Tag: mortgage

What Happened to Low Interest Rates?

~ Carolyn Warren ~ 1 Comment

ImageInterest rates have gone nowhere but UP for the past 3+ weeks. For home buyers still shopping around for the best deal, it’s like watching a nightmare unfold. Remember those 3.5% 30-year fixed rates? They’re gone!

Rates went to 3.625%, then 3.75%, then skipped right over 3.875% and landed on 4%, now up to 4.125%.

In some scenarios, it makes sense to buy down your rate to 3.75%, but you must do the math first. If the buy down is too expensive, reject it and take the 4.125%.

How to Check Your Buy Down Option

Look at the principal-and-interest payment using both interest rates.

Subtract to get the monthly savings.

Divide the monthly savings into the cost of the buy down.

This is the number of months it will take to break even. If you’ll break even in two years or less, I think it makes sense. If it’s taking five years or more to break even, I would not even consider it.

Get Your Written Rate Lock Confirmation!

You cannot lock in an interest rate until you have a mutually signed Purchase & Sale Agreement. This is because rate locks are tied to a specific property address. But once you have one, speak with your loan officer about locking in. If you are floating your rate (not locked), then you need to communicate with your loan officer every morning on where rates are at.

When locked, get it in writing. No exceptions.

I just heard from a home buyer, closing in 20 days, who believed his rate was locked in at 3.5%. Then he got a call from his loan officer…

“The bond market is going crazy. I suggest locking in. I can get you at 4% today,” he said.

“WHAT?!!! I thought I was locked at 3.5%.”

“No, you were floating,” he said.

My question is, what was the loan officer doing while the 3.5% rate was going to 3.625% and then to 3.75%? Why did he wait until rates went all the way to 4% to call his client? That is gross neglect, in my book. I suggested to the home owner that he call the manager and speak about this situation. Problem was, the loan officer was the manager!

Assume nothing. That is rule #1 in the mortgage game. You must get your rate lock confirmation in writing.

Where Do Rates Go From Here?

No one knows. No one was predicting the volatility we’re in now. Experts were saying, “The Feds are keeping rates low for the rest of the year.” It made sense. We need low rates to continue to support economic growth. Everyone thought rates would continue on at about the 3.5% level…right up until the sharpest rise in over 10 years. No one has a crystal ball that says where rates will go.

I’ve said it before, and I’ll say it again: If you see a rate you like, lock in and be happy.

Note to esteemed real estate agents: If your clients are taking their time house shopping, pass on this information to them. They need to know that the longer they wait, the higher the risk they’re taking of getting that cheaper monthly payment with a low-low rate.

 

 

 

 

Where Does the Lender Credit Come From?

~ Carolyn Warren ~ 3 Comments

Lender CreditOn your mortgage estimate, you might see a credit for several thousand dollars to be used toward closing costs. I’ve been asked, “Is this legit? Is this real? Where does that money come from?”

To answer, when a lender gives you an interest rate higher than par rate, there is an extra profit, or extra cash that can be given to you as a credit. Par rate is the base rate that does not yield extra profit to the lender nor require money (charged in percentage points) to buy it down. Par rate changes daily.

A perfect example is a set of two mortgage estimates I reviewed yesterday for one of my coaching clients. The lender had given him these choices for a 30-year fixed rate, 10 percent down payment, top tier credit:

Choice #1

3.375% with a cost of 0.4 percentage points. For his loan amount of $405,000, that was a cost of $1,701.

Choice #2

3.75% with a lender credit of $8,059. That would give him over eight grand to pay his closing costs. The lender had that much money to give, because 3.75% was over the par rate of 3.4% (on that day).

Which is Better?

The difference between these two loan offers is $9,760. (A cost of $1,701 versus a credit of $8,059.) Talk about going from one extreme to another!

First, I do not recommend paying $1,701 to get an interest rate one eighth of one percent (0.125%) lower than par rate. For his loan amount, it would take five years just to break even on that cost. That is too long, in my opinion. Also, he happened to be tight on money for closing costs after he made the 10 percent down payment, so why would he spend so much extra to buy down his rate? Better to keep that money in an emergency account.

I recommended asking for 3.5% with zero cost.  This is because 3.5% is the closest rate to par rate for the day (yesterday). Depending on the day he locks in, there may or may not be a small credit, depending on exact par rate.

However, if he found that his dream house — the one he and his wife fell totally in love with and absolutely had to have — took all of his cash for the down payment, leaving him without enough left for closing costs, then taking the higher interest rate (and higher monthly payment) so that he’d get the big lender credit to cover closing costs was a viable option.

Personally, I would rather see him take 3.5% par rate on a more affordable house with a lower monthly payment.

