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Shopping for Lender’s Online – “Internet Lenders”

This week I had a client ask me if I’d had much experience with internet lenders.    A visit to a website, an email exchange, and a voice on the phone and my client had a quote on his interest rate that fell into the category of “too good to be true”.    “Can I trust this internet lender?”

As a firm, we have conducted  a few dozen internet loan closings a year for the past 4 or 5 years.  We initially expected the % of our closing business with internet lenders to grow.  Internet lending has put some healthy pressure on local lenders to keep their rates competitive.   But our volume of internet loan closings  remains well under 5% of our residential closing business.   We actually help a few out of town lenders and serve as their Virginia registered agents.   We have quite a few local mortgage lenders who are also licensed in many other states throughout the US.    So unlike health care,  lending products and services have become moderately portable across state lines.   I don’t think our State Attorneys General or other lending regulators enjoy trying to license, track, control or regulate internet lenders, but they are players in the mortgage lending scene.  Some consumers benefit by finding rates as much as .5% lower than they can find locally!  Others lament the day they decided to entrust one of life’s biggest financial transactions to strangers from another state.

Many people loved the articles by the dearly departed attorney, Bob Bruss, the Dean of real estate law with the weekly column syndicated in most news papers.   Bob summarized  his experience with out of state lenders something like this:   “There is just no substitute for being able to drop by your loan officer’s office at times to look him/her in the eye and demand explanations or changes.”

Our experience is improving at a snail’s pace but with 90% of our internet lending closings we do not get the same response times to questions and demands as we do with our better local lenders.   The distant loan officer generally passes you off to the processor who passes you off to the underwriter who passes you off to the closer who emails or fedexes the documents and if you call the wrong person in the chain of service, they can’t give you an answer.

I must admit that one exception when it comes to good service is . . .  Shall I just call them  “Q Loans”, (a/k/a Lending Tree.Com?, a/k/a Rocket Mortgage?)  They are highly ranked in customer service, even if you are far from their headquarters in Detroit, but even “Q Loans” is not perfect.  I have no idea if this is the practice in every closing, but with most of the closings my clients have place with them, eventually “Q loans” turn over document preparation to a California title agency which tries to tailor documents to each of the 50 states and generally only sends a notary to your home to tell you where to sign the documents but cannot explain them.

If you have have questions, you can still call the responsive (but not responsible for closing) customer service rep who is assigned to you up in Detroit.  While these customer service reps are good at what they do, unlike some other low overhead internet lenders, my clients that have shopped and chosen, “Q Loans” do not get interest rates, discount points, or overall charges that impress me.  It does not seem that “Q Loans” is trying to compete for business by giving the lowest interest rates.  They have actually generally been a little higher than available local lender rates!!!   I suppose someone has to pay for all that responsive customer service!!!

With the other internet lenders who do compete based on pricing, I have had a few absolute horror stories.   Forms that didn’t fit our state . . . Bait & Switch bids . . . inability to generate documents on a promised time schedule . . .  and some hidden fees that drive the APR up more than you would have had with a local lender . . . which effectively negates the lower interest rate they quote.  The internet lenders count on you not wanting to switch horses in midstream after you have invested your credit card in appraisal fees and credit report fees, not to mention your time in sending tax returns, bank statements, etc..     And there is no opportunity to get in someone’s face or have a loan officer who is your advocate and representative through the whole process from intake to processing to underwriting to closing.

If you are a millennial who is infinitely familiar and comfortable with managing relationships electronically, I’m sure you might be comfortable with a good internet lender and you will do your homework, make sure they have been around a long time, compare rates studiously and enjoy some savings.   We are always welcome your feedback and recommendations in your mortgage shopping!!!   My current state or mind is unless the internet loan deal is better than a couple tenths of a percent in interest, I am not willing to give up a more personal and relational way of doing business!