There’s a famous quote out there:

“There is nothing more powerful than a made up mind.”

I was recently reading a post that my lovely bride pointed me to on RedFlagDeals.com

The post was about someone who used a mortgage brokerage office in order to renew his mortgage and he posted the rates (variable only) that he got from that office. The post itself wasn’t all that exciting, but one of the comments posted later on got me to thinking.

The comment said to be careful, the entire mortgage brokerage industry is known for it’s bait and switch policy. The only time you can get the much discounted rate is if you have “pristine” credit.

That got me to thinking. Have I known brokerages to publish rates that are better than what is generally available? Yes, I even worked for such a brokerage house once upon a time. Was it a lie (i.e. fraudulent)? Technically no. But the conditions were rather limiting or limited. There would be 1 lender, offering a special for the first 3 months of a variable term, that was discounted to the extreme, as the lender knew in the remainder of the term, they’d cover the initial loss. This product has since been discontinued and we, well today, operate on an almost level playing field.Will this type of false marketing return?  I’m thinking as long as there is greed in the world, likely.

I can see the purpose of the deep discount, or at least I can see the proposed argument behind it. The logic is kind of flawed. Early deep discount, to allow the customer better cashflow at the beginning of the term (first 3 mos, sometimes as much as 6). Makes sense right? It does, until you sit down and actually calculate the difference. Typically we’re talking 50-70 bps off of the variable discount. I’ll be generous and say it might be a savings of $40/mo for the first 3-6 months. Then they step it back to a discount less than what is typically available in the market.

Let’s say for example the market is discounting 50 bps off prime (yes, not even 2 years ago this was the norm). The lender would offer 90 to 100 bps off for the first 3 months. Then switch back to prime minus 10 bps for the remainder of the term. So your cashflow is improved at the beginning, but then you “pay” for this initial discount, well beyond what you initially saved, for the remainder of the term.

Not only would people buy into this idea of improved cashflow at the beginning, they guys selling it would too! Guess what, these deals got them more commission too!

I would always cringe (and I’m sure people could hear it) on the phone whenever someone would call and say, can I really get a variable mortgage at X.xx%? How about a product that actually meets your needs? (deflect)

I would have to call these folks “transactional” agents. Always focused on the next deal and how much they can make. I would even argue there is an office that first starts by looking at what commission is highest and does what it can to fit as many people into these products. How do I know? Well I had a few clients that came to me after discussing options with “another” broker. I looked at their situation and said I can do the following for you. They looked at me incredulously and showed me the commitment from the other broker. I was stunned. My first thought was why would anyone do this to a client? Then I looked up the commission rate on the product they were selling. 40 Bps higher than everything else. I had my answer.

I seem to be one of those strange or unusual brokers/agents that wants recurring business. I have a colleague at work that has coined a new expression. DIRTFT – do it right the first time. It just makes so much sense to me. Do the right thing everytime and people will eventually clue into this and see the value. This is the coming shift in the market. From product base selling to trusted brand selling. It’s the only thing that survives long term.

From the beginning, I was told never compete on rate. Period. If it’s a bank you are competing with, their pockets are bottomless. They’ll lose money on a mortgage just to build walls around the client with other products where the margins are much higher. If it’s another broker, ask yourself why they are talking with two brokers? They obviously don’t trust one of you.

Yes, I’ve lost to banks and see others lose as well. I’ll never understand why they tried so hard to compete, when their success rate is like 1 in 10. It’s not even a level playing field. They can match the rate and then throw in any kind of bonus. Lower rate/larger line of credit, discount on that up coming car loan, low rate visa, etc.

If you are dealing with me, you get my bottom line upfront. If you ask, I’ll tell you what I know. If you don’t like the truth, then feel free to continue being sold by your bank.

Maybe my view is too simplistic, but the people I deal with tell me they trust me. That to me is worth it’s weight in gold or at least more than 40 bps of commission on a deal.