DALLAS — If you want to buy some chocolate ice cream, it’s nice to have choices. Maybe some different variations and different prices.
But, could you get to a point where you have too many choices? Definitely not with chocolate ice cream!
How about if you are choosing between lots of mortgage loan offers? Could too many of those be confusing or would you welcome that?
Well, you may have no choice but to have a lot of choices there.
Let’s say you get preapproval for a mortgage loan while you are home shopping. As Experian explains, your credit is pulled for that. That inquiry then shows up on your credit report. And other lenders regularly buy that data. Here’s a look at how that works.
Here come the 'trigger leads'
Now those lenders also know you want a mortgage. And that’s just the beginning of what they know about you.
Alex Parker, Regional Mortgage Manager for Prosperity Home Mortgage and Ebby Halliday, explains: “This is not just name, phone number, e-mail address. There's some fairly personal information in regard to the type of loan they're applying for, how much the loan is, their credit scores.”
It’s like a dating app: If you match the profile a lender prefers, they offer you their mortgage deal. That’s competition for a borrower’s business and could force lenders to be more competitive with each other in their offerings.
But Parker says it’s getting crazy competitive these days.
He recounts a demonstration of that from a real estate and mortgage conference a few months ago, “A presenter had his own personal credit pulled on stage on day one of the event. By the end of day one, he had been contacted by 27 different lenders. By the end of the week, it was over 100!”
How did it become this competitive?
So, imagine that you are dealing with a lot of the paperwork in a mortgage application process and in the middle all that you are getting calls, emails, direct mail and texts about more than 100 competing offers.
So, why has it blown up like this?
Parker thinks it’s mainly because there are a lot of potential homebuyers out there. But since there is still low home inventory, only some of them will get houses and actually need mortgages.
So, "Everybody's going after this very small pool of fish and trying to get them."
You can opt out of the calls and other communications, but Parker says getting the correspondence to totally shut off would take time.
And he says a borrower could go from getting too much information to maybe not getting enough information, “In many cases, if you opt out of this, you do lose some of your ability to shop. If you want to shop other people, they can't contact you.”
Enticements for people to shop for mortgages now that rates are higher
Just be prepared: If you go through a mortgage preapproval process, you may become very popular. Which leads to the question, who is shopping for mortgages right now since interest rates have increased so much since last year?
Parker says a lot of people are looking to get prequalified, “The amount of buyers that are applying for a mortgage are off the charts. We're doing more prequals (prequalifying)…than we can hardly keep up with on some days.”
So those borrowers aren’t bothered by these higher rates that have caused a typical monthly mortgage payment to go up hundreds of dollars over the last year?
Well, if they are bothered, Parker and others in the lending industry may be easing their concerns, "We've had a lot of these conversations with these buyers; If they can find the house they like today, there's going to be opportunity down the road to refinance that mortgage."
When might rates go down?
Parker says eventually rates are going to go back down significantly, so some lenders are enticing borrowers now with deals to refinance later, "Anybody that we close now through the end of June, we're doing a no lender fee refinance for them through 2025… banking on the fact that, hey, if we can get you a loan today, we'll help you out on the refinance in the next year… two years down the road if we do see rates drop."
When might rates go down significantly? The Mortgage Bankers Association expects the average 30-year fixed rate mortgage to decline and "end 2023 around 5.2%."