I can’t take credit where credit is due. The above link (as well as a bunch of others) come from the hardworking and usually anonymous L- whose assistance is always much appreciated!

About that sub-prime / Alt-A / Jumbo rabbit. Stay tuned. OFHEO just raised the door in the lock, and a lot of that stuff will flow right back to F&F, at least until 01Jan2008. Check out tomorrow’s post.

Would this borrower have received this advice had the mortgage been offered through an affiliate of the Realtor’s office? Somehow I doubt it. (Will this Selling Agent and Builder blackball us? Possibly? Funny, they always seek us out when they need us to rescue a deal originated elsewhere. The longer-term problem is that these referral sources will steer solid buyers to their affiliates and send us the marginal borrowers that are more labor-intensive and costlier to place. The borrower feels screwed.)

The alternative vendor who doesn’t have to carry the cost of bricks and mortar or the cost of the salaries in that market (Boston or Chattanooga) or the cost of conducting business in that market (taxes and state regulations) can justifiably offer the product at a lower cost. Or, they could be dumping product to acquire market share by driving out smaller competitors. Or, they could underbid the cost by selling an inferior product. In the case of a prescription drug, it may not be discernable to the consumer until their health starts to fail. In the case of a purchaser of a home, it may not be apparent until they are at the closing table and they’re confronted with a bait and switch.

Play this game with any other provider of professional services that requires some but not extensive face-to-face contact…your accountant, your lawyer, your financial planner, event aspects of your medical care.

Mortgages are now being sold as a commodity. And yes, Old Mike spells out the risks of affiliated business arrangements accurately.

I do support a borrower being fully informed of his options, I do support competitive forces, I do support reducing costs but I’m not sure that this is what is happening here. The fact of the matter is that borrower will use an internet-based lender for a difference of 1/8th on the rate. They simply don’t value the independent advice or the knowledge of the local marketplace. Your local providers of mortgage services, like your independent bookstore, your music store, your video rental store, your hardware store, may soon no longer be found on Main Street, USA. It’s been a great ride.

It really is a jungle out there. Twist’s sidebar find [1] from earlier today includes this telling quote (my emphasis).

“Appraisers, Real Estate agents, Mortage Brokers, Lenders, Title Insurers. All in bed together. And conspiring together to make a sale and inflate the price. If you work in the industry you know exactly what I am talking about. Or if you are savvy and recently purchased a home you may have noticed it as well. There are obscene amounts of obscure fees involved in each of these transactions, from title insurance to points on a mortgage. And even more egregious is the bogus appraisals that are determined by the pockets of Real Estate agents and mortgage brokers.

They have been fleecing the average American of significant sums of money, in numerous ways, yet no one mentions them. The financial press loves to harp about the housing bubble, and as a result have helped spark this cool down. But they have missed their call to duty, which is to expose such behavior.”

That’s pretty heavy stuff. Be careful out there, guys!

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[1]: “The Real Reason to Avoid Homebuilders”, by Michael Church, SeekingAlpha, November 15, 2006.

Thanks for sharing that. I’ve added text to the last paragraph to emphasize the need for obtaining independent advice.