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Commodity: “Any bulk good traded on an exchange or in a cash market.” Investopedia.com
Mortgages Have Become A Commodity - How That’s Happened
In the early years of business, before the information age, consumers chose to patronize companies that were honest and delivered as promised; when a consumer chose a company to work with, that consumer was loyal to that company, sometimes for life. This was the only way to shop; there was no World Wide Web that could connect you with the lowest priced products around the world.
The information age has irreversibly altered the lives of people on this planet. If you want tea from China, you can jump online and have it at your doorstep the next day. With a wide variety of options comes competition, and competition eventually leads to improved products and services. This has changed our world for the good in my opinion and has no doubt led to an incredible increase in the average American’s quality of life. If a company is taking advantage of it’s customers, one can file a complaint with the Better Business Bureau and any person around the world can use that information to make a more informed buying decision the same day. Abundant access to information has led to a shopping frenzy, and companies are popping up left and right to fill that demand.
Fast forward to the late Nineties when companies like Lending Tree came into
existence. They took a central tenet of our economic system and applied it to the mortgage industry. “Have banks compete over you,” “Banks compete, you win.” Most of us have heard the slogans. Not only did companies like Lending Tree bring more competition, they also promoted another benefit; saving time. You can submit your information to Lending Tree today and have 5 different mortgage companies contact you within minutes. But companies like Lending Tree had to find something concrete to market besides the abstract concept of competition if they were going to flourish. They chose the easiest benefit to sell in this age of quick and easy comparison shopping, price. Competition leads to lower interest rates, such companies suggested.
With increased competition also comes increased specialization; it’s better to dominate a small, target market than to spread company resources too thin and be branded with mediocrity. Specialization…it’s worked for companies like AT&T who used to offer every product and service under the sun. Why can’t the same concept be applied to the mortgage industry? Financial companies took the queue and began to specialize; the all-encompassing financial firm of the past gave way to separate stock brokerages, financial planning firms, retirement firms, mortgage brokerages and more.
What’s Wrong With This Level of Specialization In The Mortgage Industry?
There is a point, past which any more specialization has a negative affect; it can become a hindrance to both consumer and business welfare. Imagine, a baseball game without beer and hot dogs. Imagine watching your favorite team without Peanut vendors yelling in their classic baseball stadium drawl; the experience wouldn’t be the same. Baseball clubs understand this and offer more than just the game itself. You won’t find a stadium in America that doesn’t offer beer, hot dogs, peanuts, and popcorn.
The mortgage industry has become too specialized; whether it be a result of consumer demand or the fault of the industry itself, consumers are offered low rates, low fees, and low payments; unfortunately, this puts mortgage shopping in the same category as shopping for new gym socks - they’re all the same, why not find the place with the best price, right? Wrong. Your mortgage is one of the most powerful financial tools at your disposal, you absolutely must recognize this. Lenders are shutting down left and right, the industry is feeling the pain that is a result of inadequate understanding of mortgages on the parts of borrowers and industry professionals alike. Mortgage companies are using price as a marketing foundation when price is largely irrelevant and mostly impossible for the average home owner to compare (remind me to write an article about the problems with mortgage rate shopping). But that’s what mortgage companies have decided to focus on, and that’s what home owners have come to expect; compete on price and nothing else, ignore the forest for the trees. The shift of focus away from offering a mortgage as a tool for the ultimate financial benefit of the homeowner has caused the current state of the mortgage industry.
The Mortgage Industry Needs Advisers, Not Salespeople
The sheer number of mortgage programs available warrants the advice of an expert. Add to that the fact that hordes of Americans are so inadequately prepared for retirement it’s scary, the last thing home owners need is a commoditized mortgage program offered up by a short-sighted salesman. The industry has become complicated; there are literally hundreds, if not thousands, of different mortgage programs to chose from, each one better suited to a particular borrower. For most people, their mortgage will be their largest investment, shouldn’t they be assured that their money is used effectively? Mortgage professionals, first and foremost, should be service-focused professionals, not salesmen. And while price shouldn’t be completely ignored, the focus should be on proper advice and expertise, not on searching far and wide to save .25% on the rate.
How To Shop For A Mortgage
Simple. Find a broker you can trust; a broker who can become your life-long adviser. One who can understand all of the factors affecting your finances and can offer solid advice concerning the myriad of available mortgage programs. He should know how to best help you meet your financial goals; that should be his number one concern.
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