Playing Two Lenders Can Mean Savings

WASHINGTON —  Are you a good card player? A hard bargainer? Do you have the ability to face down your opponent without flinching?

If so, you may be able to save yourself thousands of dollars over the life of your mortgage simply by applying to and being approved by more than one lender. Then, a day or two before closing, you can play one against the other.

Of course, this advice goes against everything the mortgage community tells consumers. Sure, lenders say borrowers should shop for the best rates and terms. But they argue that you should apply with only one lender and only after you shop.

Lenders maintain that multiple applications gum up the works, especially during periods of heavy refinancing, when lenders have a particularly tough time keeping themselves from being buried under the avalanche of paperwork.

But one borrower, who did not want his name used (let’s call him “Double Down”), has applied with two lenders on two occasions. Each time he’s been able to cut his interest rate by half a percentage point, saving himself big money in the process.

Apparently Down’s not alone. In a recent six-month study of some 600,000 loan applications made with 10 of the nation’s largest lenders, the Mortgage Asset Research Institute of Reston, Va., found that about 3%--18,000 applications--were duplicates.

Dual loan applications are considered an indication of possible fraud. But MARI’s James Croft says that as long as the information supplied by the borrower is consistent from one application form to the other, there’s nothing illegal about them.

Gaining approval by two or more lenders does tend to wreak havoc with their ability to manage their interest rate risk, Croft admits. But that’s their problem, not yours, says Down, who was first talked into applying for a loan with two lenders by--you guessed it--one of the lenders.

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Down doesn’t want his real name used because he makes his living in the mortgage business and he’s afraid he’d be drummed out of the corps if his colleagues knew he was the one doing the talking here. But on the promise of anonymity, Down is willing to share his experiences. “I’ve done it twice and I’d do it again,” he says of dual applications.

“It’s not for the faint of heart, especially if you like to have things all tied up. But otherwise, I recommend it. Lenders may tell you otherwise, but they really do have quite a lot of flexibility.”

He’s right about that. One major West Coast lender has a special “negotiated transactions” desk to handle just such situations. “We want to calculate how much money we’ve already got in the deal before we let it go,” he says.

About seven years ago, Down was in the process of buying an existing house when he received a call from the lender who was helping Down’s seller obtain a loan for his new house. The lender said he’d match the rate Down was getting elsewhere--or even beat it.

“I told him I’d already been approved by someone else,” Down recalls. “But he said he wouldn’t charge me a thing if I applied for a loan with him. He said he’d even pay for the appraisal. Needless to say, he was an aggressive loan officer.

“He also suggested that since I’d locked in my interest rate with the other lender, I should take my chances with him. He said he could give me a couple days’ notice if rates were going to move higher, but he also said he thought they were heading down.”

Down decided to play along. And sure enough, about a week before settlement, the second lender’s rate was 8%, half a point less than the 8 1/2% guaranteed by the first lender.

“At that point, I called the first lender and said, ‘I’ve got a rival offer.’ They said they couldn’t do anything, but 24 hours later, I got a call back from a vice president who said that because my loan was already pre-sold to an investor in the secondary market, which many lenders do, they would match the lower rate. They didn’t want me to walk, which I would have if they didn’t lower their rate.”

Down probably could have gone back to the second lender to see if he would have gone lower. “But as long as the first lender was willing to match the second, I decided to let him keep the loan.”

A few years later, he refinanced again and decided to try the dual application gambit once more with two lenders.

“This time I knew the drill. I jumped through all the hoops until I was approved by both lenders, who had pretty much the same rates, about 7 1/4%. Then, two days before closing, I told one he needed to drop down to 6 3/4%, otherwise I’d go to the other guy.”

To Down’s surprise, the first lender agreed. So he went to the second one and said he was taking his business elsewhere unless he lowered his rate to 6 3/4%. The second company had to get approval from the home office, so it couldn’t give Down an answer right away.

But the second lender tried to tell Down that his behavior was unethical, so he decided to close the loan with the first one.

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“They really browbeat us. They called us at home and said don’t do it, that we were being disloyal. It was a hassle and it drove my wife crazy. She felt we were playing a game of chicken, which we were,” he says.

“A lot of people don’t have the stomach for this. But once both lenders approved us, I was calling the shots. And they have no loyalty, so why should I? They will sell my loan in a heartbeat if it makes business sense.”

The second time around, Down even went so far as to pay for two appraisals, one with each lender. But considering that he was shooting for a half-a-percent rate difference, he believes the extra cost was a good investment. “It was a no-brainer,” he says. “I earned that money back in a few months.”

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Distributed by United Feature Syndicate.