Mortgage lender ratings under fire

Accuracy, bribes cast doubt on borrower reviews

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Q: "How much credence do you place in the 1- to 5-star ratings of lenders that many online mortgage sites provide based on reports from borrowers?"

A: Very little. For one thing, borrower ratings are based on a single experience covering a complicated process extending over several weeks. A good restaurant reviewer returns to a restaurant being reviewed four or five times, but a mortgage borrower is limited to one exposure, which might or might not be typical or representative.

Basing a judgment on only one unit of experience would not be that large a handicap if the borrower were well equipped to make an informed judgment, but many — if not most — are not. While most restaurant reviewers know a lot about food preparation, few mortgage borrowers know much about mortgages when they begin the process. This makes their interpretations of what transpires vulnerable to misperceptions.

Here is an example: A borrower receives a price quote of 4.5 percent at 1 point on a 30-year fixed-rate mortgage, and requests the lender to lock that price. The lender won’t lock, however, until it has received some additional information, which takes several days to obtain, during which period the market changes. This is a common occurrence today because underwriting requirements are tight and enforced.