The Downside of Rate Shopping; Peak Jobs Nonsense Too

JVM Lending actually benefits from rate shopping, as our rates are lower than about 95% of our competitors. So, when rate shoppers come to us, we can more often than not win them over.

BUT, despite that, I am going to illuminate the downside to rate shopping.

“Big Lead Gen” Pushes Rate Shopping Myths

LendingTree recently shared a “study” that showed the lifetime savings that result from shopping for the best mortgage rate in 5 states: California ($131k), New Jersey ($127k), Hawaii ($116k), Washington ($115k), and Minnesota ($103k).

“Lifetime savings,” however, assumes that people will keep their mortgages for the life of their loan – when that is almost never the case. People hold their mortgages for an average of 4 to 7 years, at most. So, the savings from shopping are far less than “Big Lead Gen” would have us believe.

So, why does “Big Lead Gen” mislead us? It’s because nobody benefits more from rate shopping than “Big Lead Gen.”

Every time a borrower asks Google for the “best mortgage rate” or “best mortgage lender,” they get inundated with responses from the likes of NerdWallet, LendingTree, Bankrate, Zillow, and BiggerPockets. And ALL of those entities make money by selling leads to mortgage lenders.

I have been seeing more reminders to shop for rates than ever before too in various blog postings and videos – and I naively assumed that it was just because rates are higher now.

But, I recently realized that those suggestions to shop for rates often come from the “Big Lead Gen” companies (every NerdWallet blog seems to encourage it, for example). It is sort of because rates are higher too – given that today’s higher rates have crushed mortgage volume and that in turn has crushed the revenues that Big Lead Gen was generating. So, Big Lead Gen needs to encourage shopping more than ever right now.

Rate Shopping Downsides

Several years ago, a borrower called me in a panic because he was short on cash to close and at risk of losing his earnest money deposit.

After some digging, I realized his cash shortfall was his fault because he unnecessarily spent the funds necessary to close. I also found out that his loan officer had been working with him for months, even paying for credit repair – and I happened to have known the loan officer. I instantly found a solution to help the borrower close too, but that was only because by sheer coincidence, a guideline change was released that very day that allowed the borrower to go 5% higher in loan-to-value.

So, I called the loan officer (LO) and got his assistant (the LO was out of town). I told her about the guideline change, and she closed the loan in two days. I didn’t “steal” the loan because there was no way I was going to rob the LO of all that work and money he put into the credit repair. And, it would have taken me at least two weeks to close what was a very tough loan file. This story illuminates two very large downsides of rate shopping – even though this borrower was not technically rate shopping.

1. Savings are overstated. Once again, almost nobody keeps their loan for the full term – so savings from shopping are ridiculously overstated. As a reminder, most borrowers can easily refinance for free when rates fall (and they will), but this seems to be forgotten by rate-obsessed borrowers.
2. Loan officers often put in an immense amount of work. Just like with real estate, there is far more work going on behind the scenes that people outside the industry can begin to realize – answering hundreds of questions, pre-approving, finding loan products, reviewing guidelines, structuring tough files, sending out pre-approval letters, calling underwriters, calling listing agents, credit repair, etc.

There is also the money factor, which includes paying for assistants to help with the pre-approvals and everything and credit repair. I have a friend who recently paid $400 for a rapid re-score for a client – only to see the client end up closing with Rocket.

LOs often deserve to close those loans for the same reasons real estate agents deserve their commissions after showing buyers 37 homes.

1. Risks closing on time. In my story above, if I had taken the loan, it would have closed 12 days late at best. But closing times are always at risk when files are moved too late in the process.
2. Low-rate lenders are often incompetent. The lenders that compete primarily with rates are often primarily incompetent. Yes, they can close the clean and easy files, but they invariably screw up most of the tough files. There is an online lender that was huge during the COVID refi boom that is now in its last gasp death throws because it turns out that low-rate marketing and lots of cool tech can’t close purchases.
3. Rates change every day. We severed ties with an agent who would encourage his clients to shop us after we locked in the rate. If rates were holding or increasing, we were fine. But when rates were falling, we’d often either lose the deal or end up doing the deal for free just to cover our costs. Those rate locks cost us money too, making it even more painful. And yes, the borrowers that left us often closed late as well. In any case, borrowers can often find lower rates somewhere, no matter what – especially when rates are falling. But at some point, they need to commit – and also remember that they can always refinance later.

Nonsensical Jobs Report Pushes Rates Higher

Barry Habib was visibly upset today when discussing the BLS jobs report. Job creations were “up,” per the report, but they were all part-time jobs and/or just job estimates based on statistical modeling (and NOT actual data). The “Household Survey” (as opposed to the “Establishment Survey” which uses the statistical modeling) showed enormous full-time job losses, that labor force participation rates are down, and that the unemployment level was up – and we get downward “revisions” a few weeks after every report. The labor market is clearly softening, but the BLS continues its charade – and I am not sure why because they can’t do so forever. Maybe they just hope they can do so through November?

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