Web offers great alternative to ‘mortgage bazaar’

Part 2: Smart mortgage shopping

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(This is Part 2 of a two-part series. See Part 1: Real estate loan overcharges run rampant.) Last week I explained why overpricing is so prevalent in the home mortgage market. While the inside prices posted every day by lenders for their loan officers and mortgage brokers (collectively "LOs") are very competitive, overpricing often occurs at the point of sale where LOs confront borrowers. This is where the market degenerates into a mortgage bazaar. The LOs have a financial incentive to charge as much as they can, and they know the competitive inside price of each deal, which the borrower usually does not. This may appear counterintuitive because LOs compete vigorously for clients. Doesn't this competition drive down the price? In some cases it does. I found that in a sample of upper-scale borrowers, who likely are more sophisticated than most, about 15 percent paid less than the inside price. The LOs in these cases had to share the shortfalls with their employers. But in 67 percen...