The dark side of ‘preferred’ lenders | Military Home Loans

The dark side of ‘preferred’ lenders

After going through the pre-approval process you feel like your lender knows more about you than your doctor.

They know things your mother doesn’t. They have every piece of paperwork in your house. They have earned your trust for this scary process.

Now the perfect house is on the market. But the listing agent is pushing hard for you to use their ‘preferred’ lender.

Why? What’s in it for you? What’s in it for them?

Who is the ‘preferred’ lender really working for?

  1. Is the lender loyal to you as the client, or the agent who keeps them in business?
  2. If any issues come up, is the lender more concerned with you getting the best deal, or just getting the deal closed for the agent?
  3. Do they care if you’re happy at the end of the process?
    We survive by you being a raving fan. You’ll only refer us future business if you’re extremely satisfied with our service. The in-house lender gets the bulk of their future business from the agent, not you.
  4. Will you get as good an interest rate? Or does that incentive come with a hidden cost?

How agents push their preferred lenders:

  • A whispered threat/hint
    We have multiple offers, you’ll have a better chance if you choose the preferred lender. hint-hint, wink-wink, nudge-nudge.
  • Cash incentives
    If you choose our preferred lender, you’ll get a $3,000 credit from the seller. If you use your lender, you get nothing. Builders are famous for this with giant bonus incentives for free ‘upgrades’
  • Borderline extortion
    If you don’t close in 14 days, we can charge a $500 per day penalty, but if you choose our ‘preferred’ lender that penalty is waived. Even though they know their lender won’t close that fast either.

If they say you ‘have to’ use the preferred lender, that’s a violation of law. But if they say you have a ‘choice’, then they’re in the gray area.

What’s $$$ happening behind the scenes:

The agent has several reasons to push the in-house lender:

  1. They get to work with someone they’re used to.
  2. The lender works for the same parent company, so the company makes more money this way
  3. The agent or company has a financial agreement with the lender for working together. 

CFPB bulletin highlights risks of agreements violating federal prohibition on mortgage kickbacks.

The preferred lender has several reasons to push themselves (for some lenders this is their entire business model):

  1. They only make money when they do a loan. Not when the just review your file. They aren’t doing the cross qualification as charity.
  2. Someone else did all the hard work on your file already.
  3. You will be a closed deal quickly, so less time working with you.
  4. They need to get their clients from somewhere, and this source is easy. One happy listing agent, one steady stream of business.
  5. They often need to review multiple buyers, so they feel they deserve the deal.

Notice how none of these have anything to do with your best interests?

What option do you have?

  1. Negotiate the same incentives, regardless of who the lender is.
    If the incentives are coming from a legitimate place, why can’t they offer them regardless of the lender you choose?
  2. Live without the incentives.
    This is the biggest purchase of your life. Do you want to have your lender guiding you through it? How much is avoiding a mistake worth to you?
  3. Pass on this property.
    It’s starting ugly. Going down from there is only going to be worse. Do you really want to get into a deal where the agent is flirting with legalities upfront? What else are they capable of?
  4. Take the devils deal:
    There are times the incentives are just too great. Builders offering $20,000 in upgrades, even if those upgrades are massively overpriced, is just too much to pass up. You take the devils deal. If you do, just know any advice/recommendations you get from your lender will be suspect. You’re on your own. Buyer beware.

 


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Information accurate as of publication date; the views, articles, postings and other information listed in this section are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation. The material in this section is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.

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