Monday, April 23, 2012

The home financing experience

Guest Blog by Mark Kerzner, President TMG The Mortgage Group

Fifteen years ago my wife and I bought our first home. This anniversary brings to mind two somewhat related thoughts.

First, the home buying experience itself. I am not talking about the stress of looking, prioritizing must-haves, or going from open house to open house. I am referring to the specific night when we negotiated the deal.

On that night we were sitting outside in our car -- it was cool and foggy -- while our agent went in and out of the house to deal directly with the listing agents and vendors. The entire transaction took about three hours to complete. We really had no idea what conversations were taking place on the inside and we weren’t a party to it. We were relegated to the tight and uncomfortable confines of our car mulling over all of our own what-if scenarios. At the end of the day a deal was struck and we purchased our first home.

We found the whole process completely devoid of all interaction. You would think if you were making a $300,000+ purchase you would feel good about it, or at least a bit valued. Imagine going into Cartier and being told to wait in the closet while your representative negotiates for your watch from the jeweler? Or imagine buying a Ferrari and not being allowed to test drive it first? Your house is the biggest purchase you will likely ever make yet the buying process can be extremely impersonal to the extreme.

Then it came time to arrange the mortgage. Our banking relationship was with a large national trust company so, of course, we went into the branch to arrange for our financing. I believed I really did my homework before I went in and was seeking 100 basis points (bps) below their posted rate on a 5-year fixed rate mortgage.  I wasn’t going to settle for less. I had no idea what the average spreads or profits were on the bank's mortgages, I just knew I wanted a discount of 100 bps.

The generalist we spoke with said she was authorized to discount only 50 bps despite the fact that all our banking products were with that institution. To go beyond that level she would have to speak with the branch manager.  This reminded me of a car buying tactic dealerships use to take advantage of unsuspecting buyers. It was also when I decided on a new personal philosophy that I will deal only with those who have the authority to deal with me directly.

Today mortgage clients have tons of information at their fingertips -- perhaps too much. Social media combined with the Internet and transparency of information is helping the consumer become much more informed than ever before.

When I arranged my first mortgage, I would never had thought about what China’s GDP, the Euro Crisis, Canadian monetary policy, covered bonds, CMHC debt ceilings, etc., would have to do with me getting a mortgage.  I didn’t understand “spreads”, discounting or cash backs. I don’t even know if the 100 bps was a good deal, but I got it in the end.

All this information is likely to confuse a great many people. It is also possible that information conveyed inaccurately by uneducated people may sway some into products they shouldn’t be in. For example, interest only HELOCs for first time homebuyers arranging financing may not be the best fit athough it may represent the best cash-flow option.

I believe the banks, their branch networks and sales forces have taken a page from the mortgage broker model. I believe it was the broker channel that first started to really educate the consumer – offering transparent pricing and expert advice.  The banks have copied the brokers.

Copying is the highest form of flattery. I think with all the information at our collective fingertips it is vital to continue to seek out the advice of a mortgage professional – a broker. In their role as an expert, combined with their unique ability to offer choice they are best position to help you, the end consumer, navigate through these very murky waters.

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