Homes are pricey. Mortgage rates are up. Borrowers are concerned, and mortgage companies have good reasons to work hard for new customers’ business. So, isn’t it time borrowers researched our mortgages before signing up?
Yet so few of us do. Zillow® says this could be costing homeowners hundreds of dollars each month. Let’s unpack this.
Survey Says: People Spend More Time Shopping for a TV Than a Mortgage.
Zillow Home Loans recently ran a survey. Here’s what it found:
- 28% of people take a month or more to learn about available cars before choosing one.
- 23% of people take a month or more to compare vacation alternatives before making plans.
- 12% take a month or more to research a TV purchase.
- Just 13% take a month to compare mortgage lending options, while more than 70% of hopeful buyers do zero comparison-shopping among mortgage lenders.
- Close to half of loan borrowers apply for one mortgage only.
Granted, some survey respondents had reasons for declining to comparison-shop for their mortgages. About a third of mortgage applicants said they didn’t apply for multiple mortgages because they wanted to avoid inquiries on their credit profiles. But they needn’t have worried! Home buyers may apply for up to 45 mortgages in a 45-day period, and that counts as only one inquiry.
☛ Borrowers do have influence over their credit reports. People with “fair” ratings shell out hundreds more on their monthly mortgage payment than those rated “excellent,” Zillow found. Here are the Facts on How to Improve Your Credit Profile.
The key lesson here? Most of us can and probably should do at least some preparatory work before agreeing to the terms of a mortgage. Here’s the rub, though, and we’ll discuss it further below. Once a mortgage loan closes, the company who services that loan may change. (In fact, the lender can sell the loan itself on the secondary market.) And the borrower can’t stop that change from occurring.
A Product and a Service: Here’s What a Mortgage Customer Buys.
A borrower’s mortgage account information is kept on the mortgage servicer’s website. Also, the mortgage servicer typically holds part of the monthly payment total in escrow to pay the homeowner’s property taxes and insurance premiums. Servicers do take fees (and they vary widely) for various document processing tasks, and for working with tax and insurance entities on behalf of the borrowers.
A borrower who runs into financial stress contacts the mortgage servicer for help to stay on track, or for things like having private mortgage insurance removed (for qualifying borrowers). The attitude of a mortgage servicer matters to a homeowner’s experience with the loan.
The firm J.D. Power runs a mortgage customer satisfaction survey each year. “As a recession seems increasingly likely and mortgage loan delinquencies are on the rise, customers want to be assured their mortgage servicers are on their side,” says the firm. The three high-scoring mortgage servicers for 2022 are: 1. New American Funding; 2. Rocket Mortgage; and 3. Huntington National Bank.
Is the Mortgage Servicer Actually Supposed to Be “On the Borrower’s Side”?
As a practical matter, a mortgage broker may play a support role for a home buyer. The representative of the loan servicing company typically meets with the borrower, reviews the borrower’s finances in detail, and looks for options that fit. This representative may be the one who calls the applicant to chase down every shred of evidence of the applicant’s income, credit and debt. A mortgage professional can be a talented, knowledgeable go-between who convinces the lender’s underwriter that yes, the borrower can and will come through with faithful loan payments.
Depending on how the law of the state categorizes this person’s legally binding role, a mortgage broker may also be the agent of the borrower. An agent has a higher level of responsibility to the borrower. An agent is obliged to work on behalf of the customer’s best interests in achieving the goal of borrowing funds. This obligation to represent the borrower is called the broker’s fiduciary duty.
For example, under California law:
This fiduciary duty includes a requirement that the mortgage broker place the economic interest of the borrower ahead of his or her own economic interest.
A broker in California must be licensed, and is legally obliged to advise the borrower on how to stay safe in a financial decision, through the fiduciary duty of care.
Mortgage customers should be aware of the duties that real estate professionals have to their clients. A lender doesn’t owe the borrower any fiduciary duties, and in most cases neither does a mortgage broker or a real estate broker. An agent does have the responsibility to look out for the borrower’s best interests.
What If the Selected Mortgage Servicer Falls Short in Customer Service?
Mortgage professionals have to follow an intricate set of laws. This goes for mortgage servicing companies and their employees. The Federal Trade Commission (FTC) regulates the mortgage servicing sector. Borrowers may learn about their rights and responsibilities from the FTC.
Note that people’s mortgage accounts can be transferred among servicers. This is a common practice. Sometimes, banks have sold servicing rights in bulk. The borrower will receive notice of the change at least 15 days before it occurs. Of course, that’s not the same as having a say in the matter!
The Urban Institute observes:
Homeowners do not get to select who services their mortgage after they close the loan. Nor do they have a say if the loan is transferred and the loan servicer changes.
And the impact on the borrower when the servicing rights shift from one company to another? Again to quote the Urban Institute:
Confusion and delays in recording and posting borrower payments can arise when the servicer sells or transfers its servicing rights to another servicer.
If the customer isn’t thrilled about the change, there’s usually not much to do about it. Customers are free to refinance their loans, but that has its own costs and it doesn’t prevent the same thing from happening again.
An exception to this industry habit is Quicken Loans / Rocket Mortgage, which holds onto its borrowers’ accounts. “Rocket Mortgage is unusual among lenders in that we keep much of our mortgage servicing in-house, the company explains. “We want our customers to experience the same great service they received during the application process for the entire term of their mortgage.”
Will others in the sector follow Rocket Mortgage’s lead? This remains to be seen. New generations of borrowers might well insist that they do!
Supporting References
Zillow Home Loans press release; PR Newswire (via AP): Mortgages – Prospective Home Buyers Spend About as Much Time Researching New TVs as They Do Mortgage Lenders (Nov. 18, 2022).
Miranda Crace for Zing! By Quicken Loans: How To Pay Your Mortgage – We Answer Your Questions (Jun. 23, 2021).
Fiduciary Duty of Mortgage Broker, Cal. Civ. Code § 2923.1.
Urban Institute: Who Is Involved With Mortgage Servicing?
Deeds.com: Buying or Refinancing? Mortgage Servicing Matters (Apr. 24, 2021).
Deeds.com: On Stage and Behind the Scenes in a Mortgage (Feb. 8, 2021).
And as linked.
Photo credits: Mike Murray and Karolina Grabowska, via Pexels.