Noise
Communication
engineers refer to the Signal-to-Noise Ratio, shortened
to S/N, when working with data transmission. Let’s
define the signal as information that is desirable,
data that are useable in making a decision. Let’s
further define noise as other data that there, just
as the signal is there, but that are not useful
or that can even be confusing.
Most
of the time in ordinary conversation with another
person, you hear every word clearly. The same
is true of phone conversations and in e-mail.
It is possible, however, such as at a party or at
a loud restaurant, for the noise to be so high that
you can’t really understand the other person. At
that time the S/N is probably 1 to 1, meaning that
there is just as much unusable stuff coming at you
as there are useable data.
In
most of our experience these days, the S/N ratio
is very high, maybe 100 to 1. The now ubiquitous
portable phone has made the S/N problem a little
more familiar as we’ve all experienced a situation
where the information we want, “S,” is corrupted
by static. That static is noise, “N” if you will,
and the S/N ratio drops quickly.
But
there is another kind of static or noise, and it
sometimes doesn’t take much to foul things up. I’m
sure you’ve experienced a situation where wires
get crossed and two conversations are going on at
the same time. Four people are trying to talk
on the same line. You may be able to hear your party
clearly, but you the other conversation is just
as loud and it’s tough to separate your conversation
from the other. Very quickly it is obvious that
you have to hang up and call back because the S/N
ratio became unacceptable.
So
what does this have to do with real estate financing?
The answer is that there is a huge, even overwhelming,
amount of information out there, and some of it
is “S” but much, much more of it is “N.” If you
are going to make good decisions, you need to be
able to separate the two, keep the “S” and then
throw the “N” stuff away.
Let’s
apply this concept to mortgage rates. On any given
day it is possible to get enormous amounts of information
about mortgage rates. There are something like
25,000 lenders and perhaps another 75,000 mortgage
brokers in the country. Any of them can probably
do your loan and you can get rate information from
them in all sorts of ways, going into their office
or branch, looking at rate ads or rate surveys in
the newspaper, finding their websites on the Internet,
or calling them on the phone.
Most
people make the assumption that the information
they are getting, regardless of how they get it,
is all “S.” But the rate survey in the newspaper
is probably a week old, which makes it “N.” Shoppers
totally discount the possibility that the other
party may be trying deliberately to mislead them.
What, you ask; a business might actually engage
in deceptive advertising?
When
I say it that way, it is pretty obvious that many
aspects of the American economy are infected with
the deception virus. The mortgage industry is not
immune to this. In fact, my guess is that there
is probably more day-to-day deception going on in
the mortgage business than any other I can think
of. All of that deceptive stuff is “N,” which
can confuse you and make it harder to make good
decisions. What it amounts to is that there is a
lot more “N” out there than “S.” So how do you
to separate the two?
The
thing is to concentrate upon finding trustworthy
sources of information. Data from that source will
be truthful and can be relied upon in your decision
making process. That means you have to shop for
an information provider first, before you start
getting information. Readers will recognize a common
theme here as many of my articles have made this
point.
Finally,
once you have selected at trustworthy lender, it
is important to have confidence in what they tell
you. More specifically, when they tell you the
rate is 6 percent and one point, accept that as
“S.” Don’t start telling them about the lower rates
you found from some place on the Internet, as it
is almost assuredly “N.”
Be
careful out there!
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