Five things I am thankful for this holiday season:
1) For all the good folks who took the time to email me their success stories after reading my books.
2) For living in a free country where all individuals can buy their own home without regard to race, color, religion, national origin, sex, marital status, age (as long as the legal age is met), or whether they receive public assistance.
3) For employment and the ability to shop wholesale lenders to find the best loan at the best price for my mortgage clients.
4) For friends and family, business associates, my sweet yet feisty kitty.
5) Most of all, for the grace of God and salvation through Jesus Christ our Lord.
Happy Thanksgiving to all!
A new Gallop poll suggests Americans are ready to buy real estate again. Optimism about the housing market is up, especially in the West where 72% of respondents said they expect home values to rise. And it’s no wonder.
Home prices have recently risen by double digits in several Western states, and especially so in California.
People in the South are slightly less optimistic, where 54% said it’s a good time to buy.
Midwestern folks seem to agree with 53% home values are rising.
Skepticism runs higher in the East where only 44% expect an increase in values.
Home owners are more optimistic than renters. Of all Americans who own a home, a big majority at 81% expect real estate prices to increase. On the other hand, only 44% of renters expect prices to increase.
Perhaps there’s a marketing clue there for real estate agents and mortgage lenders. Current home owners are feeling more urgency to sell and move up before prices continue upward than are renters.
And speaking of pessimism among renters, those who would have eagerly sought loan approval in the past are now of the mindset that they won’t qualify. A surprising 56% of renters said in a national consumer survey that fear of rejection is holding them back for applying for a home loan. The two biggest concerns are credit and income qualifications.
Good News for Home Buyers
It comes as a surprise to some that perfect credit is not required. Not all lenders have the same requirements. If you fear that your bank is too strict, call a local mortgage broker. Brokers, somewhat like travel agents, have access to multiple wholesale lenders. A mortgage broker will do the shopping for you. Brokers know which lenders will go down to a 620, or even lower, credit score for an FHA loan. And the good news is that a mortgage broker does not necessarily cost any more than a bank. Nowadays, many small and midsize lenders are both brokers and direct lenders (with their own money). This gives them greater flexibility and gives you a greater chance of approval than going to a bank or credit union that has only their own money and strict guidelines to offer.
Something to Think About: How You and I Control House Prices
When people think the economy is improving, they are more willing to spend money; therefore, their mindset actually improves the economy. The same goes for the housing market. If people think values are going up, they want to buy now before their desired home costs more. When more people are selling and buying, the housing market improves and values increase. So even if you don’t think real estate is increasing in value, if your neighbors believe it is, their attitudes and actions can make that happen.
That would make them right then, wouldn’t it? Hmmmm, something to think about.
My answer is, “No, not always; but in some instances, yes.” I’ll explain.
YSP (Yield Spread Premium) is extra money (a premium) that the wholesale lender gives to the mortgage broker for selling you a higher interest rate than par rate. That difference between par and the rate you get is the “yield spread.” Par rate is the lowest rate you can get without paying extra in points to buy down the rate. If you don’t want to pay any points, then you want par rate.
Back in the Wild West days of mortgage lending (pre-2010), mortgage brokers could make extra commissions by selling borrowers a higher interest rate than par rate. The higher the rate they were able to sell, the bigger their premium commission was. Thus, it became the goal of greedy loan officers to sell you as high a rate as they could, and a lot of smooth double-talk ensued.
This led a lot of folks — after they realized they had been taken advantage of — to ask, “How can they sleep at night?”
And their answer was, “I sleep very well at night, because I’m making a ton of money, thanks to naive people like you.”
Of course, the savvy borrowers who took the time to read Mortgage Rip-Offs and Money Savers could not be taken advantage of.
So back to the question, “Is YSP illegal now?”
To answer, I refer to the Press Release by the U.S. Federal Reserve in regard to the law enacted April 1, 2011. In short, it says:
* Individual loan officers cannot be paid a higher commission by the lender they work for if they sell a higher interest rate to the borrower. (This takes away the incentive to sell higher priced loans.)
