by Michele Newbern Gillis
Staff Writer
Internet lending can be business to some, but in reality it’s not that different than dealing with a local lender. That seems to be the consensus of local Realtors but they also stress that there’s a bottom line: it’s the customer service, reputation and trust that really matter, and being face-to-face has a comfort level.
Many in the real estate industry have a poor impression of Internet lending but the actual lending of the money is the same no matter if you go online or to your local lender around the corner.
“The bottom line is that everyone has the same money available today and we can sell to various portfolio lenders and the banks can sell to other banks,” said Jacqueline Parrillo of People’s First Community Bank. “Everyone is within about an eighth of a percent of each other and it’s not always true when they say you can save on this or that. When you really get to the bottom line you might be able to get an eighth of a percent and if you are real lucky maybe a quarter of a percent if there is a special deal. If you really look at apples to apples, you pay the same no matter who you go to. To me it’s a preference of dealing with a person instead of a computer.”
Internet lenders are policed the same as local lenders are by Federal, state and local laws.
Whether you go around the corner to your local lender or bank or go through the Internet, it all comes down to service and who provides it best.
“I don’t believe that Internet lending will change the mortgage business other than offer more competition,” said Phyllis Staines of Re/Max Coastal Real Estate. “I do believe that those lenders, be it Internet or local, who provide service excellence and constantly raise the bar will ultimately excel in this ever changing and competitive marketplace.”
Using the Internet as a tool
Some Realtors value the source of Internet lending as a tool to help their customers.
“Internet lending is just another tool in the real estate toolbox that buyers can utilize to secure financing for their property purchases,” said Staines. “Buyers need to be as educated and informed as possible when making a real estate purchase and the Internet is a great place to start.
“However, I encourage all of my clients to meet with at least one local lender to determine the best route for them. It’s not all about rates. Fees, closing costs, type of loan program offered and overall service provided must also be taken into consideration.
“Most buyers get hooked on the interest rate as the only viable factor and don’t research the other components of the loan such as the total cost to close. That is why it is so important for any buyer to not only have a good lender but a good Realtor on their side to guide them through this process.”
Though some agree that the Internet is a good tool for research, they still feel that you need to deal with an experienced loan officer to help determine the correct program for each customer.
“The Internet is wonderful for research and gathering the right questions but it takes an experienced loan officer to fit the right program with the borrower and complete the deal,” said Carolyn McMoran of National City Mortgage, a division of National City Bank.
David Wakefield of CTX Mortgage said there is no question that the Internet is one of the best ways to find out what the market is doing and what rates are available to a consumer.
“Many of my clients use the Internet for exactly that reason,” said Wakefield.
Changing the industry
“Internet lending has changed the mortgage business by making it harder,” said McMoran. “Most customers do not have the right answers or the right questions to get the proper loan product and the right costs. Then we have to compete with apples verses brussels sprouts. They are not even close.”
Parrillo said she hasn’t seen much of a change now, but that it might happen in the future.
“When it is perfected, I might see a change but I really don’t see a difference that it has made in losing any loans,” said Parrillo. “I have had several situations where one of my customers has come back to me after comparing the pricing of an Internet lender and have been told one thing and then given another. For the most part they were refinances so they didn’t get hurt but came back and we did the loan.
“We may lose a few loans to this form of lending but on the whole this segment has not hurt my business much. I still feel there is some value in experience, honesty, availability and accountability with local lending. You will not see an Internet broker ever meeting with the client or attending a closing. Also, you typically don’t see them counseling the client on the best program for them.”
Some feel that the Internet changed the mortgage industry by taking away the personal contact and customer service needed to determine the best loan for a customer.
“Internet lending is bad and personal touch is good,” said Wakefield. “The Internet in general has changed the dynamics of the mortgage industry. Information is very accessible and readily available. Clients can shop around for various rates but often get themselves into a jam. Working one-on-one with a trained mortgage professional is certainly the way to go. What many clients don’t know is that mortgage lenders have wholesale institutions tripping over themselves to get our business. Our company takes the most attractive rates available from various companies and makes them available to our clients.”
Bill Watson III of Watson Mortgage Corp. said Internet lending has not significantly changed the mortgage business.
