Can the Mortgage Industry Provide Good Customer Service?
I was at the NAMB conference for Mortgage Professionals this past weekend in Las Vegas and in between sessions, I stopped in for a quick bite at The Burger Bar at Mandalay Place (great sweet potato fries!). I sat at the bar and had an interesting conversation with the gentleman who sat to my right. We quickly identified that we were both in town for professional conferences. He lives in Maryland and is a consultant for government affairs. Part of his duties include auditing banks, and as such he is limited to where he can choose to make mortgage loan application as there can be no appearance of influence.
He began sharing with me his current saga in dealing with one of the big three. I of course, was fascinated to hear about the challenges he is facing. He selected this particular lender because he is cost driven. He had initially approached his former mortgage banker with whom his prior transactions had gone smoothly – including construction financing – but decided not to proceed with him on this new loan because he was able to “secure” financing at a .125% reduction with one of the big three. He quickly told me how his credit score is over 780, its a jumbo loan, both he and his wife are employed and how he expected the process to go smoothly.
Here’s what really happened:
The loan officer quoted a rate over the telephone, but did not provide an itemized cost estimate prior to loan application. The borrower was told his credit card would be charged $450 for an appraisal fee and instead, was charged $875. He halted the appraisal until he could connect with the loan officer to correct the error. I offered that he reference his Good Faith Estimate. While a man of obvious intelligence, he found the GFE was too confusing. He preferred the “old kind” where fees are itemized. Preliminary Cost Estimates – though not binding – are necessary for the borrower to conduct proper analysis of loan options.
When he was finally able to communicate directly with his loan officer, it was explained that at closing, he would only be charged exactly what the appraiser billed, but it was their policy to over estimate the cost at application. The borrower felt he was misled and is demanding the fee be no greater than what he was quoted verbally. Overestimation of fees on GFE’s diminishes loan officer credibility and breaks trust.
Since application, he has been contacted no less than 9 times by different people who claim to work for the lender asking him to provide his social security number before they can speak with him about the processing of his loan request. He is appalled that they think he’s going to hand over his social when he not only doesn’t know the caller, but isn’t expecting to be contacted. Borrowers need to be informed at application what the next steps are and who will be communicating with them going forward.
While he claims that he provided all necessary loan documentation at application, he says he has been contacted several times for things he has already provided or for things he doesn’t understand why the lender needs. Detailed documentation checklists are necessary at the time of loan application.
Two month’s earlier, his wife had been a victim of identity theft and she’d placed a credit freeze with the repositories to prevent future attempts of fraud. A full week had past since submitting their initial loan application, when she was contacted with an immediate request to remove the credit freeze so that the lender could begin the credit analysis. Credit Reports should be reviewed with the borrower at the time of application.
I nodded over and over, understanding his pain. As we got to the end, the conversation went like this:
Me: This sounds really painful, why was it again you didn’t choose your local lender?
Him: Because I’m getting a better price with this bank.
Me: Can you really?
Him: Yes! (both shocked and perplexed that I would think he wasn’t going to get what he was offered)
Me: You’re a smart, busy guy with a lot on your plate. Your choice of lender should not have been driven by cost, it should have been driven by value. Is it really worth the pain that you’re suffering for an 1/8th difference on your mortgage payment?
Him: (I could tell he wasn’t sure if I’d paid him a compliment or handed down an insult) Well do you know anyone in my market that can help me?
Can Mortgage Professionals provide better customer service? Will we ever be able to comply with our legislator’s specific request to provide better service to the underserved? What defines individuals who are “underserved”? Is it borrowers with difficulties accessing credit? Those living in less than desirable neighborhoods? Those with prior credit issues? Those who lack education?
The above story I shared is not about an individual who is considered “underserved” and yet, his mortgage experience isn’t going all too well. The only way Mortgage Professionals can do better for any borrower, is quite logically to provide them ALL with better service.
Yes, the entire industry wants to serve ALL borrowers better.
Here’s the rub…the Fair Housing Act prohibits lenders from discriminating based on the protected classes. Fair lending guarantees the same lending opportunities to everyone; a lender cannot discourage you from applying for a mortgage or reject your application because of your race, color, religion, national origin, sex, marital status, age, or because you receive public assistance. To prevent the appearance of such a violation, lenders have policies in place that prohibit their loan officers from coaching, guiding, or strategizing loan details with borrowers. Huh??? So…to protect themselves, lenders have
eliminated reduced customer service. Additionally, they do not provide a copy of the credit report used to determine a credit decision to the borrower because they claim they are not a credit reporting agency.
