Online Lenders Offer Low Rates, Liabilities | Print |  E-mail
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Sunday, 28 August 2011 15:38


By Carl Medford, CRS
Special to the Forum

Lured by promises of lower rates and costs, homebuyers are opting for internet-based lenders over local brick-and-mortar institutions.

While saving money is great, there can be risks associated with online lenders. So much so, in fact, that many Central Alameda County Realtors warn against using online mortgage originators.


Historically, the primary issue has been bait-and-switch — promised low rates and/or fees simply don’t materialize at closing time. By then, the buyer has no ability to switch to another loan.


In response, recent regulations mandate that standardized Good Faith Estimates must be used. Unfortunately, some online lenders try circumventing this by using non-standardized “fee worksheets.”


Many buyers argue that online rates and fees often appear better than those offered locally. While that may be true, better rates aren’t everything. Realtors frequently complain about online lenders, citing lack of communication, time zone differences, delayed closings and even blown deals.


Talk to anyone involved in recent home purchases and you’ll hear a common theme: lenders are making the buying process much more difficult.


Increasing regulations, tighter restrictions and lender scrutiny have added significant hurdles in getting transactions funded and closed. Adding an out-of-area lender simply contributes to the degree of difficulty.


“When you work with a local lender, you can communicate in person,” states Michael Tacconi with Pacific Funding Group. “Given how complicated and confusing the mortgage process can be, being able to meet face-to-face is an advantage you simply won’t get with online lenders.”


Although a lender funding in California must be licensed here, they are often based in other states and frequently don’t understand the process or documents in California. This is a huge issue.


We’ve had to go through the California purchase agreement line-by-line with out-of-state lenders who couldn’t understand what we were doing and were consequently putting the brakes on the deal.


They often don’t understand our market, either. Recently, a Kansas-based lender refused to fund a central county loan because the buyer was paying more than the property’s list price — because of multiple offers. Evidently, that’s not the way the market works back there. We actually had to explain to the lender, “We’re not in Kansas anymore.”


Since you are buying a home locally, we recommend using a local lender. The process will be easier and, at the end of the day, you’ll have the keys to your new home, not just a promise of a low rate.


Carl Medford is a licensed Realtor with Prudential California Realty in Castro Valley and a licensed general contractor. This article is sponsored by the Central County Marketing Association at



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