“It has provided an additional tool for the consumer to become savvy and informed prior to beginning the process, which is a good thing,” said Watson. “The more informed a consumer is about the mortgage process, the easier it is to set proper expectations and provide them quality service. Watson Mortgage Corp. does have an on-line application available on our Web site. The difference is that the application is then placed with a specific mortgage consultant within the local community of the home being purchased, if possible, and within our coverage areas. Internet mortgage lending can be a viable option for an informed consumer whose personal finances are relatively simple and are looking for a standard mortgage product. However, for the rest of the customers, I would suggest working with a reputable local lender.”
The personal touch
“Internet lending is risky,” said McMoran. “It’s all clicks and no bricks for the most part. The pre-approval is only as good as the information provided. Usually I end up doing a loan at the last minute for a customer who did not get the product, rate or even the loan as requested. Or the Internet lender is out of business or cannot do business in our state. My experience has been less than positive due to rate or costs higher than disclosed or the company was tough to deal with and getting the closing package was near impossible. I know a few that had minimal issues and did close but felt that they should have gone with a local lender. Plus they often start receiving unwanted spam and solicitations from multiple sources.”
Brad King of Wachovia Mortgage agreed that the Internet is great for researching loans, rates and other information, but the personal touch is still needed.
“The Internet has been great for all sorts of things from cars to houses,” said King. “Just like cars and houses, after people search and educate themselves by using the Internet, they then typically need to see it and touch it and therefore going to the car dealership or working with a Realtor is the next step. For financing, due to the technical nature of our business today and the multitude of options it offers, dealing with a person ultimately is very important. It’s difficult for someone to get a proper evaluation of their options or an evaluation of their situation over the Internet. For the most basic of transactions it certainly can be worth a shot.”
Especially, King said, for a refinance. Using the Internet can be an option: if the ultimate package provided varies from their expectation, it can be canceled.
“This is not so easy for a purchase-money transaction,” said King. “Then it becomes a take-it or leave-it situation. Like many people in the mortgage business, I’ve had to bail out people who started on the Internet only to discover at the last minute they’re either not getting what they thought or they’re not getting anything at all. Though some people view mortgages as a commodity and therefore assume a purchase over the Internet is fine, this is not the case for most and they may still need the counsel of an experienced mortgage professional.”
Buying a home is a very personal decision, which some feel needs a personal touch from someone who can discuss and understand the client’s needs.
“Generally, the largest purchase an individual will make is their primary residence,” said Watson. “There are many different loan programs and financing options available to consumers in today’s market place. The personal touch is hard to replace in the personal finance arena. Most people would prefer to be able to discuss all of their financing options and their personal financing goals with a person who fully understands the options available to them.”
Pre-qualification letters
Realtors often refer their customers to the mortgage person of their choice. Some of the Realtors we talked to are not buying into the new trend of Internet lending, at all.
“We cringe when a buyer comes to us with a pre-approval letter from an Internet lender,” said Tim and Susan Fennell of Century 21 Atkins Realty. “We find that the pre-approvals mean nothing, but then that can be locally as well. Often times they charge exorbitant fees, they have no local appraiser relationships, their markets are different for usual and customary charges to seller/buyer, so their good faith estimates are not accurate. They lie and they have no shame or accountability to the agent they are working with and when it hits the fan at the last hour before closing, they suddenly are totally unavailable. Not to mention, they are frequently in a different time zone, which gives us less productive business hours to work.”
Jeff Kern of Embassy Mortgage and Realty Services said he doesn’t trust pre-qualification letters from Internet lenders either.
“I still trust face-to-face mortgage transactions,” he said. “The application process, the credit scoring, the interpretation of data etc. and the pre-qualification letter has greater validity if I can pick up the phone and call the loan officer and find out details. Closings have been an issue with both title companies and attorneys.”
Bait and switch?
Realtors, lenders and closers say there is too much room for fraud and the bait and switch situation that happens at the closing table - when you thought you had one program and end up with something completely different, or your closing costs are much higher then the initial good faith estimate.
“Internet Banking has not been perfected enough for purchase mortgages in Florida,” said Parrillo. “I am talking about Internet companies that are soliciting clients who are basically brokers or correspondent lenders. The Internet sales system was designed originally for refinances. Since a borrower has a three-day window after closing to cancel the loan, there is little room for fraud or error. On a purchase, you typically are sitting there with the moving van on its way and your contract date expecting you to close. When you receive an Internet company’s approval, it could be good or maybe not. It’s a chance I wouldn’t take.”
