https://www.youtube.com/watch?v=KIHiEX169h8&list=WL&index=3&t=84s
Summary:
Today we're going to be talking about the pros and cons of a local lender. So fun fact, once upon a time, I was a local lender, and I was one of those local lenders telling real estate agents they have to use a local lender; otherwise, they're going to have problems. So in this video, I'm going to walk you through why that was, how the market has shifted, and what you need to watch out for as a buyer.
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Local lenders, um, guys, it's like lenders anywhere—there's good lenders and bad lenders. Just because a lender is in a specific zip code does not mean they're good. A lot of times, you'll hear a real estate agent say, "Oh, you should use Bobby." Okay, maybe you should use Bobby, but before you even call Bobby, I would say do some research because there are reasons that real estate agents recommend lenders that don't benefit you.
When you're talking about a local lender and how they make their living, they make their living based off of real estate agent referrals. So if you go to the mat on who they're going to choose—you or the real estate agent—if this real estate agent is responsible for 30% of their income and you're one deal, who do you think they're going to side with? And look, I do know brilliant local lenders across the country. And that's the thing: these people, whether they were in the local zip code or they were doing a loan in Texas or New York, they would still be brilliant and would work on your behalf. That's what's important to know. And then there's also people who are local lenders that are criminals and should be in jail. And guess what? If they're doing a loan locally or in Texas or New York, they should be in jail.
Here's how this all started: it used to always be local because there wasn't the internet, right? The only way you were going to have a lender was if you were going to your local bank or someone you knew locally. There was no internet, right? That's how it started. Then you had the rise of call center lenders, which really, to me, I remembered in the '90s, and it could have started earlier, but I remember those Quicken commercials when I was watching Beverly Hills 90210. Yes, I'm old, guys.
As a team, you saw the rise of the call centers. And to real estate agents, call centers make them very nervous, which I don't disagree with, and I'm going to tell you why. Call center business: you're not going to get the cream of the crop when it comes to lenders. You make less as a lender at a call center. It doesn't mean the call center rates are better, it just means as an individual lender, you make less. Now, the way call center business comes in is a big company spending a fortune on marketing, a fortune on marketing, and that brings in the calls to the lender, and the lender does the loan. Or they screw up the loan—who knows, right? If the lender does a bad job, it does not affect whether or not the phone rings. That's important. They are not building a business, they are not building a network, they are not building a name—they are answering a phone. So if a real estate agent says, "Hey, I really need a pre-approval letter for Bobby," they don't care. And there's a lot of them where they won't talk to the buyer's agent at all. Like, do I think lenders should be talking to listing agents? Not a lot, not a lot, but some call centers won't talk to them at all. And sometimes you do need to have that initial conversation with the listing agent just so that they know, you know, the buyer may be fully underwritten or how quickly you can close, or they just want to make sure that you're a person.
So call centers—I get it, I understand why real estate agents don't want to use them. They're not as accountable, whereas with a broker or retail lender, what I am is a retail lender. It's a silly name—we are accountable. If you decide that I am terrible, you are going to kill me in reviews, and it's going to hurt my business. I have to make the phone ring. I'm the one that has to go out and get the business. There's not just stuff coming into me because of someone else's efforts. Every single thing that comes into me is based on my efforts. So of course I'm going to do every single thing I can to make sure that it's a good experience so that it keeps on coming in.
So real estate agents don't love call centers because they have that concern—a lack of accountability. And what you'll hear is, "You need to use a local lender." And you'll be like, "Okay, why?" And what I hear the most of is, "Well, if something goes sideways, I need to be able to kick down their door." What the hell? Guys, if that's the argument, that's a bad argument, because here's the thing: if they have to kick down the door, you're already screwed. It's that simple. That's not a good reason to use someone local.
So let's talk about a couple of the pros of the local lender. If you are working with a lender in the market that everybody likes—and let me tell you this, there are not many—small towns can be catty as hell, even larger towns can be catty as hell. If we're talking about a big city, the odds of every single real estate agent knowing one lender are incredibly slim. So really, we're talking about smaller towns, and maybe you have one lender that everybody loves. That might help your deal get accepted. I'll be honest, it would. But if you have the local lender that some people don't like, that might hurt you. You may be dead on arrival because that lender—half of the people don't like. That's the problem with small towns: it's really hard to win them. Using a national lender can be better in a situation like that because there's no prejudice against the individual person.
