The Emporia Gazette

February 14, 2012

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The convenience of on-line home mortgages may come with a hidden, but expensive, price tag.

Realtors and bankers say that local banks are more than just competitive with Internet loan companies when it comes to home mortgages.

“They (Internet lenders) can make themselves sound really good, like they know they’ve got the best program out there, but when it all comes down to it we have more issues with them than we do the local loans,” said Jeff Kitselman of Ek Real Estate. “I always recommend that (prospective homebuyers) at least compare it to the local lenders in town.”

The face-to-face contact with a local person is a plus, in addition to the money potentially saved by using local banks and mortgage companies.

“Trust is just a lot better when you can see someone face-to-face and you can hold them accountable when a deal goes wrong,” he said.

Kitselman said that often there is more “hype” than truth in Internet lender claims.

“I find that most of the local lenders will be more competitive on the closing costs than the out-of-town lenders will be,” he said.

Local bankers Larie Schoap and Jim Wayman agreed.

“What they’re finding when they come in is how much money we can save them in closing costs,” said Schoap, senior vice president of Lyon County State Bank and head of mortgage lending.

Both bankers said that on-line loan applications are available at their bank websites and much of the application and loan process can be completed on computers at home.

Wayman, president of ESB Financial, said that local banks often have special offers or options available for homebuyers. ESB offers a boon for first-time home buyers, in the form of $4,000 to assist with the down payment and closing costs.

“We do offer several different plans and we can fit, with a one-on-one, face-to-face conversation, we can fit a specific plan to that person’s needs.”

Wayman also emphasized differences in closing costs and rates.

“One deal might be extra-low rates, one might be extra-low closing costs,” he said. “You have to look at overall costs.”

Schoap had similar advice.

Local bankers will prequalify customers at no charge and, with online access to credit records, can let customers know the results of a credit check immediately.

“One of them I saved $2,500, in just closing cost,” she said. “You think you got a good rate (online), but sometimes that rate might include points and origination fees.”

She estimated that closing costs on a $100,000 mortgage, not including daily interest or escrows, should be around $1,300, without subtracting anything for special one-time discount promotions that banks offer. Earnest money, which usually is about $500, also can be used to lower the closing cost.

“The difference comes into those other closing costs, and that’s where we’re saving people money,” she said. “It just always amazes me how much money people will spend on closing costs. It could be applied to the down payment” to lower the loan total.

Both bankers mentioned the convenience of dealing with local people during the life of a mortgage, rather than with a telephone answering system.

“They get a personal loan officer that can always respond to their needs,” Wayman said. “They don’t have to dial ‘1’ for payment address, ‘2’ for balance, ‘3’ for payoff, that type of thing. You always get a live person when you call into us.”

ESB mortgages are not sold to third parties; the loans stay at the bank, he added.

Kitselman said he has encountered very few people who have considered obtaining mortgages on the Internet.

“I would say out of 100 people, I’m only going to get a couple, just a handful, of people that have been looking on there,” Kitselman said. Most of those are first-time homebuyers.

“They’re needing some guidance,” he said, and that is available from local professionals. “... You want that buyer to feel as comfortable as possible. You don’t necessarily have it when you’re dealing with someone on the Internet.”

On the Ditech website, a $395 “flat-rate fee” applies to first-time homebuyers, with a 6.500 percent 15-year fixed rate mortgage and zero points.

A disclaimer on the site states: “Borrower is responsible for rate lock fees, new loan interest costs, outstanding property lien, buyer’s title insurance, private mortgage insurance, property insurance, association fees, seller fees, certifications, title fees, escrow fees, interest fees, recording fees, settlement/closing fees, attorney fees, survey fees and taxes. The $395 Ditech Flat Fee® does not include rate lock fee, a $500 deposit is required.”

A 30-year Flat Fee® loan showed a rate of 7.267 percent.

Lendingtree.com did not return a call last week.

Kitselman suggested local mortgage companies for people who may have problems obtaining traditional bank mortgages. Several companies have opened offices in town, and Kitselman judges them as a better option than the out-of-town Internet lenders.

“I personally prefer that when a buyer is purchasing a home that it’s a lender that I’ve done business with in the past, or at least heard good things about,” he said. “There’s not a Realtor out there that wants a surprise (at closing). Neither does the homebuyer, or neither does the seller.”

Kitselman said he was greatly concerned about Internet lenders who may be willing to lend 125 percent of the value of a house.

He gave an example of a home worth $85,000, with financing costs boosting the original total loan to $87,000 to $88,000. The out-of-town lender who was refinancing and consolidating loans for the owners was upset with a local appraiser who had not provided a large-enough appraisal value.

“(He was an) out-of-town mortgage broker who was worried about his pocketbook and not worried about the re-sale value or them, period,” Kitselman said.

A 125 percent loan may help finances at the moment; however, a few years later, the balance on the loan principal may be substantially more than the market value of the home. Unless the homeowners can pay the difference between sale price and mortgage balance, they will be unable to sell that house, no matter how dire their situation. They may not be able to afford the payments or may need to move out-of-town, or have had a change in job status that precludes their continuing payments. Kitselman compared it to trading vehicles.

“If they’re not careful, they will be upside-down in their house,” Kitselman said. “That’s the worst thing you can have on your credit, a foreclosure on your house.”

The Realtor and the bankers recommended that homebuyers or owners who need to refinance consult local lenders and compare their proposals to those of Internet lenders to avoid paying hidden charges.

“You know when you see things that are too good to be true,” Kitselman said. “I just like to know that buyers are getting customer service from start to finish.”