(This is Part 2 of a three-part series. See Part 1: Why shop for a real estate loan online? and Part 3: Best way to shop for real estate loan online.)
Borrowers who shop for a mortgage online, for any of the reasons I discussed last week, should only spend time on sites that price their loan. If a site doesn’t price the type of loan you want, with the features you require, don’t bother with it. You are online to shop, not to be seduced into making a phone call.
To help, I recently scored 21 sites for the depth and comprehensiveness of the information provided to shoppers. Of these, I considered 17 worth listing on my Web site because they had some price functionality and showed all settlement costs.
The Best: The highest-ranked site was www.E-LOAN.com, followed closely by www.mortgage.com (the site of ABN AMRO), and www.indymac.com.
E-LOAN is the only site that meets all my requirements for the designation of Upfront Mortgage Lender (UML). Among other things, UMLs provide a summary of all the market niches priced by the site, and disclose all the major features of their adjustable-rate mortgages (ARMs). The two runners-up did neither, but they did cover many loan types and market niches.
A site with a higher score is one that prices a larger number of potential transactions, and provides shoppers with the information needed to make decisions. Here are some examples of the scoring system I used:
Mortgage Types and Features: For every program they price beyond 15- and 30-year fixed-rate conventional loans, a site receives 1 point. This includes different types of ARMs, balloon loans and FHA/VA loans. They also receive a point for disclosing each important ARM feature.
Down Payment: A site that allows the user to enter the down payment receives 2 points, and an additional point if the down payment can be less than 5 percent. If the site uses one down payment in all its pricing but tells the user what that assumption is, it receives 1 point.
Settlement Costs: A site that shows all settlement costs receives 1 point, another point if lender fees are segregated, another point if lender fees are guaranteed, another point if the guarantee includes the appraisal, another point if the guarantee includes the credit report, and 2 additional points if it covers all third-party fees.
Points: A site receives 1 point if some of the mortgages are priced with multiple combinations of interest rate and points, an additional point if rates are shown for negative points (rebates), and a point if it prices no-cost loans.
Strengths in Coverage: 10 of the 17 listed sites priced loans on second homes, loans on investment properties, and cash-out refinances. Most sites also priced loans on 2-, 3- and 4-unit properties, as well as on condos. There were even five sites that priced loans on co-ops, and three that priced loans on manufactured homes.
Fourteen of 17 sites priced loans with down payments specified by the shopper (rather than assumed by the site), and in eight cases down payments could be less than 5 percent. Most of the eight allowed zero down on at least some transactions.
Sixteen of 17 sites provided different combinations of interest rate and points on at least some programs, and 12 included negative points (rebates).
All 17 sites showed total settlement costs, 10 segregated lender fees, and eight explicitly guaranteed lender fees.
Weaknesses in Coverage: While shoppers can find every type of ARM offered on multiple sites, only E-LOAN and Chase Mortgage (ranked number 5) disclose the index and its current value, the margin, and all rate caps. If you price an ARM on any other site and need this information to make an intelligent decision, you will have to contact them to fill in the blanks.
Except for E-LOAN and Indy Mac, the sites assume your credit is excellent. E-LOAN and IndyMac adjust price for a credit score entered by the user, but the adjustments are quite crude. Shoppers with scores below 620 cannot yet shop effectively online.
Online shoppers also do best if they can fully document their income and assets. Only four sites have a “stated income” option, and none offer “no docs.”
Why Show Lower-Ranked Sites? I show detailed information on 17 sites because, while a lower-ranked site has less coverage, there is always the possibility that it prices your loan and a higher-ranked site does not. Countrywide.com, for example, ranked number 10 overall, but it is the only site that prices FHA and VA loans.
Here is the complete list by score: E-LOAN.com (46), Mortgage.com (42), Indymac.com (37), Greenpointmortgage.com (32), Chasehomefinance.com (30), Mortgage.etrade.com (29), Charteronedirect.com (29), Wamuhomeloans.com (26), Bankofamerica.com (25), Countrywide.com (25), Citimortgage.com (24), Ditech.com (20), Wachovia.com (19), GMACmortgage.com (14), Homeloancenter.com (14), Infoloan.com (12), INGdirect.com (12).
Next week: How to shop online.
The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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