But for a person with a low debt ratio and high income, the higher interest rate is not a turn-off, and the lender credit is an advantage one might choose to take.

By the way, if you read Mortgage Rip-Offs and Money Savers, you know this lender credit is the Yield Spread Premium (YSP). Per new lending laws, if a lender is charging an origination fee (including processing fee, underwriting fee, administration fee, application fee), then any YSP they receive must be given to the borrower as a credit. However, if the lender is a bank or a direct lender using their own money to fund the loan, they do not have to reveal or credit you any extra profit they make. And don’t bother asking, because they will never tell you what their overage/profit is. Most will deny it altogether, because as a bank or direct lender, they don’t call it YSP; they call it SRP (Service Release Premium).

If you have any questions about lender credit, please feel free to ask. And once again, thank you for stopping by to read my blog.

Now available on Amazon
Now available on Amazon

Should Your Realtor Choose Your Lender?

~ Carolyn Warren ~ Leave a comment

OLYMPUS DIGITAL CAMERAI’d love to hear feedback from both real estate agents and home buyers on this newly released statistic.

According to a study by Campbell Surveys and Inside Mortgage Finance, real estate agents controlled or influenced 45% of homebuyers’ choice of lender.* Is this a good or bad thing? Let’s look at both sides, and then you can draw your own conclusion.

In Favor of Using Your Realtor’s Preferred Lender

A Realtor’s #1 concern is that the transaction gets closed–and on time. There’s nothing worse than having the lender mess up the process so a lose/lose/lose situation is created. If a bank has inept, inefficient, or crazy processing and underwriting so that your loan doesn’t close on time, it can create havoc with your moving schedule and purchase contract. The seller might not agree to extend your contract if there is a higher back-up offer. You could lose out on the house of your dreams; or if the seller agrees to an extension, your moving schedule gets messed up. The real estate agent doesn’t get paid on time, or perhaps not at all if the deal is lost.

Who then could blame a Realtor for recommending a lender he or she knows is efficient and has a history of closing on time?

Against Using Your Realtor’s Preferred Lender

Do you care if you pay hundreds–or perhaps a couple thousand–dollars more for your loan? Do you care if you get the lowest interest rate and lowest monthly payment? Do you care if you pay a boatload of junk fees, thereby perpetuating the problem of lenders taking advantage of unsuspecting and uneducated borrowers?

Just because the subprime era is over, it doesn’t mean there aren’t plenty of rip-offs and over-charges going on, because there are!

Yesterday, I heard from a homebuyer who said he got his mortgage broker to delete $1,558 in stupid junk fees, because he was aware and knew better, thanks to reading Mortgage Rip-Offs and Money Savers. Now he has that much more cash in his wallet he can spend on something new for his house.

Ultimately, It Is On YOU

No one cares about your loan more than YOU. It is  your right and your responsibility to know what is fair, what is an over-charge, and what is easily negotiated. It is up to you who you choose to give your business to, so you need to make an informed and responsible decision.

Maybe your real estate agent’s preferred lender is a great choice. On the other hand, maybe it is an expensive choice. Get a load of this…

In a large training session for multiple lenders, the so-called mortgage guru told the packed-out audience:  “Try to get referrals, because you can charge them more. When a friend or agent refers a borrower to you, they don’t shop and they don’t look at price.”

Having worked in both retail and wholesale lending, having been behind closed doors in sales, underwriting, doc draw, rate lock, and all the rest, I can tell you there are both Mortgage Stars and Loan Sharks out there. It’s a situation of Homebuyers Beware. Choose with your eyes wide open.

As always, I welcome your opinion–whether or not you agree with me. And thank you for stopping by.

* Source: Housing Wire

Legitimate Ad or Marketing Ploy?

~ Carolyn Warren ~ Leave a comment

RadioI was listening to my radio when on came yet another ad by a local mortgage company. Maybe you’ve heard a similar ad and wondered if it was a great company to get a loan from. Or maybe you’re a real estate agent and wondered if this company could get your buyers good financing.

In this ad, the owner of the mortgage company was telling listeners about his fantastic, historically low interest rates and APRs (Annual Percentage Rates). Fine, no problem. But then he capped off the ad by saying, “With us, you never pay an upfront fee!” Like it some kind of unique, special deal: no up front fee.

THE TRUTH: Federal banking law forbids any mortgage lender–including banks, direct lenders, credit unions, or brokers–from collecting any money up front, unless you want them to pull your credit report; and in that case, they can ask for payment for the credit report only (which is normally less than $30).

It is illegal to ask you to pay a few hundred dollars, for any amount whatsoever, for an application fee, processing fee, acceptance fee, or any other type of fee. Other than paying for the credit report, a lender must not ask for any money without first providing you with a Good Faith Estimate.

