Patented Guarantee Exposes Mortgage Industry's Big Dirty Secret

It's not very often that an innovation in the mortgage industry comes along; not to mention one that is so different it was awarded a U.S. Patent. But that's what happened with The Guaranteed Mortgage Quote™ program. And it's no wonder. The program is so powerful, it practically negates the #1 Mortgage Industry Dirty Secret that only industry insiders know, and no one wants to talk about.


If you're interested in doing a story or learning more about the program, we've provided some good information on this page. If you would like to follow up with us, just let us know. We'll be happy to provide more information and participate in interviews.

How did the Guaranteed Mortgage Quote™ get started?

The owner of The Guaranteed Mortgage Quote, LLC was frustrated by the mortgage industry's treatment of its customers.  Time and time again he'd hear stories of customers who had been promised mortgage financing only to be told later (often at the closing table) that their mortgage terms had changed.  Customers were even getting calls telling them they had been completely rejected only days before they were expecting to close.

With all the new mortgage rules and regulations, this can't still be a problem these days, right?

Actually, it's as big a problem, if not bigger, than it used to be.  Mortgage guidelines are stricter than ever.  Even the smallest mistake can result in a customer being denied, even after they've been given a written initial approval.  The Mortgage Banker Association found that in 2009 (the last year for which this statistic is available), 31.56% of applicants didn't close at the lender who took the application.  And while not all of that so-called “fallout” was caused by mortgage company errors, that 31.56% doesn’t even include those people who closed on their loan but ended up with a higher interest rate or had other terms changed on them before or at closing.

Does the Guaranteed Mortgage Quote™ result in customers being approved for mortgages they shouldn't get?

Not at all.  The Guaranteed Mortgage Quote™ forces mortgage lenders to pay more attention to their customers' financial situation at the time of loan application.  Mistakes are typically found when a mortgage file goes into a lender's underwriting department, but by that time the customer has spent hundreds of dollars on appraisals, home inspections, etc.  And they are often packed up and ready to move before the loan officer's mistake is found during underwriting.  The Guaranteed Mortgage Quote™ is a way for a consumer to receive some compensation if they are promised a loan that they don't actually receive.

You said that mistakes are usually found during the underwriting process.  So how can a mortgage company make a guarantee at the time of application?

The customer is responsible for verifying all the claims they made on their mortgage application.  So if underwriting requests further documentation and the customer is unable to validate the information they told the loan officer, then no guarantee payment is due to the customer.  But if the customer can back up all of their claims, then they either get the mortgage they were promised or the mortgage company has to write them a check.  The customer also has an option to accept a mortgage on different terms than originally promised.  In that case, the guarantee is paid as a reduction in closing costs.  But if the customer does not want the different terms, they are free to demand a cash payment instead.

Didn't the new Good Faith Estimate (GFE) take care of this problem?

The new GFE did a great job of making sure that the COSTS of a mortgage only change within narrow limits from the time of initial disclosure until the time of closing.  However, the GFE does not protect against the mortgage TERMS changing after initial approval.

I'm still not sure how the Guaranteed Mortgage Quote differs from the Good Faith Estimate.  Can you give me some examples of how the terms guaranteed by the Guaranteed Mortgage Quote differ from the closing costs addressed on the Good Faith Estimate?

Of course.  Please see the page of our web site titled "Examples Where a Consumer Would Receive a Guarantee Payment."  On that page we show five scenarios that should clarify the difference for you.  Please note that in those five scenarios, the mortgage company provided a complete closing cost guarantee that is even stricter than the tolerances allowed under the new Good Faith Estimate.

Is bait and switch by mortgage lenders causing these problems?

Bait and switch was a big part of the reason that the costs of a mortgage used to increase between the time of application and the time of closing.  A loan officer would quote low costs at the time of application and when the customers got to their closing they found that the loan officer had boosted up the costs to get a bigger commission.  Most of the time the loan officer wouldn't even be at the closing and it would be left to the closing attorney to calm the borrowers and make sure the mortgage still closed.  Many closing attorneys built their practices based on how well they could sell or convince the borrowers  to go through with the closing even though the fees were higher.  Now, the attorneys weren't actively involved with the practice, and they were meeting the borrower for the first time at the closing table, but they were referred business by the mortgage companies based in part on their ability to keep the transaction together.

