Second of a Series on the Certified-Lender Network: Providing Competitive Loan Pricing
January 24, 2011, Updated January 1, 2012

 This is the second of the series of articles that served as a blueprint for the Certified Lender Network (CLN) that was under development when they were written early in 2011. The CLN became operational early in 2012. Check the menu to the right of this page.

The initial article of this series examined why the first generation of third party multi-lender web sites failed, despite rosy expectations and heavy investments by deep-pocketed firms. This article and those that follow will discuss the features that are central to the success of my new CNL site. Perhaps the major feature is provision of competitive loan pricing.

Competitive Price Quotes Versus Competitive Price Locks

A core function of the third party network is to collect, store and display price quotes from multiple participating lenders. While this generates competitive price quotes, it does not necessarily generate competitive lock prices that lenders are obliged to honor. A failure to recognize the difference was a critical mistake of the first generation of multi-lender sites.

Borrowers observed competitive prices on the network, but subsequent prices including the lock price were intermediated by a loan officer. The borrower was shifted from the network to the bazaar.

In the bazaar, the borrower is vulnerable to “low-balling” – the practice of quoting prices below those of competitors, and below those the lender has any intention of delivering. Low-balling, in turn, results in lock abuses – if you can’t deliver what you promised, you must find a way to extricate yourself from the promise, and the complexities of the locking process provide many such ways.

In the CNL, there is no loan officer intermediation in the pricing process, and no low-balling. The borrower is encouraged to update the price on the network until it is locked.

Lock Price Monitoring

A network that generates competitive lock prices, as well as competitive price quotes, must prevent lenders from abusing the lock process. The first generation sites left the locking process completely in the hands of the lender, which left the borrower as vulnerable to lock abuses as borrowers transacting off-line.

In today’s market, locking a quoted price is more the exception than the rule. More often, the lender quoting a price on Monday is unwilling to lock until some information upon which the price is based has been verified, which may not be until Thursday, at which point the market has probably changed.

Lenders who quote prices Monday but don’t lock until Thursday can scam borrowers by locking the Monday price if rates have since gone down, and offering the highest price they think they can get away with if rates have gone up. However, Certified Network Lenders (CNLs) will lock at the Thursday price, whether higher or lower, because this will be a network rule and (more important) because the borrower has direct access to the lender's prices. It is not possible for a CNL to offer one price to a shopper and a different price to the shopper's identical twin who is locking the identical deal.

Similarly, when information upon which a price depends (such as credit score) has been revised by enough to affect the price, the price adjustment by an off-line lender is what the lender says it is. But on the CLN, the borrower can adjust the score and calculate the correct price.  

Transparent Lock Policies

Lock policies may vary between lenders. For example, some lenders offer “float-downs” under which the locked rate can be reduced if market rates decline before closing; others don’t. Lock fees and lock extension fees may also differ. Few lenders disclose their lock policies to borrowers in advance, and none of the mandated disclosures cover them. The CLN, however, discloses the lock policies of participating CNLs that vary from one CNL to another.

Lender Certification

CNLs are certified for their adherence to network rules, which focus on transparency and fairness. See  Why Shop Here: Certified Network Lenders.

With certification based on operationally defined rules, lenders who don’t want to give up exploitative tactics will not join, while lenders who don’t employ such tactics are grateful for being recognized and distinguished from the others. Participating lenders also welcome the prospect of dealing with well-informed applicants, who have been qualified by the network and have a high likelihood of becoming borrowers.

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