By Jack Guttentag
Saturday, February 23, 2008
I have been spending time recently kicking the tires of a new Web site, http://www.mortgagegrader.com, which has excellent credentials.
It was developed by Jeff Lazerson, an experienced mortgage broker who didn't much like the way most brokers did business. He persuaded the Ford Foundation to back an approach designed to eliminate opportunistic pricing -- the widespread practice of basing the price on what brokers believe they can induce borrowers to pay.
Mortgage Grader develops prices mechanically by sifting through the offers of participating lenders to find the best deal. The site follows many consumer-friendly practices. Broker fees are transparent, and the site passes through to the borrower the best wholesale loan price. This sets it apart from most brokers, who quote prices that include an undisclosed markup.
Mortgage Grader's broker fee is fixed, changing only with the loan amount, and is disclosed in a fee schedule. This eliminates the consumer-friendly possibility of adjusting the broker's fee to the anticipated workload involved in the transaction. I consider that a small price to pay, however, for eliminating all possibility of opportunistic pricing.
The site also guarantees the lender fees that it discloses, and credits the borrower with any rebates received from the lender -- both commendable practices that only a minority of brokers follow. It will lock the rate and other terms when directed by the customer and provide a copy of the written confirmation of the rate lock as soon as it has been received from the lender.
Mortgage Grader quotes loan prices adjusted for the particulars of each transaction. However, to do so, the site requires that the borrower fill out an application form that is contained on five screens. That took me about 15 to 20 minutes. That is a small investment of time for someone applying for a loan. However, it is a large investment for someone in shopping mode, who is visiting multiple Web sites and who will be coming back frequently, either to check different loans or to keep abreast of an ever-shifting market.
The problem is aggravated because Mortgage Grader fails to provide users with a way to save their inputs. The information disappears from the computer after an hour. That is up from 20 minutes; Lazerson extended it after I complained, but what is needed is more like three weeks.
There is no reason to save the prices. They will change every day anyway and take only seconds to calculate. However, I found it annoying to reenter five screens of personal data every time I wanted to take another look at the prices.
Because Mortgage Grader cannot easily be compared to other online sites, it is essentially directed to borrowers who have decided to get their loan from one loan provider. This requires a certain amount of faith that they will fare well on the site without checking competitors. Is such faith justified?
To try to answer that question, I set out to do a comprehensive set of price comparisons against five online lenders that provide comprehensive price data, covering a variety of market niches. Unfortunately, I was able to complete only a few before Mortgage Grader bounced me off, and I was disinclined to make it my life's work. In the few I did, Mortgage Grader did not have the lowest price but was in the ballpark.
The large amount of data the site requires borrowers to provide before they can get prices, which I found so irksome, does have one advantage for borrowers: It allows Mortgage Grader to better assess whether the borrower meets the lender's underwriting requirements. Thus, prices probably won't require adjustment later in the process.
Bottom line: If you prefer to select one loan provider rather than spend time shopping, Mortgage Grader looks like a good choice. Right now, it is licensed in California, New York, Florida and Idaho.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site,http://www.mtgprofessor.com.
¿ 2008 Jack Guttentag
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