Advice on where to go to get a mortgage.
A borrower can always select a loan provider by throwing a dart at the Yellow Pages. Areferral is of value if it raises the probability of a good outcome above that from throwing the dart. The four major sources of referrals are real estate sales agents, other borrowers, Internet referral sites, and builders.
Real Estate Sales Agents: Home purchasers accept more referrals from real estate sales agents than from all other sources combined. Sales agent referrals generally are to individual loan officers or brokers, as opposed to firms. An agent with great confidence in a loan officer will continue to refer clients even when the loan officer switches firms.
Sales agents have the same interest as buyers in completing transactions. Hence, they refer clients to loan providers who can generally be depended upon to close on time. This is the agent's major concern, and it is a concern of borrowers as well.
Sales agents have no comparable interest in the mortgage price or whether the borrower is placed in the right kind of mortgage.
However, the agent doesn't want the price to be so far out of line or the service provided so abysmal that the borrower throws a fit and blames the agent. Hence, referrals from sales agents are significantly better than throwing a dart at the Yellow Pages.
Other Borrowers: Referrals from other borrowers are usually based on a single transaction. They are better than the Yellow Pages, but not much better. I have seen borrowers who were very pleased with their experience because they were not aware that they had seriously overpaid. I have also seen the reverse—borrowers who bad-mouthed their loan provider, who had done the best possible job under adverse circumstances, and had earned very little on the deal. Before acting on a borrower referral, grill the borrower about the basis for his or her opinion.
Internet Referral Sites:These Web sites provide price information for a large number of lenders and mortgage brokers, usually listed by state. They also provide quick entree to the Web sites of each loan provider listed. In theory, a borrower can sort through the list of loan providers, identify those with the lowest prices, and visit the individual Web sites to make a final selection. In practice, I found that referral sites were no better than the Yellow Pages. See Referral Site.
Builder Referrals:Builder referrals are usually to a lender with whom the builder has a financial arrangement. Hence, they are suspect. In some cases, preferred lenders price loans above the market and kick back some of the excess to the builder. This makes builder referrals inferior to the Yellow Pages.
But builders can trap you into using their preferred lender. They do this by offering a price concession conditional on your using the preferred lender. The builder pads the house price, then offers back part of what has been taken from you. If you don't accept it, you lose even more. See Mortgage Scams and Tricks/Scams by Home Sellers/
Self-Referrals: Responding to self-referrals (solicitations) usually is a bad idea. Not all lenders who solicit are predators, but all predators solicit. Your chances of avoiding one are better if you throw a dart at the Yellow Pages.