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Archive for the ‘Lendingtree’ Category

rottenapple_200×150.jpgIn a previous post, I explained how Lendingtree works and why, despite the slick advertising, it is the worst place to get a mortgage.  Well the saga continues.  A lawsuit was filed alledging that Lendingtree mislead consumers into thinking that banks are competing for their business when in fact they are not.  Before I get into detail, let me give you a little background information.

One of biggest scams in the mortgage business is selling “leads.”  You are a lead when a company collects your personal information and sells it to starving mortgage lenders/brokers who are in desperate need of clients.  The hardest part of being a lender is getting clients.  Most good lenders depend on referrals from their previous clients to keep them in business.  However, if you have no clients, you can’t get referrals.  Many brokers who are new to the business without an established client base rely on business tactics such as cold calling and buying leads.  There are many companies that sell leads to these brokers who are hoping they can buy some business.  The little pop-up advertisements that you see on websites are from companies that collect your personal information to sell it as a lead.  Here is a hint – DO NOT CLICK ON THE AD AND GIVE UP YOUR INFORMATION.  Now, any lender that has been in this business longer than five minutes knows that lead companies are lower than ant dung.  What I normally tell other loan officers who ask me about lead buying is to ask themselves a simple question.  If I have a quality lead source of ready to buy borrowers, why would I sell their information to you for a few cents on the dollar instead of just doing the mortgage loan myself for several thousand?  Duh!

Remember that question because it gets to the root of the Lendingtree lawsuit.  Lendingtree asked themselves the same question!   Lendingtree is essentially a lead company with a big advertising budget.  They convince consumers to give up their information, so Lendingtree could in turn sell the information to four lenders who in theory would compete for the deal.  Well it didn’t take a Harvard MBA to figure out there is more money to be made doing loans instead of selling information, so Lendingtree quietly opened up a mortgage company called Home Loan Center.  The lawsuit contends that Lendingtree funneled all the leads to their own company without allowing other lenders to compete for the business.  It also alleges Lendingtree falsely told the consumers that lenders did in fact compete for their business and the rate being offer was the lowest available when in fact neither was the case.  

Now you don’t have to be genius to figure out that if Lendingtree also has their own mortgage company there is no incentive for them to allow other lenders to compete.  While the case has not been tried in a court, I don’t think I would be going out on a limb to say it has merit.  Do you still think using Lendingtree is a good idea for your largest financial investment?

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lthelpinghands1.jpgAdvertising has a way of glossing over how things really work.  I am sure you have seen the television ads for Lendingtree.com.  The happy couple looking for a mortgage has four lenders fighting over who gets to give them a loan.  Honestly, the ad is quite funny, but far from the truth.

The first thing you should know is that Lendingtree does not make money off of doing mortgages.  The company makes it money from selling your personal information to mortgage providers.  The model is really quite simple.  One of the hardest things about being a mortgage lender is finding clients.  Because you are in the market to buy a home or refinance, your personal information is very valuable to mortgage lenders as a potential sale.   When you apply for a loan on Lendingtree, the company sells your information to lenders who then get to compete for your business.   On the surface, this sounds like a good thing, but there are a few flaws in the model.

The biggest flaw with the model is that the best loan officers do not participate on Lendingtree.  What do I mean?  Like most service providers, the top loan officers/bankers in the mortgage business get most of their business from referrals from previous clients and other business partners such as realtors and attorneys.  In other words, they do not have to compete for your business on Lendingtree because they get plenty of business elsewhere.  So who is competing for your business?  Generally speaking, new loan officers with very little experience or boiler room telemarketing outfits.  These are not the people you want handling the largest financial transaction of your life.

Additionally, there is very little quality control.  Many of the quotes consumers receive from these loan officers are inaccurate and outright misleading.  Often times they are just computer generated without knowing all the facts about the borrower’s situation.  During a two week period a few years ago, I participated on Lendingtree to try it out and I could see the quotes consumers were receiving and I was willing to bet substantial sums of money that those loans did not close at the quoted rates.   I have also had to step in save a few deals on more than one occassion when a consumer using Lendingtree received bad advice or their loan completely blew up at the last minute.  The system encourages bait and switch tactics because many of the participants understand that most consumers do not know how to look beyond the interest rate.  There is no incentive to offer real rates because real rates won’t get your attention.

Finally, it is more expensive than simply going with your local mortgage broker or banker.  Lendingtree charges an arm and a leg for your information.  It cost almost $20,000 just to set up an account.   Also, every lead that is received whether to loan closes or not costs about $10.00.   In addition, if your loan were to close, the bank has to pay a “funding fee” to Lendingtree of several hundred dollars.   Who do you think winds up paying these additional costs?  You the consumer. Given that mortgage business is already very efficient and competitive, it is highly unlikely a Lendingtree quote taking these additional costs into account will be any better than your reputable, local mortgage broker who simply does not have these costs to contend with.   If you are going to use Lendingtree, you are better off just opening a phone book and randomly picking four mortgage brokers.

Choose your lender carefully and don’t rely on slick marketing hype. Find an experienced referral based mortgage broker to service your home financing needs.  Buying hotel rooms online is one thing, getting the right financial advice and service is another.

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