How can lenders tell that I'm applying for a mortgage? And how does one "shop around?"

[Halliep]

Strange happenings.  I am looking at buying a second home and sought a pre-approval letter from a local banker who was recommended to me by a friend on Monday.  So, a hard inquiry hit my credit report on Monday.

First thing on Tuesday morning, I got a call from my current (primary residence) lender, asking me if I was happy with my mortgage and considering any changes.  I told them I am happy and not making changes.  The gentleman sounded puzzled and there was this ackward pause and then he said "sooo...are you thinking about buying more property?"  He clearly knew I was applying for a mortgage.  I admit I was surprised that my lender monitors my credit report so closely that he was calling 12 hours after the inquiry hit my report, and assumed they had seen the inquiry on my report and put two and two together so I was getting a sales pitch.  Which actually turned out to be a good pitch because they said they'd give me a lender credit for closing costs.  

Anyway, a few hours later, I get a call from my bank.  I have checking and savings accounts with this bank but no loans, etc. and I have not applied for the mortgage loan there.  I don't have a bank credit card (although I do have a debit card).  They are also inquiring if they can help me with a mortgage loan.  This can't be a coincidence - my bank had to have seen it on my credit report - but how?  I thought only my current creditors could do "soft pulls" to monitor my financial situation, but clearly my bank could see that inquiry and knows I'm considering another mortgage.

I guess I'm just confused - and maybe a tad concerned - that I'm being tracked so closely, to be getting these sales pitches so quickly after working on that pre-approval.  Who else can see that I'm applying for a mortgage?

Second question is - how does one go about "shopping" for the best rates and closing costs?  Since I already have the preapproval letter from the first bank, am I tied into going with that bank?  Can I use my current lender's offer of lender-paid closing costs to negotiate a similar deal with the bank that gave me my preapproval?

Any insight would be appreciated!

[Anonymous]

Yes, they will see all the mortagage inquiries listed in your credit reports and you will have to write LOX  for the inquries.   

[StartingOver10]

The CRA's sell a list to lenders of people that are seeking new mortgages to lenders for mortgage leads. Sometimes it is referred to as "Trigger Marketing" and your hard inq for a mortgage loan pre-approval is the trigger. 

Lots of companies participate. 

Best way to shop is to pull your own consumer mortgage scores and report and speak to recommended LO's. Don't let them pull your report until you are ready to start but they can give you an excellent idea of what program you qualify for and give you the closing costs and an estimate based on 'today's rate' (subject to change until you apply with a contract and lock in). 

As to negotiating, yes you can negotiate with the lender. But normally if a lender picking up some or all of your closing costs, your rate will be higher. You need both the rate and the costs to figure out the best deal for you. This is where the loan disclosure comes in handy - so you can compare each lenders rate and costs to determine the best deal.