Josie Deal of Coldwell Banker Jasinsky and Associates said she has experienced major problems with Internet lenders.
“The two times I had experience with Internet lending we had major problems,” said Deal. “The customers were told one interest rate and then on the closing mortgage package it had been changed. We had to delay the closing and get another lender. It was a disaster for all parties concerned and that is why I encourage the use of local lenders that I know and trust. If the buyers do not use someone locally then make sure it is someone they know and trust.”
Closing attorneys are usually the ones who deal with this situation.
“Most of the time the Internet based lenders use bait and switch tactics to get people initially interested, and then they change the rate structure and terms usually right at the closing table,” said Blake Deal III of Bartlett & Deal, P.A.
No consultation?
Some are under the impression that because the loan is coming through a computer and not face-to-face that there isn’t a consultation for the customer to determine the right loan for them.
“Most Internet lenders don’t provide a consultative approach to helping a client integrate their mortgage into their overall long and short term investment goals, nor do they help them meet their payment and equity objectives,” said Wakefield. “The way the Internet can afford to give low rates is by removing the expertise of a consultant from the equation.
“With a large or small mortgage transaction, I find most people are willing to pay a little higher rate in exchange for professional advice. Based on my commitment to help my clients make smart choices, they generally feel comfortable moving forward. Remember, the best rate on the wrong loan could cost you thousands of dollars.”
The mortgage lending process is very detailed in nature and requires time and attention from the lender.
“The Internet is not the most efficient way of addressing most of the details involved in the transaction,” said Watson. “Internet lending sites are a very convenient way to get some basic details regarding home financing while keeping some anonymity. However, the pre-approvals are based on the information provided from the consumer, which may not be able to factor many of the details that will be required to complete the transaction.”
This is, he said, where the personal touch becomes such a big factor.
“The consumer is often working with a lender that is out of state and possibly in a different time zone,” said Watson. “When they call in for assistance, many times it is a call center with no one central contact familiar with their loan. Not being located locally can present additional challenges for the consumer. The costs involved and who is responsible for paying them are often different from one city to another, much less from one state to another. This can make providing an accurate good faith estimate significantly more difficult.”
Closers experience
Lori Sabato, office manager and title agent for Bartlett & Deal, P.A., has dealt with several Internet lenders at the closing table.
“It is kind of a hit or miss kind of thing,” said Sabato. “Even with local lenders, a lot has to do with how good the loan officer is and how good the processors are.”
Sabato said she was pleased with Quicken Loans.
“I had a very good experience with them,” said Sabato.
In her experience, some Internet lending experiences do not go very smoothly, she said.
“The closing packages sometimes come way too late or they are coming from other states that do not understand how it’s done here in Florida,” said Sabato. “Many customers are shopping for the lowest rate when they could have gotten the same thing from a local lender. You pay it one way or another. The interest rate is the interest rate and if they make the interest rate lower, then you might have a lot more in fees.”
Terri Rodish, real estate closing specialist with the Rogers Towers law firm, has dealt with several Internet lenders and said she was impressed by them.
“In my prior experience as a banker, I was asked by clients to review and notarize documents for an Internet closing on a couple of occasions,” said Rodish. “They were both refinances.
Both sets of clients said they filled out an application over the computer, had an approval within a couple of days and the package was to them within two weeks. One only took a week, which I thought was pretty impressive. The packages were bound, marked where they were to sign, very organized and came with a copy for the clients to keep. I recall being impressed with the rates and that there were nominal ‘junk fees.’ I was expecting the companies to nickel and dime the clients for closing costs, but they were very much in line with the norm.”
Though she wasn’t involved until the end, Rodish said the customers seemed pleased with the customer service they received.
“I wasn’t as involved with the transactions to know if they needed much assistance or had many questions that needed to be addressed by a customer contact person before they approached me for help, but they both seemed to have had very good experiences,” said Rodish. “That being said, they also both did come to me, as their banker whom they trusted, for assurance that the documents were fine.”
Rodish closed one transaction for E-Trade in July of 2005 in which she did the title work.
“It was a purchase and sale closing with a very large loan, almost $2.5 million dollars, and there was a home equity line of credit loan for around $300,000 as well. The package was very organized and fully prepared. I believe I recall it even had a pre-paid FedEx label for return of the executed documents. The wire funding for the loan was on time. There was a contact person for me to contact and coordinate the package with me. I don’t recall the rate on that one, but I know the buyer was very pleased with the service he had received as well. I guess my overall impression is a good one so far.