As we all know, there is an intrinsic cost to providing better service. For the past few years, the lender’s budget has been allocated to preparing for implementation of the rulings of the Dodd-Frank Act. But what about your local broker? What’s he been up to? The 2010 LO Comp Ruling was drafted by the Federal Reserve at the same time that Congress was drawing up the Dodd-Frank Act. Both regulations include certain language that is intended to prohibit the steering of the borrower to a loan product that is less favorable but provides a higher payout to the loan officer.
The 2010 Comp Rule rolled out first and provided a definition that distinguishes loan originators as either employees of a creditor or employees of a mortgage broker and imposes stricter restrictions to compensation to mortgage brokers. Dodd-Frank identified the mortgage products that led to the implosion of the mortgage market and has restricted the sale of loans that include certain features to government sponsored entities. It also provides for Anti-Steering language. Which begs the question, is the Comp Rule still necessary? If not, who has the power to eliminate it?
Why should it be eliminated?
Your local mom and pop mortgage broker shops cannot duplicate the cost efficiencies of large lenders. They have no way to survive but to charge slightly higher fees. Brokers take your information and shop your loan with different lenders. As such, they are able to offer their clients a wider array of loan products which eliminates the borrowers need to make application with different lenders, pay several application fees, or miss out on the homebuying experience altogether because they’ve been declined by the restrictions of one particular lender’s policies. Is this a service you are willing to pay extra for?
Is cost all that really matters?
When you need a gallon of milk, do you drive to Costco to get the best cost per gallon of milk? Or do you make the decision to drive up to your local Farm Stores – knowing that you’ll pay more for that gallon of milk – and ask the attendant to deliver it to your car?
When you need to find a pair of shoes to match the dress you just bought for an event coming up in 3 days, do you spend a full day at the mall carrying your dress with you to try to find the perfect pair at the lowest price? Or do you logon to Zappos at 10pm, find 5 that you like – priced at retail – and have them delivered to your house next day with “free shipping and returns” in the hopes of choosing one and returning the rest?
Your choice of mortgage should not be exclusively cost driven.
Lawmakers believe they are protecting its citizens by enforcing a rule that says borrowers must be provided the cheapest mortgage available. Why are we allowing government to determine value? The premise of our constitution is that free markets prevail. The broker model provides great value to the borrower, but current legislation is driving the local, in-market mortgage brokers out of the business altogether, into non-depository models or into a bank.
With a serious decline in licensing requests and renewals, the industry is having a very difficult time in finding loan officers to originate. I ask, “Who wants to be the front person in a transaction that is going to go like the one I just described?” If people are leaving our industry, who is left to initiate the changes? Who understands what changes need to be made?
Only you, citizens of the United States have the power to make changes.
Mortgage Professionals are a small minority; we can only continue to bring forth valuable information to empower you with the knowledge to take necessary actions. Only with your help, can we begin to see significant changes that will impact the service levels you should be demanding. You must control what is within your control. Together, we must make some noise.
Call To Action
I have just started a petition to be reviewed by the White House to remove the differentiation between creditor and mortgage broker in the Loan Originator Compensation Rule, Reg Z, TILA. We now have 30 days to get 100,000 signatures in order for the petition to be assigned to policymakers by the White House. Once our petition has 150 signatures, it will become publicly viewable on the Open Petitions section of We the People.com
For further support, you may contact your local Representative and submit a request to revisit the impact of the definition of Loan Originator under the Loan Originator Compensation Requirements as governed under the Truth in Lending Act by Regulation Z.
Once you find your local representative, you can either submit a written letter or send an email requesting that this rule which defines a differentiation between loan originators as either mortgage broker’s or creditor’s has the unintended consequence of limiting the choices available to the consumer and allows creditors to create a monopoly of the mortgage market. Creditors impose the lending restrictions of their stockholders. By being risk averse, creditors are limiting loan product options provided to the underserved mortgage consumer and are unwilling to provide instructions to this group on how to improve their credit file. Removing the limitation on income as imposed exclusively to mortgage broker’s who are in market, local providers of lending services, will provide better options to all, and specifically to those who are underserved in our community.