Why can’t you shop for a mortgage
just like you shop for airline tickets?

Today, it is impossible to receive an accurate mortgage interest rate and closing cost quote without baring your soul. Lenders and mortgage brokers that advertise their rates typically promote their best deal, almost never the real deal. The truth is your interest rate and closing cost offering is based upon many factors, from loan amount to credit score, income, assets, and a host of other variables. This little known and lesser understood method of evaluating each loan is called risk-based pricing. Releasing private and confidential information is the only possible way for you to receive an accurate and meaningful loan quote. How can it be that the 3 trillion dollar per year U.S. mortgage industry, arguably the efficiency envy of the world, cannot facilitate an independent, consumers’ pricing “blue book?”

The answer is that the industry can facilitate this. Over the past 10 years or so, automated underwriting has been developed, adapted and improved upon, primarily through Fannie Mae’s Desktop Underwriter® and Freddie Mac’s Loan Prospector®. Automated underwriting is designed to predict the likelihood of a borrower paying his or her mortgage on time or not. The rich data the 2 government sponsored enterprises had from years of manual underwriting records of good payers and not so good payers proved to be a valuable resource for predictive modeling. Software could be implemented to initially hide any identifiable information about the borrower(s) or even the community that is under consideration. Consumers could go to an independent mortgage clearinghouse site to receive an approval and pricing from various lenders with only one credit report inquiry being generated. This creates less opportunity for your credit scores to decline without discouraging you from shopping lenders. Or, you could go to a lenders’ site. In either case, nobody, other than the borrower would have access to the private and confidential borrower information. The borrower receives a completely objective mortgage quote.

This additional shopping model could greatly benefit ethnic and minority borrowers. This model may prevent discrimination, redlining and predatory lending. It reduces the odds of identity theft as fewer people will have access to your social security number. It reduces the opportunity for any borrower to be overcharged (not just minorities) as it requires the lender(s) and/or mortgage broker(s) to offer their best price upfront instead of negotiating with the borrower. No haggling. The time and privacy of every borrower would be protected.

Perhaps a better question is, “Will the mortgage industry accept this type of shopping model when a fully automated version comes to market?” The answer is yes, as long as the industry sees interest and demand from you, America’s mortgage shoppers. Judging by efficiency, simplicity, privacy and choice, it is no wonder online airline shopping and ticketing have become such a big hit. The same thing can happen for mortgage shoppers across America by voicing your grass roots support for this model. Please e-mail your comments to me at info@mortgagegrader.com.

Jeff Lazerson May 14, 2004
(I have a patent-pending on the subject of this commentary.)