Editor’s note: Part 3 of a three-part series on new online mortgage tools looks at Mortgage Grader. Read Part 1, "Borrowers get a crack at lending black box," and Part 2, "Widget for mortgage loan quotes debuts."
A new generation of Web-based mortgage shopping tools aims to put consumers in the driver’s seat by letting them query the databases of hundreds of lenders, comparing loan guidelines, rates and fees for a specific transaction without giving up their personal information.
Parts 1 and 2 of the series examined LendingArt.com, a pricing tool; RateWindow, a search widget; and Mortgage Marvel, a loan search tool.
If other mortgage search tools claim to help borrowers negotiate the best rates and fees, Laguna Niguel, Calif.-based Mortgage Grader is looking to eliminate origination fees altogether by automating the loan approval process — bypassing loan officers all together.
Mortgage Grader also has a new division, Fair Closing Costs, aimed at helping consumers shop for settlement services and which the company says will generate more savings (see story).
Mortgage Grader was recently awarded a patent that describes features of the company’s current and upcoming services.
"We’ve taken a giant step toward being like online travel now," said Jeff Lazerson, president of Mortgage Grader. "When our next generation of technology is connected, you will be able to price a loan, choose a lender, rate lock, and guarantee closing costs — right on a Web site."
The only work done offline will be audits of loan files and appraisals, Lazerson said.
"Everything else will be done at point of sale, including the title report," he said. "What that means for consumers is they’re never going to have to pay a loan officer again."
Lazerson said most of the big wholesale lenders, including Citi, Chase, First Horizon, IndyMac and Flagstar, are already offering loans through Mortgage Grader.
Although you won’t find loans from retail lenders that don’t do wholesale lending — like Bank of America and Washington Mutual — Lazerson thinks that will change.
"We think we’ll end up being the Good Housekeeping seal for mortgages for the entire country," Lazerson said. "The stars are aligning to our model, and retailers have a huge incentive to get on this to increase their customer count."
Because the race and ethnicity of the borrower is never known — only their financial situation and the details of the transaction they’re trying to finance — Lazerson said Mortgage Grader is a lender’s "best defense" against charges of discriminatory or predatory lending.
Mortgage Grader starts by checking to see if applicants are eligible for conventional, conforming loans before "backfilling" to alt-A or other more costly loan products, he said.
"One thing the Patent Office recognized is that Mortgage Grader inhibits discriminatory lending," he said. "Our lender partners have got to be fair-minded players — if they’re not, they’re out."
At the moment, Mortgage Grader has automated the process of instantaneously "scrubbing" applications for price and eligibility, but a loan officer is still required to obtain a rate lock and loan approval, a process that takes 10-15 minutes and involves a flat fee that’s usually less than one point, Lazerson said.
By January 2009, Lazerson expects the process will be completely automated, with rate locks and loan approvals accomplished without a loan officer or origination fee. Since origination fees are typically one or two points, Lazerson said, that amounts to a $2,000 to $4,000 savings on a $200,000 loan.
"There’s a lot of elbow grease involved in doing all this connectivity," Lazerson said of what it will take to get to that point. "It’s a big job to not only make the connections, but customize them so the lenders on the other end don’t know who the borrower is until the file is delivered to them. We’re basically taking the lender’s pricing and programs, and approving them on their behalf."
Mortgage Grader’s business model is to be a media company that charges lenders a fee to use the site.
Wave of the future?
So what do companies that provide loan search and pricing services to mortgage bankers and mortgage brokers think of the new tools for consumers?
Salvatore Tomaselli, CEO of SearchMyLoan.com, said the move to provide consumers with the kind of information previously accessible only to mortgage professionals is "a very positive step."
"I think it’s definitely a direction we’re moving in, for several reasons," Tomaselli said. "The consumer is becoming more savvy. If you look at the people who are buying homes in today’s marketplace, they’ve grown up with a computer. Making a purchase decision for a home is still a very serious event, but Gen Y is used to doing that sort of transaction on the Internet. You see them doing their own research, and it’s a population that’s going to grow exponentially over the next couple of years, and they want that information available to them."
Tomaselli said SearchMyLoan.com, which provides subscription-based services to mortgage professionals, is developing a product for consumers.
"We are filing provisional patents on the concept," Tomaselli said. "It’s an exciting model for consumers that goes beyond just researching the product."
Tomaselli said that although the interfaces for providing pricing information to consumers and professionals will differ — the system will use a different line of questioning to obtain information from consumers — the data provided remains the same.
"This is a very exciting time — we’re going to see a new paradigm," Tomaselli said. "Eventually it’s going to automate the entire process. Look at the automotive, insurance and travel industries — this has already happened. The reason it hasn’t happened yet in lending is the mortgage transaction tends to be more complex than other industries. As the technology advances, this problem is getting solved."
Like NYLX President John Alexander (see Part 1), Tomaselli sees providing accurate information as the key to the process.
SearchMyLoan.com tracks more than 13,000 loan programs and products, he said, and can search for up to 150 attributes.
"It’s humanly impossible for a loan officer to keep track of (all the available loan programs) without using some kind of technology," he said. "It would be kind of like trying to get by in today’s world without Google."
The ability to search for specific attributes raises the level of accuracy of the results, Tomaselli said. Just as Google came to dominate the search-engine market by providing relevant results, SearchMyLoan.com aims to deliver not just quantity, but quality.
In order to find the best loan at the best price at any given time, mortgage professionals and consumers need the latest information on loan programs, guidelines and pricing.
"I think the market has gotten fairly competitive with regard to product and pricing, so there are a handful competing with each other," Tomaselli said. While one lender might have the best deal on a certain loan one week, another might provide better pricing the next.
Larry Huff, co-CEO at Optimal Blue, agreed that in today’s mortgage market, timing is crucial.
"Some days, an investor like Countrywide is going to be more aggressive on their pricing for a particular product — or less, because they don’t need more of that product," Huff said. "It’s like airfare — do they have capacity? It’s not infinite. It’s really a matter of finding the right lender or the right broker at the right time."
Huff’s Plano, Texas-based company provides product eligibility and pricing to lenders, who may provide that information to consumers through sites like AimLoan.com, which is powered by Optimal Blue. But Optimal Blue doesn’t plan on providing that information directly to consumers, and Huff sees limited value to consumers in a site like LendingArt.com.
"I think the old adage is true — a professional real estate agent should use a good lender," Huff said. "Everybody has a specialty and they should work with their colleagues who provide best products and services. That aside, there’s nothing wrong for people to have additional information to be educated in the process. Some lenders may get some benefit from LendingArt, but I don’t think the consumer will."
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