Why Aren't Brokers Interested in My Business?
May 7, 2001
"My current mortgage has a balance of $68,000 and a rate of 8.125%. Judging from the rate quotes in the press and on-line, I should be able to refinance at 7%. Using your refi calculator, I should be able to cover the costs within 25 months. To my surprise, however, the mortgage brokers I have approached don’t seem much interested in my business. Can you explain why?"
Yes. Mortgage brokers are currently swamped with more business than they can handle, and a refinancer with a small loan balance is not a preferred customer.
In general, both lenders and brokers would much rather deal with home purchasers than with refinancers. Purchasers have a drop-dead date on which they must close a loan, which strengthens the bargaining position of the loan provider. The customer can’t bail out a few days before closing if things aren’t going quite right.
Particularly vulnerable are home purchasers who allow the price of the loan to "float with the market" until shortly before closing, in the expectation that interest rates may go down. When it comes time to lock, they discover that the market price is what the loan provider says it is. If an unscrupulous loan provider understates the decline in market rates that has occurred since the original price quote, or overstates the rise, the purchaser has nowhere to run.
This game can’t be played with refinancers who have no deadline. They can allow the price to float indefinitely in the hope that interest rates will decline further. When they do lock, the loan provider knows that if the price doesn’t smell right, the customer can easily bail out and go elsewhere.
Unscrupulous refinancers, furthermore, can sometimes have it both ways. Locking the price protects them against an interest rate increase, and if rates drop they can threaten to bail out of the deal unless the loan provider agrees to drop the price.
Unscrupulous brokers and unscrupulous borrowers deserve each other. Refinancers who want to play the game straight should patronize mortgage brokers who play it straight. They are called Upfront Mortgage Brokers and they are listed on my web site.
Bear in mind that loan providers in general don’t much like $68,000 home loans because the income potential is small. On average, mortgage brokers make about 2% of the loan amount, of which less than half goes to the loan officer who guides you through the process. This isn’t a lot of money for the work involved, so it’s a good idea to do everything you can to demonstrate that the loan will be a slam-dunk. You should indicate that you want to close as quickly as possible, that you know exactly what you want, and that you will comply promptly with requests for information or documents.
It is also a good idea to let the broker know that you understand that taking on a $68,000 loan in a heavy refinance market is doing you a favor. A little appreciation can go a long way, especially if you indicate that you have friends or family who also intend to refinance and who are looking to you for suggestions on how to proceed.
WARNING! While honest brokers may need to be stroked to take on a $68,000 loan, dishonest ones have no hesitation because they have ways to pick your pocket. In every refinance boom, there is an influx of sharp operators out to make a quick score. Mostly they work the telephone using leads that they purchase from one of the many firms in that business. When interest rates rise again and the refinance boom ends, they are gone, often leaving customers dangling in mid-stream. Before responding to a telephone solicitation, check out whether and where the firm was doing business 12 months earlier.
"My current mortgage has a balance of $68,000 and a rate of 8.125%. Judging from the rate quotes in the press and on-line, I should be able to refinance at 7%. Using your refi calculator, I should be able to cover the costs within 25 months. To my surprise, however, the mortgage brokers I have approached don’t seem much interested in my business. Can you explain why?"
Yes. Mortgage brokers are currently swamped with more business than they can handle, and a refinancer with a small loan balance is not a preferred customer.
In general, both lenders and brokers would much rather deal with home purchasers than with refinancers. Purchasers have a drop-dead date on which they must close a loan, which strengthens the bargaining position of the loan provider. The customer can’t bail out a few days before closing if things aren’t going quite right.
Particularly vulnerable are home purchasers who allow the price of the loan to "float with the market" until shortly before closing, in the expectation that interest rates may go down. When it comes time to lock, they discover that the market price is what the loan provider says it is. If an unscrupulous loan provider understates the decline in market rates that has occurred since the original price quote, or overstates the rise, the purchaser has nowhere to run.
This game can’t be played with refinancers who have no deadline. They can allow the price to float indefinitely in the hope that interest rates will decline further. When they do lock, the loan provider knows that if the price doesn’t smell right, the customer can easily bail out and go elsewhere.
Unscrupulous refinancers, furthermore, can sometimes have it both ways. Locking the price protects them against an interest rate increase, and if rates drop they can threaten to bail out of the deal unless the loan provider agrees to drop the price.
Unscrupulous brokers and unscrupulous borrowers deserve each other. Refinancers who want to play the game straight should patronize mortgage brokers who play it straight. They are called Upfront Mortgage Brokers and they are listed on my web site.
Bear in mind that loan providers in general don’t much like $68,000 home loans because the income potential is small. On average, mortgage brokers make about 2% of the loan amount, of which less than half goes to the loan officer who guides you through the process. This isn’t a lot of money for the work involved, so it’s a good idea to do everything you can to demonstrate that the loan will be a slam-dunk. You should indicate that you want to close as quickly as possible, that you know exactly what you want, and that you will comply promptly with requests for information or documents.
It is also a good idea to let the broker know that you understand that taking on a $68,000 loan in a heavy refinance market is doing you a favor. A little appreciation can go a long way, especially if you indicate that you have friends or family who also intend to refinance and who are looking to you for suggestions on how to proceed.
WARNING! While honest brokers may need to be stroked to take on a $68,000 loan, dishonest ones have no hesitation because they have ways to pick your pocket. In every refinance boom, there is an influx of sharp operators out to make a quick score. Mostly they work the telephone using leads that they purchase from one of the many firms in that business. When interest rates rise again and the refinance boom ends, they are gone, often leaving customers dangling in mid-stream. Before responding to a telephone solicitation, check out whether and where the firm was doing business 12 months earlier.