home buying, let me explain. Ever since the Federal Reserve started to step in and start lowering the Fed funds rate, we've heard this back story of Recession in the economy, which has gradually made it's way to the main story.

All year last year, all we've heard is, the housing buble has burst, house prices are declining, the mortgage markets are melting down and it's harder to get financed. Which really is true, but let me ask you a question...Is it better to buy when prices are down or up. Most of you said down, right? ANd that's where we're at right now.

Now, let me get back to the all the news of the impending Recession. The stock market usually doesn't do very well on this kind of news, which is what we're seeing right now. The stock markets have been taking a bath lately, and when stocks are down, the money flows from stocks to bonds, which is what mortgage rates are tied to. When bonds rally, rates get better. So, just on the news of a recession, rates are getting better, which in turn fuels the housing market.

I'm no rocket scientist, but if you combine really low rates, the lowest we've seen in three or four years, and low house prices...it seems to me that people would be stupid not to buy. Are you with me, so far?? This is why I believe that more than likely, we'll have a small boom in buying homes, but I guess time will tell, right?