So if bait and switch isn't causing the problem, what is?

If I had to give a one word answer, that word would be "incompetence".  In defense of your loan officer or mortgage originator or mortgage planner or whatever title the person who helps you apply for your mortgage calls themselves, it's easy to be incompetent in the mortgage business.  That's because missing just one little piece of the puzzle can result in drastically changed terms or even in the mortgage being completely rejected before you make it to the closing table.  In most professions, getting all of the big things right and most of the little things right is usually enough to count as a professional performance.  If the doctor diagnoses you properly, operates properly, but leaves a little bit of a jagged scar line, the performance is clearly accepted.  If the accountant finds $50,000 worth of deductions but misses one for $200, it's not perfect but the harm is so small the client is happy.  If the attorney has a client that is really entitled to 90% of the money but only convinces the judge that they should get 85% of the money, the client will probably still feel the attorney did a good job.  Look at the examples posted elsewhere on this web site and see how the smallest error by the loan officer in the mortgage profession can result in a horrific outcome for the potential borrower.  The mortgage business demands 100% knowledge and focus from your mortgage company, and if they offer you The Guaranteed Mortgage Quote™, you know they consider themselves to be one of the best of the best.

From a consumer protection perspective, how can you summarize this situation?

Regulators, politicians, and the press have believed that the problems in the mortgage industry were mostly the result of bait and switch.  That's what led to the changes in HUD's Good Faith Estimate regulations.  There has also been a general awareness that mortgage personnel were not knowledgeable enough.  That has led to required licensing of loan officers and increased requirements for loan officer education and testing.  But much of the education and testing focuses on ethics and regulatory minutiae.  Yes, some of the testing focuses on mathematical calculations required during the mortgage process.  So certainly the days of the almost totally clueless loan officer are gone.  But the tests are not based on case studies and there isn't any narrative like an attorney would have to go through to qualify for a law license.  Therefore, the loan officer is not being tested on their ability to be 100% thorough in their analysis of a mortgage applicant's situation.  And when you add in the fact that 75% is the score that is needed for a passing grade, it's easy to see that there are still plenty of consumers applying for a mortgage who are not receiving the best treatment.  In fairness to the politicians and the regulators, how can you legislate or regulate 100% competence?  It can't be done.  But a mortgage company that offers The Guaranteed Mortgage Quote™ is saying that they'll be responsible to provide each consumer with a 100% competent experience, or they're willing to make a cash payment to the consumer if they make a mistake.  This is the only way for a consumer to know they are in the care of a true mortgage professional.

Can you tell us why The Guaranteed Mortgage Quote™ qualified for a United States Patent?

In layman's terms, there were two criteria that The Guaranteed Mortgage Quote had to meet in order to be granted a Patent.  The first was that no other mortgage company had ever offered a guarantee of this type before.  It was pretty easy to get over that hurdle as this type of guarantee has simply never been available before now.  The second was that the idea of offering this guarantee could not be obvious to a person who was familiar with the mortgage business.  We did get bogged down with the Patent Office on this point.  The Patent Examiners found many public examples of closing costs being guaranteed and they thought this made it obvious to think of guaranteeing the terms of the mortgage as The Guaranteed Mortgage Quote™ does.  We kept using the airline industry as an analogy in this way:  Let's say an airline guaranteed the complete cost of a trip at the time the ticket was purchased, so that the passenger would not be subject to any price increases for baggage, meals, etc. that might go into effect before they took their trip.  We asked the Patent Office, would that make it obvious to a person in the airline industry to promise to take off and land on time, to get the bags off the plane within 15 minutes of landing, etc. or else pay a guaranteed fee to the passenger if they fell short on these promised terms?  We didn't think it would make it obvious in the airline industry and in the end the Patent Office agreed with us that it wasn't obvious in the mortgage industry either.