If you already know your credit score or know that you have excellent credit with at least three accounts on record, then there is no need to have your credit report pulled before you are ready to commit to that lender. If you are shopping for a good loan, do not disclose your social security number or let the loan officer pull your credit.

Ask the loan officer for a Cost Estimate or a Fees Worksheet. It doesn’t matter what they call it, the up front estimate does not require a credit report pull. Before 2010, it was the Good Faith Estimate that was given up front; now it is the Cost Estimate. It’s the same thing, different title at the top of the page. Due to (insipid) federal regulations, lenders were forced to change the title of the upfront estimate. You have the right to receive this without cost, obligation, or credit pull.

The radio ad I heard, the one bragging about “we have no upfront fee” was on Christian radio. So listener beware: just because an ad is on your favorite station, it doesn’t make it 100 percent honest. No upfront fee is the law. Touting it as unique to your company is a marketing ploy. So if you don’t like shady ploys, ignore those ads.

“Is My Mortgage Broker Ripping Me Off?”

~ Carolyn Warren ~ 5 Comments

liarA home buyer gets a new Good Faith Estimate right before closing that is almost $5,000 more expensive than the original GFE. He wants to know if this is legal, or if he’s getting ripped off. Here is his question with my answer.

Q:  We are purchasing a new home.  The builder gives us incentive to use their mortgage broker and lender.  The broker gave us a good faith estimate before the start of building.  This GFE said we would receive credit of about $2,000 to offset the $6,000 origination fee.  Four months later, as the home nears completion, we locked in on a rate.  For some reason, the broker then sends a new GFE.  Pretty much the same as the old GFE, except the new GFE says we would only receive about $180 to offset the $6,000 origination fee.  Is this legal?  Thank you.

A: In my opinion, you are getting ripped-off. However, what your loan officer is doing is 100 percent legal. So yes, he can do that. I’ll explain why, and what you should do about this now.

The so-called credit is actually the YSP (Yield Spread Premium) the lender makes by selling your loan to the wholesale lender. Your loan officer is giving you the YSP as a credit to help pay for their (exorbitant) fees.  The YSP is directly tied to the interest rate. When the interest rate goes down, there is a bigger YSP to credit to you. When the interest rate goes up, there is less YSP money to credit to you.

According to the two GFEs you received from your broker, the interest rate when up significantly in the past four months, and that’s why the credit decreased. But there’s something very wrong here.

First, why hasn’t your loan officer been keeping in touch with you about interest rates as your loan progresses? You don’t suddenly get a $2,000 surprise at the last minute! (Not with a good loan officer.)

Second, why didn’t your loan officer give you a choice between rate and credit? No one in their right mind locks in a rate with a net $5,000 fee. Surely, you did not approve that lock-in!?

The reason your loan officer sent you a new GFE is because the pricing changed so drastically, making it a legal requirement to give you a new GFE disclosure. But that GFE should not have been a surprise. There should have been a discussion and approval by you ahead of time. If not, then this loan officer is one of the types I warn people to avoid in my books.

I can tell you this: No one — and I mean NO ONE that is ethical or reasonable — is selling loans with a $5,000+ origination fee nowadays. And that is what this loan officer is trying to sell you now. That is a rip-off. It is not in your best interest to pay that kind of origination fee. A competitive origination fee would be in the $600 to $900 range, depending on your location. 

You are in the driver’s seat here. You do not have to stand for this bait-and-switch, over-charge. You have options, and it is not too late.

First, you should tell your loan officer that you will not be paying more than $900 in total origination fees. You would like to know if he’d prefer to give you a new rate lock and GFE, or if he’d prefer to lose your business altogether, because you will move on to another lender if you don’t receive an acceptable GFE within the next 24 hours.

There are so many different good, ethical, honest lenders you could go with. There is no reason to pay an extra five grand. There are lenders that can close a purchase loan on a rush basis in three weeks, so you still have time if you act now.

What’s more, when you allow yourself to be ripped-off, you send a message to this loan officer that his tactics work and that he should keep on doing this to other home buyers. Only when we choose to stop accepting high priced loans will the high priced lenders either lower their prices or go out of business.

In your case, it appears that you are not receiving any kind of special deal by going to the builder’s pet broker. You are paying for it with that ridiculously high $5,000 origination fee. That is one of the common rip-offs I expose in my mortgage books.

cover-3d-mortgage-rip-offs.pngBy reading Homebuyers Beware or Mortgage Rip-Offs and Money Savers, you will know how to properly shop for a good, ethical loan officer. You will understand par rate and YSP. You will understand why to ask right up front, “What is par rate?” and “How long is the rate lock you quoted me?” You will communicate to the loan officer by how you speak that you are a savvy borrower who will not be scammed or ripped-off.