Now, the reason I get really concerned about the local lender pitch is because of RESPA violations. Let's talk about RESPA: it is illegal for a mortgage lender to give a real estate agent anything of value for a referral. However, it happens all the time. Recently, I was talking with one of my friends about another lender, and I was like, "I just don't even know how they're in business." And she goes, "Oh, they have a new trick." I'm like, "What is it? Chanel." Chanel? Yeah, she gives out little Chanel wallets or keychains to all of her real estate agents at closing. That's illegal. And you guys may be like, "Well, we don't care if she gives them Chanel—that's really nice and generous of her." You guys are going to pay higher rates for that. Let's not pretend. There are some lenders—I actually had a real estate agent approach me years ago, and it was so appalling. He was like, "Hey, Jen, you know, my current lender gives me like a percent back on every deal, but his rates aren't competitive, so I wanted to see if I could work something out with you." It's illegal. It's totally illegal. Of course his lender's rates are too high—his lender is paying him a percent, and he's not even the lender. What? Of course. And that's the type of nonsense we see. And sometimes you can see it on social media. You'll see, you know, the real estate agent and the lender, and they're going to a concert or a yacht party or this or that. Guys, the lender's getting swag and perks to send you as a client. How does that benefit you? You are just a sacrifice to the swag party. Seriously. And it's like, oh my gosh, it's so rampant. It drives me insane. And like the CFPB is supposed to be cracking down on this, but it's everywhere. You know, there'll be some people where I'll be like, "How do they get their business? Prada loafers, right?" "Oh, well, they pay for the real estate agent's marketing." That's another one. You can see that on Zillow. On Zillow, if it says "Premier lender," that means the lender is paying some percentage of the real estate agent's marketing. Of course, the agent has to kick business their way; otherwise, they're going to stop paying for their marketing. It's very simple. But that's what you guys have to watch out for, because a lot of times you're being told, "Oh, like we had a client recently where he was being told, 'Oh, you got to use my guy. You got to use my guy. He's really good at VA.'" I looked up the guy. The guy had closed less than half a million dollars in VA loans in the last two years. Wow, he's really good, right? But guess what? That lender paid for that real estate agent's marketing. Was he transparent with the buyer about what was going on? No. Because here's the sick fact: they don't care. They don't care. And look, I'm not saying all real estate agents are bad. There are some really good real estate agents. And usually the really good real estate agents, they will work with a lender, they'll let you use whoever you want, they're going to want to talk to that lender and make sure they're legit, they're going to want to make sure that lender is not ripping you off, they'll probably have a couple of lenders that they suggest that they know do a good job, but they're not generally shaking down lenders for swag and perks. That's what we see with the top real estate agents, because they realize that if they give out a name, you guys need to have a good experience. There's a lot of onesies, twosies, you know, three, four, five transaction people where they don't think far enough ahead to realize that if you realize that the lender they sent you ripped you off, that it's a problem.
Okay, here's another story. So recently we had a deal where the house had mold, and we said you need to get a mold inspection. The mold inspection came back and said, "Yeah, there's evidence of mold. We recommend an air sample." So we get the air sample. The air sample comes back and it has black mold. Black mold. Serious. Look it up if you're not familiar with it. And there's like $7,000 worth of remediation work that needs to be done. And they're like, "Okay, we'll get it fixed." "Okay, cool. Get it fixed, and we need a clear air sample." "Well, our local lender doesn't need a clear air sample." "Okay, well, that's great. I'm not your local lender, and I can't have a client buy a house until I know that there's not black mold in the air, especially since the report says that black mold can continue to be present if all of it is not gotten and if it's not done properly. So yes, we will need a clear air check before we close on this home." So much pushback. Guys, two days of these real estate agents just threatening us, telling us we were wrong, telling us because we were out of state. You know, our local—they actually called one of the branch managers at Guaranteed Rate to try to get me in trouble, which I thought was hysterical personally because if anyone talks to me in my team, they're like, "Oh yeah, that makes sense." And guess what, guys? They did the remediation, they got the air sample. It still had black toxic mold. So we said, "Great, you got to fix it, and we're not closing until we get a clear air sample." So this goes on for a couple of weeks, a couple of air samples, and then we finally close. Guess what? Those real estate agents will never use me in 10 million years. Never. And you know what? I don't care. I don't need their business. I don't want their business. I work for the client. And I'll be honest, even the client got a little annoyed because he did want to close on his house, but he also recognized that what we were doing is we were being hard to protect him. And that's the key to all of this: you need a lender who can be independent and stand up for you. If you have a lender where 40% of their income comes from Barbara, and Barbara says, "Close this loan," who do you think they're going to choose? Guys, it's just survival. It's just survival. If 40% of their business comes from her, they work for her. And that's what you guys need to know as consumers, because a lot of times people are like, "Oh, well, it just makes it so easy. They referred someone; it's great." Cool. They don't work for you. And sometimes you need to make sure the lender's working for you, and you need to make sure that the lender is strong enough to stand up for you, and you need to make sure that the lender's experienced enough to handle tough situations. And that once again goes against the call center. Like, you get into a tough situation—that is not where you want to be.
Look, are there amazing local lenders? Yeah, guys, there's amazing local lenders. There's amazing national lenders. But the key is, it doesn't matter the ZIP code; it matters who the individual lender is. So if you're ever being pushed for any reason, make sure you're verifying everything first and then trusting. Do not trust blindly; otherwise, you could end up in a situation. On this mold one, they were telling us this happened all the time and the local lender would just close with the work being done—no other air sample. Do you guys want to be in that house? I wouldn't. So I know this was a longer video, but I do think it's very important that you guys know a lot of the stuff that's going on behind the scenes and how it can affect you. Questions, comments—as always, feel free to reach out. I am here to support you, as is my team. Thanks.