“Personally, I like dealing with someone face-to-face, someone I know and trust and I would also be more comfortable with a local reputable lender. I would, of course, say that I feel it would be important for the client to be very comfortable with the documents they are to sign, or to have a good contact person from the lender, even if only by phone, to be able to get the questions they may have answered before they close.
“It did appear the lenders had that area covered and made the clients happy, even though, as I stated before, the clients did come to me, someone whom they trusted, to review the documents to make them completely comfortable.”
The Internet Lender’s side
After two interviews with Internet lenders and an actual happy and satisfied Internet lending customer, some of you may reconsider your thoughts on Internet lending.
Tony Nuckolls, regional vice president of www.quickenloans.com, understands that many Realtors are wary of dealing with an Internet lender.
“For them, they are just thinking that this is something new and not something that they have been used to for years and years,” said Nuckolls. “It may be unfamiliar territory to them. But we feel that they should be excited because it allows the Realtor to have one point of contact throughout the entire transaction. We are available 24 hours a day and seven days a week. So, if they ever want an update, they can go online or their client can go online and see exactly where their loan is as it goes through the system. We also have online chat. So if they get up in the middle of the night and email the company, we’ll have someone get right back to them. It’s actually very high-touch and high-feel. It’s actually more convenient for Realtors, builders, closers and our clients.”
Quicken Loans, a direct lender located in Michigan, has been open since 1985 and is licensed in all 50 states.
“Using an Internet lender is more convenient,” said Nuckolls. “Clients can apply online 24 hours a day and seven days a week from the convenience of home or office, rather than waiting to set up an appointment at a local bank between the hours of 9 a.m. and 5 p.m.”
Many Realtors balk at the presence of a pre-qualification letter, especially from an Internet lender, but Nuckolls says they follow the same qualification procedures as local lenders.
“We don’t base the ultimate decision on the pre-qualification letter,” said Nuckolls. “We pull a credit report, verify employment and assets, etc. before issuing final approval. Instead of being preliminary qualified, we want you fully approved. We give you a full-blown mortgage commitment with a check waiting for you in the amount you are actually qualified for.”
The closing experience is also different through Quicken Loans. Instead of the buyers having to leave their home and meet at a closing attorney’s office, Quicken sends a notary to the buyer’s home to perform the closing.
“We make it very easy for them,” said Nuckolls. “If they want to do the closing at work on their lunch hour, we make it work for them. We are very flexible. That way they don’t have to take time out of their day to go to an appointment.”
Do they provide client consultation to determine the best loan available?
“We do all of our counseling over the phone and via the Internet,” said Nuckolls. “The clients actually appreciate it because within 10-15 minutes after the phone call, they get a written good faith estimate breaking down everything specifically, so there are no games being played or anything quoted that is changed during the process. They get literally everything in their hands up front and can hold us accountable to that standard. Nine of 10 of our customers said they would refer us or come back to us.”
Getting a quote up front is nice, but does it really stay as is until the end of the process? Yes, says Nuckolls.
“We’ve found that (bait and switch) can happen just as easy with a face-to-face person as it can with an Internet lender,” said Nuckolls. “If they have questions once they get their application done online, we have one point of contact in our company to answer. We partner with the Realtors to make sure that we are all working together toward the same goal which is to obtain financing for the client, whether it is a purchase or a refinance.”
Nuckolls said they ensure good service by staffing correctly.
“We like to under-promise and over-deliver,” said Nuckolls. “We have a rigorous five-week training program for the people who interview and screen our clients. We also have ongoing training for them.”
Trust is a big problem with Internet lending, but his company is trying to change that. He gave some advice of things to look for when investigating an online lender.
“You have to deal with a company that you trust,” said Nuckolls. “I wouldn’t tell someone my personal financial information if I didn’t trust them. I think that is the first thing to have to establish. Is this a reputable company that you can trust? The next thing is to find someone who is an expert in their field. You need to dig deep and find out how long the company has been around, how many clients do they have? How do they rank with the Better Business Bureau and can you get testimonials of others who have dealt with them? The closing is really just the beginning. Find out what happens after the closing.”
For instance, he said, see if they plan to keep in touch with you after the closing and keep you abreast of changes in the market or new products offered.
