E-loan E-liminated

There’s been lots and lots of chatter recently on the TV about E-loan.  They’ve made a big marketing push, and essentially are attacking two specific vulnerabilities in the mortgage market:

  1. Customer service at the normal lender sucks.

  2. People think their closing costs are way too high.

Not a bad idea.  If I had to rank the top two complaints I hear, those two would be #1 and #2 for us as well.  It makes sense, then, for E-loan to go after the disaffected in this manner.

And it seems to be working, if our most recent experience is any guide.  We have a client that is building a house and decided to see what E-loan could do for him.  We did the construction loan, and as always happens when we have to do a 100% deal (no money down) on construction, it takes a little time for the deal to go through.  The client, with whom I spoke (according to my phone logs) 24 times in two weeks, was unhappy with that, and frankly I don’t blame him.  It’s his first house and he’s not familiar with how complicated this stuff is.

Accordingly, now that we’re down the road a piece, he’s thinking that maybe he can get a better deal somewhere else on his long-term loan.  He tries E-loan.  They quite him 5.75%, and he’s ecstatic.  He ought to be, under ordinary circumstances.  We’re seeing rates about 3/8 higher than that.

Oh, but the fine print.  I asked him to send me a Good Faith Estimate from them.  He doesn’t have one (this is, incidentally, a violation of Federal law).  He has some numbers, and they are most revealing.  For a $220,000 loan, at 5.75%, E-loan is quoting him a payment of $1284 with over $10,000 in closing costs.

Two things were immediately obvious:

  1. E-loan is not adding taxes and insurance to the payment, and is not disclosing the fact.  The math says that $220,000 at 5.75% = $1283.86/mo.  Of course, that’s not the real payment, because practically everyone has escrows.  Not only is E-loan not counting that, they are also not telling my client that they are not counting it.

  2. He’s paying massively for a discount to the rate.  We responded with a discounted quote at the same rate, and the cost to do it with us is a whopping $2000 less.  At least.  Since he didn’t get a GFE from them, I can’t be sure about this, but my deeply-held suspicion is that they have not included escrows in their quote, either, and since we are including them, the total difference in closing costs is likely to be closer to $4000.

This is what is known in the trade as a classic ripoff of a naïve borrower.

You want to be disaffected?  Fine.  You think client service is bad?  Maybe it is.  If ours ever is, we want you to tell us about it.  You think closing costs are too high?  Maybe they are.  But maybe they aren’t.  This is one reason we provide free second opinions.

I ought to tell you about the other clients we had in here yesterday, that got a “$10,000 credit” from their builder for using their builder’s mortgage company, and what we found out about that, but I don’t have time at the moment.  Tune in tomorrow.

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