* A mortgage broker cannot collect both an origination fee and YSP. (If the lender charges you an administration fee, application fee, underwriting fee, processing fee, origination fee, or any other lender fees, then it is illegal to collect YSP. Any YSP would therefore have to be given to you, the borrower, as a credit.)
* If the mortgage broker is not charging any origination fee or lender fees whatsoever, then there is nothing in the law that prohibits them from making YSP.
In this last case, YSP is not illegal, according to the interpretation accepted by most lenders.
Mortgage brokers have a choice: get paid by lender fees or YSP, but no more “double dipping” like before.
BUT WAIT, THERE’S MORE TO THE STORY!
Banks and direct lenders love to say, “We are a bank; we don’t have YSP.” True enough, but that is also deceptive. Instead of having YSP, they have SRP!
SRP stands for Service Release Premium. It is money the bank or direct lender gets paid when they sell your loan after closing. Federal law does not require them to disclose it, and they never will. If you ask, the loan officer will say, “I don’t know what it is.” Which may or may not be true, depending on the bank and the loan officer.
Mortgage brokers say the law isn’t fair. It targets them, forcing them to disclose and credit their YSP whereas banks and direct lenders get to deny and keep their extra profit hidden.
Another question people ask me is, “Is there still par rate?”
My answer is, “Yes. If you don’t need money credited to you by the lender to help pay closing costs, then ask for par rate. Also, if you don’t want to pay points (or a partial point) to buy down your rate, then ask for par rate.”
Where to Get More Information
For more information on YSP, how it is directly tied to the interest rate you get, and charts showing actual rates with YSP, see Homebuyers Beware. Also, you will read the one thing you should never say to a loan officer, how to ask for a cost estimate upfront without giving out your social security number, and how to negotiate the best priced loan.
Home buyer Ilya A. Mazo said, “I feel empowered after reading this book.” As the saying goes, knowledge is power.
Thank you for reading my blog. My purpose in writing is to help people avoid rip-offs and get the best loan possible.
The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act of 2008) mandates nationwide licensing and registration for residential mortgage loan originators. The law was enacted with the idea of making borrowers safer from loan fraud, fee scams, lies, and hidden tricks.
While that sounds good, there is a loophole you might not be aware of (but should).
Namely, the SAFE Act supposedly ensures that all loan salespeople, brokers or bankers, receive an adequate base of training in order to get licensed. However, only non-supervised institutions have to pass the NMLS testing process. This means that bank employees are except from this training and testing.
Yes, you got that right! Loan officers at Bank of America, Wells Fargo, Chase, and other registered banks only have to register–not pass a test.
Listen to what one insider says:
I have files of cases of loan originators who failed the test and ended up working for a bank.
Here’s what another insider said:
For the past year I have been helping loan officers prepare to pass the federal and state test. The potential mortgage loan originators are new, and a large percentage are from the banking side of the industry. The 80 loan officers I have worked with shows me that the loan officer coming from the banking side are not understanding of the laws and are having a very difficult time passing the test. In some cases, it is like deer in the headlights.
This is one of the reasons why I say you do not choose your lender according to the institution. You are not assured of working with a higher level of expertise with a banker than you are with a broker. More often, it’s the other way around. It is truly an individual consideration. You must not execute blind trust in a loan officer simply because he or she works for a Big Bank.
Please don’t misunderstand. I know expert, experienced, ethical loan officers who work at Chase and Wells Fargo. But I consider them to be above the norm: the Mortgage Stars. I am not against getting a loan at a bank, but I am against having more faith in a bank than in a mortgage broker, because that is not the reality.
At present time, the law favors the bank employees with an advantage, so when you’re loan shopping, keep that in mind. Choose your lender by the individual loan officer, not by the type of lending institution or by the name on the building.