Online Lending: Is it Really a Better Deal?

I have been in the mortgage business for nearly 35 years and still am surprised by the lack of financial acumen shown by some borrowers.  Despite the best professional advice they have been given, they choose to go over the cliff like a lemming seeming to think their nonexistent parachute will somehow save them and it will all work out in the end.

Just recently, one of my clients had the following situation happen to himself. I must maintain the anonymity of this person’s name and company, but here is the scenario that occurred.

The borrower was purchasing a home, was clear to close and had a closing date within a week. At the last minute they spoke with an online lender who said they could give the borrower a better rate shaving their current projected rate by an eighth. 

The loan officer who had the borrower approved ask for the disclosure from the online lender so they could compare, but this is where it gets weird.  Indeed the rate was an eighth lower, but the deal was structured so the borrower had to bring another $4500.00 to closing to cover the lower rate plus additional fees. In actuality, the borrower’s payment was increasing close to $40.00 a month for 10 years!

Now this was a retired couple and they didn’t have a ton of cash so the additional $4500.00 was not insignificant. That said, and despite the above, the borrower decided to go with the online lender which left everyone involved scratching their heads. Additionally they have to ask the seller to extend the contract another 30-45 days to cover their new decision. Whether the seller is going to agree with this is just unknown as the loan was clear to close in a matter of days. I do know what I would do if I were the seller.

The borrower would never explain their decision, which is their right, but one can only assume the borrower has been somehow misled by some verbal promise from the online lender as their decision seems irrational. Even after the initial 10 years, they can never break even given the monthly payment increase and the higher closing costs.

As you know, Mortgage Defense, Inc. deals with mortgage fraud. I am not suggesting the above case is containing fraud; however, it is hard to watch a borrower commit financial suicide, especially on a fixed income for no apparent reason. The loan officer for the online lender in this case was no rookie, as they had been in the industry for over 6 years. It makes me wonder how these borrowers were convinced that the online lenders disclosure was a better deal. It is a real conundrum but similar circumstances seem to occur with some of these online lenders and I fear the real loser is unfortunately the borrower.

All professional loan officers can do is explain the LE and CD to the borrower as best they can and use all the tools available to them. If a borrower chooses a poorer loan, for whatever reason, you just have to move on knowing somewhere somehow someone has probably been misled in some fashion.

Neill Fendly, CMC