TUSHAR MATHUR HAD every reason to expect Bank of America's best deal on a mortgage. After all, the 31-year-old software developer kept a checking account and a credit card with the giant consumer bank. He had a ridiculously high credit score — 785 — and was willing to make a 20% down payment on a brand-new four-bedroom colonial in the Atlanta suburbs.

But a funny thing happened on the way to closing the deal on his first home. After reviewing his application, he says, a Bank of America representative offered him a rate of 6.5%, nowhere near as good as the 5.8% to 6.2% rates he had been quoted from other lenders. And the difference wasn't lunch money: Had he gone with Bank of America (BAC: 38.30, +0.43, +1.13%), his mortgage payments, over the life of the loan, would have cost an extra $21,000 more than the deal he ultimately accepted. "They were higher than anybody, and I don't know why," he says of his branch's offer

The result? A complicated pricing system that only a computer could love. Gone are the days when everyone with a 720 credit score gets offered the same rate on a $50,000 home-equity loan. Some banks are coming up with different rates for as many as 20,000 customer segments — defined by variables like location, loan type, transaction history and banking habits. Prefer to apply at your local branch? A computer may decide you'll typically accept higher rates than those who apply online or by phone.

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It is called "the free market". Just like buying a car. There are people who go in and pay full MSRP on a new car.

Sorry, but the best price is not an entitlement. You should "never" buy anything without shopping around. You can either accept the higher price for convenience, negotiate a better deal, or get your mortgage with who ever gives you the best price.

Hey, there are stories of people who received sub-prime mortgages when the qualified for prime rates. This is one place where I don't blame the mortgage brokers. If you are so stupid that you don't know what your options are you deserve to pay the higher rate.

I sorry if it seems a little harsh, but FW and others like it are based on the premise that there is the best deal on something/somewhere/sometime. I and we benefit by those people who pay the going rate.

Hey I still remember my father's approach running a small business where every job was quoted. He quoted the person with the Caddy and fur and living in the exclusive town a much higher price than the single mom from the working class neighborhood. Of course then there was the rich person who would try to negotiate the price below anybody else.

Then my father would be deciding if the job was worth doing at that price. Sometimes yes and sometimes no. Then either the person would pay the best offer or the job didn't happen. Hey, you know what, that is how it is supposed to work.

I realize everybody now has a sense of entitlement about everything. However, you are NOT entitled to the best price. You go out and find it. And I have no real opinion about this

Was his price higher because his name is "TUSHAR MATHUR?" If not, then I don't see anything wrong with it. However:

"While it's not surprising to learn that unsophisticated consumers with low credit scores often accept higher rates than they should, banks have also discovered that loyal customers are often more likely to accept a high rate."

One more reason not to be loyal to anybody; banks, employers, etc. They're certainly not going to be loyal to me. Maybe, when faced with the possibility of losing *all* your business, they'll re-evaluate whether those extra 50 basis points are worth it.

Gone are the days when you could open a checking account in college or high school and then have a 50-year relationship with the same bank.

The banks have started using price discrimination, other industries (such as the airlines, or companies selling products with rebates) have been using it for years. As a consumer, all this means is that I should shop around for the best deal - but I was already doing that. If someone can't be bothered to compare prices on their mortgage (probably the largest financial transaction they'll ever enter into) then they deserve what they get.

This is USA not Japan

You got to let the bank know that you can screw them as well

BofA in this case might have known that the guy had only only bank account. May be even does trading and IRA's with them. That must appeared to them like a bend over

Better to keep multiple accounts. Atleast when you go for a loan they know you have got other options as well

JennaG said:
I, too, am a bit surprised that banks would charge more to loyal customers because they're less likely to shop around. I guess it makes short-term sense and they are certainly within their rights to charge whatever they want. Just seems like it puts them at risk to lose customers in the long run.

I have applied for 12 different mortgages, and not once I got a mortgage from one of the banks I "loyally" use. They always offered me a rate higher than I could get elsewhere. And yes, I tried to negotiate a few times, and it never worked. They'd just point me to their rate sheet.
One point is that they did not seem to have this high rate specifically for me - they had a rate sheet, they'd just show to anyone inquiring about a mortgage.
And another point is that they did not loose a "loyal" customer because of this. They got a free checking, a decent savings rate, convenient business hours, superb customer support. Why would I leave them? To "teach them a lesson" how to treat an important customer like me? I don't think so.

btuttle said:
Hey, there are stories of people who received sub-prime mortgages when the qualified for prime rates. This is one place where I don't blame the mortgage brokers. If you are so stupid that you don't know what your options are you deserve to pay the higher rate.

I am one of those people. I had more than enough income and good scores to qualify for prime rates, but chose to get sub-prime, because it was so much cheaper. Back in 2003 I had a choice between a fixed rate at 6.45% and a 5/25 at 3.125%. I chose the latter, and it saved me about $60K in 5 years. I only blame my stupidity for that
(Yes, I got lucky with rates going down this year - just refi'd in February at 5.875 - but even if they went up to, say, 9%, it would take another 6 years before I'd break even compared to 6.45% payments).
The problem with subprime mortgages wasn't the rate or conditions, but simply that people who got them could not afford them. I would not call these people stupid either. They got to live in a mansion for a few years. Sure, now they are looking for someone to blame now, but I think, they should be thanking those lenders and brokers who gave them a freebie.

The banks must be catching on, because *I* have been profiling their prices and yields when choosing where to do my business.

Hopefully this means that they will offer me, the smart consumer, a better deal, and not that they are trying to just milk the clueless.

Lenders can offer whatever rate they want, just as I can walk out the door if they offer me an absurdly high rate. Be careful looking for a mortgage right now. Lenders hit particularly hard by the housing boom and bust are going to try to recover their losses any way they can.

Speaking of bank loyalty, and vice versa, I am reminded of the consumer-cellphone relationship... It seems that the longer I am with a cell phone company, the worse the incentives offered during my annual renewal.

One more thing about loyalty... at all of my jobs, we can be let go on the spot, but we should give a two weeks notice. Who on this green earth thinks that this BS equation is balanced?

verruckterBaum said:
It sounds like you saved a lot of money going with the ARM so congrats. But if the best you could do was 6.45% back in 2003 then you weren't trying or you were less than prime then you are letting on. 30 year fixed could be had for ~5.5%-6.0% back then.
There were different times during 2003. Mine wasn't the best. 6.45% was about the best you could do without points at that time. But even if you substitute 6.45 for 6.0 in my post, that doesn't change the math dramatically.