Lower mortgage rates

I just completed a refinance of my mortgage down to 3.5%. That is, historically, pretty low.

But it has always been in the back of my mind that there is something inherently inefficient about the way mortgages are made.

1. While my original mortgage and refinance is handled by a “mortgage wholesaler/broker”, it is, without a doubt, that within a couple of weeks, my mortgage will be sent back to Bank of America.

2. If that’s the case. Why doesn’t Bank of America just cut the crap and lower my rate themselves? This will save me and them a ton of processing fees and paperwork.

3. Their reasoning is, Bank of America does not have the human resources necessary to help everyone refinance. That is why they work with brokers.

4. I call bullshit. I do not think it’s that hard to write a program that finds borrowers, who have a unblemished record of paying on time, and offer them lowered rates.

I was reminded of this inefficiency today when I read this article:


The gist of it is this “Interest rates on mortgages and refinancing are at record lows, giving borrowers plenty to celebrate. But the bigger winners are the banks making the loans.”

My take away is — Banks are taking advantage of the inefficiencies in our economy and making a butt load of money.

Bankers and economists will argue that they are providing a necessary service, or “lubricating” the machine.

While I don’t blame them for taking advantage of the opportunity, who wouldn’t, I think it’s a shame that we do not have rules and regulations in place to prevent this type of arbitrage…

Question: Why would a bank go out to its customers and ask them to pay less?

Two reasons

1) I think it makes good business sense to provide your customers with the best service they can find. In this case, I had to go through a third party for a service that I believe Bank of America could provide to me much easier. If there was such a thing as a choice — I would have left BofA because of this. I remember when I first got insurance with AAA, on my very first year, they sent me a rebate check of the amount they did not use (like a dividend I guess). This made me a AAA customer for life.

2) This one is much more of an ideological stance — I think that in our current economic situation, banks should be inclined to help customers when possible (blah blah blah, something about putting money back in the hands of the middle class). I understand that there is no business incentive for them to do it (other than what I mentioned above), but that’s why, like I said, I wish there were regulations to force them to this. This is predicated on my beliefs that the banking industry is responsible for our economic crisis, and as a condition of them receiving a bailout, they should be forced to provide these types of services which is a net benefit to the American people. If we were under different economic conditions, I would not ask for this.