Low online rates can come with problems

Internet lenders offer lower mortgage rates, but local professionals say the deals aren’t always as good as they seem to be. 

When Kim Reniero went to an Internet lender to buy her Verona condominium last month, she had a bad feeling about going to such a lender. 

Reniero had had good luck before with Internet mortgages and so she ignored her premonition- a decision she came to regret, the 40- year old research analyst said. 

Reniero and her out-of-state lender weren’t able to get a loan package put together by the closing date of Dec. 14, turning her condo closing into a three-hour-stress-fest and almost derailing two other property closings.

“My title company is asking me, “What’s happening with your lender?” and I couldn’t get a hold of him. It’s horrible”, Reniero said.

Consumers like Reniero can benefit from the super-low mortgage rates they find by checking out Internet sites like bankrate.com. But let the borrower beware, says local real estate agents, title companies and banks, who point out the good deals can come with hassles. 

Internet lending can vary from loans done completely electronically to brick and mortar banks that attract consumers by advertising a product and rate online and then doing most of the actual transaction in person, said Gabe Minton, vice president of industry technology fro the Mortgage bankers Association in Washington, D.C., which represents both Internet and conventional lenders.  

Reniero’s lender, Mortgage Capital Associates of Los Angeles, closes 97 to 98 percent of its loans on time, chief executive officer Jay Steren said. Mortgage Capital stayed in frequent contact with Reniero but didn’t get the documents and down payment information needed to close the loan in time, Steren said.

Steren said the Internet is a boon for borrowers, offering “a greater stage for viewing competition and finding better deals”.

No statistics are available on the percentage of home loans done over the Internet, Minton said. But Chad Armstrong, president of Preferred Title in Madison, said his title company has seen a rise in the percentage of deals done with Internet lenders-from almost none three years ago to about 8 percent of the deals today.

That’s a frustrating trend for Armstrong. Preferred Title closings involving Internet lenders often don’t finish on time, Armstrong said, either because the money isn’t delivered punctually or because the lenders end up offering the borrower less favorable terms than originally quoted.

When there are problems, Internet lenders can be tough to reach quickly by e-mail or phone, Armstrong said. And since the seller of one house is often immediately buying another, one botched transaction can end up derailing others.

“You get a huge domino effect,” Armstrong said. “I think, ‘Oh, God, the buyers and the sellers and the buyers and the sellers”.

That was the case for Kelly Kloepping, a public relations worker who was selling the Verona condo to Reniero, her friend and neighbor. Without money from that deal, Kloepping, 31, couldn’t close on her house in Madison and the seller of that Madison home couldn’t close on yet another deal, she said.

“We were all desperate. We didn’t know what was going on”, said Kloepping, who ended up closing on the house the same day using money taken from Reniero’s personal account.

Reniero ended up closing on the condominium a week later thanks to a rushed mortgage from a local lender, Fairway Independent Mortgage Corp.

The Wisconsin Department of Financial Institutions hasn’t had any complaints about Internet lenders, spokeswoman Gail Gawenda said.

Real estate agent Jim Imhoff said he does hear about the problem. Imhoff, chairman and chief executive of First Weber Group in Madison, said agents at his firm now often try to avoid botched closing by allowing two hours instead of one for those involving Internet lenders.

“The last couple of years we have had at least one of those (delayed closings) a month”, Imhoff said. “As a general rule, its’ been a serious problem”.

Mortgage rates on the Internet can be tempting enough for many consumers to take the risk.

At Bankrate.com, a Web site where Internet lenders can post their loan products, annual percentage rates for 30- year fixed rate mortgages in Wisconsin were posted at 5.26 percent and lower Friday, with no discount or origination points. That’s significantly lower than the national average of 5.67 percent reported this week by mortgage buyer Freddie Mac.

Reniero said she has used Internet lenders several times in the past and been completely satisfied.

“I don’t want people to think that it always goes badly. The rate that you can get with the Internet is leaps and bounds ahead,” she said.

Minton said he has heard of difficulties at closings with Internet lenders. But the key to resolving the problems could be more technology, not less, he said, noting that going to a paperless, electronic closing could allow problems in loan documents to be resolved more quickly.

Bill Emerson agreed. Emerson, chief executive officer of Quicken Loans in Livonia, Mich, said that Internet lenders greater use of technology makes it easier for them to make last-minute changes to meet closing deadlines.

Quicken Loans is one of the nation’s largest Internet lenders.

Local banker Dan Greene said the problem doesn’t lie with the Internet itself, just some of the lenders that operate it. Green, vice president of the home lending subsidiary of Guaranty Bank, said his bank and many others now give consumers the convenience of being able to fill out loan application online and then meet with a loan officer in person.

But borrowers should be cautious and read the fine print if they’re trying to do a home loan entirely over the Internet, he said.

“On several occasions we’ve had to do loans literally in a day because an Internet lender” failed to deliver on a mortgage, Green said.

Ron Steinhofer, manager of M&I Bank’s regional home lending group, also advised consumers to be wary about Internet loans.

“A lot of times with the Internet it’s not clear what the rate is actually going to be and what the closing costs are going to be until the time of the closing”, he said.

For her part, Reniero said she would still go to an Internet lender again. But she said next time she’ll pay more attention to whether she and the lender are able to resolve their problems quickly.

“If I had a feeling about it, regardless of what the rate was, I’d walk away from it,” Reniero said.