“I think local Realtors do it better than local lenders,” said Nuckolls. “That’s where we really learned from is the real estate business because they (Realtors) constantly stay in front of the clients and add value by educating them and give them the security and peace of mind of knowing that someone is looking out for their best interest. We believe that an educated consumer is our best consumer.”
Nuckolls used to work at an traditional lending institution and feels more comfortable on the Web.
“I saw more flaws with that than the online system,” he said. “I was taking clients’ applications face-to-face and there were times when you couldn’t collect all the information and you were playing cat and mouse trying to chase down paperwork.
“With our processes here, everything goes into one system, which is online and kept in a secure Web site. The clients can get in touch with us via cell phone, email or voicemail. It’s actually more secure and safe actually than a loan officers driving around in their car with client’s pay stubs and W-2’s inside.”
In addition to providing service during the loan, Nuckolls said his company’s involvement lasts long after the loan has closed.
“The closing is just the beginning,” said Nuckolls. “After they close, we have our own internal loan tracking system. If rates fluctuate or there is a new program that is developed, we are proactive and call our clients and let them know what is going on. We also send them quarterly newsletters.”
Kristen Coon and her husband Robert, residents of Orange Park, used QuickenLoans.com recently and were pleased with the whole experience.
“My husband had heard about the company from a financial advisor on the radio so he wrote it down, came home and looked it up,” said Coon. “I got on the phone with them. It sounded good to me and things went from there. In our lifetime we have closed four mortgages and with this company two home equity lines of credit. This was the best experience I have ever had. On the previous three loans, we dealt with someone we knew and this was still better.”
Coon said they are a reputable company and she would definitely use them again.
“I don’t know that I would just deal with any Internet lender without researching them first with the Better Business Bureau through Google.com,” she said.
After using the Internet lender, Coon said dealing with someone face-to-face isn’t all it’s cracked up to be.
“You can’t always get them on the phone when you need to,” said Coon. “You don’t want to run to their office every time they need something.”
Coon said all their paperwork and signatures were done via email.
“Our paperwork for our closing was FedEx’d to us,” said Coon. “There was a package for us, a package for the closing agent and the notary came to our house at our convenience to do the closing. We sat at our table for maybe 30 minutes and it was closed.”
Coon said the interest rate was excellent and the only fee was for the buy down.
“I don’t think they were any more unreasonable than if we had gone to someone else,” said Coon. “Everything was done by email, they called us and we were always able to reach someone if we had questions.”
Coon said she intends to use Quicken Loans again and has referred the company to her friends and family.
“I was a lot more cautious than I normally would be because they were online,” said Coon. “They could have been throwing a sales pitch, but no, the way they said it would be was exactly the way it was. I can’t say enough about them. I recommend them to everyone.”
Keith Luedeman, CEO of www.goodmortgage.com, said that his company offers a number of programs with better and more competitive pricing since his infrastructure is less and faster service.
“We’re always in the office,” said Luedeman.
He said convenience is another reason to use their company.
“There is no need to take time off work to meet with your lender,” he said. “We can do it all at home or over the phone. There is no face-to-face interaction. However, we feel the speed and pricing makes up for this.”
Luedeman’s Web site states that they offer the ability to always have a person to call and ask questions of, gather information before the process starts, to analyze the customer’s financial situation before speaking with a loan professional and having their credit report pulled. They also give updates all throughout the loan process by email, and from a loan status Web site.
Nuckolls said there are a few things to look for in an Internet lender to make sure you have a good experience.
“When looking into Internet lenders’ qualities, you need to look at convenience, service, price and track record,” said Nuckolls. “Get testimonials from past customers. Realtors need to make sure their clients get written good faith estimates and a loan pricing disclosure from these Internet lenders.”
The loan pricing disclosure states what it is going to cost to obtain this loan. Nuckolls said they also need to get a lock disclosure which states whether the loan is locked in or not.
“If it’s locked in, then that company has to deliver on that pricing,” said Nuckolls. “I think it is vitally important that the Realtor is proactive and has the ability to contact the lender and ask any questions that they may have at the time of application.”
With today’s technology, Internet lenders are certain it is the wave of the future.
“The Internet lending industry is going to grow exponentially over the next several years,” said Nuckolls. “I don’t think our children will know about sitting in a bank and getting a loan. It will all be automated.”