Mortgage Price Quotes
Mortgage Price Quotes
Rates and points quoted by loan providers.
You cannot safely assume that mortgage price quotes are always timely, niche-adjusted, complete, or reliable.
Timeliness: Most mortgage lenders change their prices daily, generally in the morning after secondary markets open, and sometimes they will change them during the day as well. This is a major problem for shoppers using traditional distribution channels, since prices collected from lender 1 on Monday and from lender 2 on Tuesday will not be comparable if the market has changed in the meantime.
Prices advertised in newspapers are out of date when they are read. A newspaper that publishes price information in its Monday edition, for example, is reporting Friday's prices. On Monday when the paper hits the street, lenders have already posted new prices.
The Internet can ease the pain of shoppers trying to stay abreast of the market. On Monday morning when the newspapers are reporting Friday's prices, some Web sites are reporting Monday's prices. In addition, it is easy to compare prices of different lenders on the Internet, so having to repeat the process on successive days is not a burden.
Not all mortgage Web sites provide current data, however. Some of the prices posted on the Internet are even more out of date than those in the newspapers. Almost always, however, the date of the quote is given, so you can ignore those that are not current. If the date is not given, you can assume the quote is not current.
Niche-Adjusted: Most mortgage price quotes are based on the most favorable assumptions possible about your niche. For a list of such assumptions, see Nichification/Generic Price Quotes. If your deal does not correspond to these assumptions, the price you ultimately receive will be higher.
Niche-adjusted prices are available from a loan officer by volunteering the information needed to determine the correct price. Usually, the loan officer will ask you to fill out an application in the process, which makes it difficult to shop. The easier way to shop niche-adjusted prices is at Web sites that offer a “customized” price. To receive it, you must first fill out a form that provides the required information about your deal, but you don't have to apply. Multiple Web sites can be shopped in one sitting.
Completeness: Most price quotes consist of rate and points only. They omit fixed-dollar fees, and on ARMs they also omit features that affect the ARM rate after the initial rate period ends. See Mortgage Price.
Complete price quotes are available on some Web sites. See Single-Lender Web Site.
Reliability: A reliable price quote is one that, assuming the market does not change, the loan provider intends to honor when you lock.
Some loan providers offer low-ball quotes they have no intention of honoring. The objective is to rope you in. They figure that once you are in the application process, they have a good chance of landing you as a borrower.
If you are purchasing a house, the cost of terminating the process with one loan provider and starting again with another becomes increasingly high as you move toward the home closing date. Your bargaining power recedes with the passage of time.
I know a mortgage broker who aims to make at least a 1.5-point markup on all loans but includes only a 0.5 point markup on prices he quotes over the telephone. When he lands a customer, he finds a way to recover the point (or more) before the loan terms are locked.
For example, suppose market interest rates rise after the initial quote, with the original wholesale quote of 8.25% and one point now 8.25% and 1.5 points. The broker tells you “Sorry, the market has gone against us. The loan you want is now at 8.25% and three points.” The broker makes an extra point by pretending that the increase in market rates was larger than it was.
Conversely, if the wholesale quote falls to 8.25% and zero points, the broker can make his 1.5-point markup by providing you with the terms originally quoted. The broker merely ignores the decline in market rates.
How do they get away with it? Loan providers legally can't be held to a price quote. Since the market is volatile, yesterday's price may not apply today. All loan providers warn borrowers that price quotes aren't firm until they are locked.
You can attempt to forestall this trickery by monitoring changes in the market after you get a price quote, but probably you won't get far.
The broker will point out that your market information is general and does not accurately describe the specific segment of the market relevant to your loan. Only the broker has that information. You will probably lose this argument because you're fighting on the broker's turf, and you have a closing date on the near horizon.
It would be a different story if the broker agreed initially to share his or her market information with you. If the broker in my example
revealed the wholesale lenders' price quotes, you would know exactly how the market relevant to you had changed. But then the broker would not be able to modify his or her low-ball markup, which is why most brokers keep wholesale prices to themselves.
On the Internet, you are less vulnerable to low-ball offers that disappear under the cloud of “market change adjustments.” Loan
providers who quote prices on the Internet can't tell you market rates rose by ½% between the day you applied and the day you
locked unless they did, because their rates are posted for you to see on both days. (See Single-Lender Web Site.) An attractive alternative is to hire an Upfront Mortgage Broker to shop prices for you. (See Upfront Mortgage Brokers.)