I got sick and tired of the lies, junk fees, over-charges, and rip-offs. And that is why I decided to stand up for the American home buyer by writing Mortgage Rip-Offs and Money Savers. Thanks to the American public, it has become the top mortgage book on Amazon — and that means a lot of good folks have become money savers.

Best wishes to you.

Home Buyers: FHA Mortgage Loan Rules Change Today

~ Carolyn Warren ~ Leave a comment

house in country This is no April Fool’s Joke: The price of getting an FHA loan — commonly called a first-time home buyer’s loan — has gone up today.

FHA (Federal Housing Administration) is a government sponsored enterprise that provides money to banks and mortgage lenders. This price increase comes from FHA; therefore, it doesn’t matter which lender you choose, the price increase is now set by federal banking law.

Change #1: Begins April 1, 2013

For all FHA loans with a down payment less than 5% down, the monthly mortgage insurance fee (MI) has increased. Fortunately, it is a small increase of 0.1%. Previously, the monthly MI was calculated at 1.25% of your principal and interest payment. Now it is 1.35%.

This small increase to all home buyers will add up to a lot more profit for FHA, who has been struggling since the mortgage meltdown to be profitable.

Most home buyers taking an FHA loan are putting down 3.5%. That is the #1 attraction to the FHA loan. If you have 5% to put down, you’re going to want to take the conventional loan instead. The only reason a person with 5% to put down would take the FHA loan rather than the conventional loan is if their credit could not qualify for conventional. FHA is more generous with credit requirements.

If your FHA loan hasn’t closed yet, but your loan officer got the FHA case number prior to today, April 1st, then your MI will be at the lower rate of 1.25%.

Change #2: Begins June 3, 2013

This is the biggest and worst change. For a 30-year fixed rate with less than 10% down, FHA will collect the monthly MI payment for the life of the loan.

This means you do not get to cancel the MI fee when you have 22% equity. You could have 90% equity and you will still be paying that pesky MI fee that protects the lender in case you default on the loan.

Setting You Up to Refinance

If you take an FHA loan, it’s like you’re being set up to refinance when you have sufficient equity (and credit) to get into a conventional loan. The problem with refinancing is that there is a cost to getting a new loan and you have to start all over again at the 30-year mark (unless you take a shorter term loan).

If the FHA loan is the only one you can qualify for, then it’s better than missing out on becoming a home owner and acquiring more personal wealth through real estate ownership. However, since you will probably want to refinance or sell in the not-so-distant future, your focus needs to be on paying the lowest lender fees possible.

There are still a lot of needless junk fees being charged today. This is one reason I offer my Cost Estimate/Good Faith Estimate review and consultation service. Just last week, I saved a home buyer $751 in lender fees through this service. So please, do your proper shop-and-compare before committing to any certain lender. And then, if you are buying with the FHA loan, you can be confident you know the rules and are getting the best deal you possibly can.

 

Higher Rate, More Fees For “Service”?

~ Carolyn Warren ~ Leave a comment

money and houseWould you pay a higher interest or more lender fees if you thought you would receive better service during your loan process?

That is the question home buyers were asked in a survey by Carlisle & Gallagher Consulting. People in the 18 to 35 age group said yes, they would pay more for better service.

The two areas of most frustration were (1) slow loan processing, and (2) lack of communication for what was going on with the loan.

As a mortgage industry insider, here is what I’d like home buyers to know.

First, you do not have to pay more for better service. In fact, paying more will not buy you faster processing and more communication. To get better service, you need to choose a better lender.

Second, you will not find out who will give you the best service by asking the question, “Will you give me good service?” Or, “What is your service like?” All salespeople — including loan officers — are going to tell you what you want to hear. Promises of “great service” mean nothing.

Instead, ask specific questions and then listen to your gut instinct. For example, ask, “What is a realistic closing time?” If the answer is more than 30 days, you know this is a lender with slower service than others. If the answer is, “We do 60-day rate locks,” you know this is a lender with slow service who is trying to tell you slow service does not matter.

Another question you can ask: “What is your system for keeping me  updated during the loan process?” The loan officer should give you a clear, specific answer and not dance around the subject. Pay attention to your gut instict.

Another good question: “Will you personally be handling my loan all the way through the process to closing, or do you hand it off to another team member?” If the loan officer tells you the loan is handed off, you know that no one individual is going to care about your overall service, because each team member is responsible for only a small segment. No one individual is responsible for making sure you’re happy. When a loan officer handles the loan from start to finish, that person has a greater incentive to provide timely communication and good service.

Personally, I would never work with an “assembly line” type of lender. Nor would I recommend one.

I am a fan of mid-size and small lenders — both banks and mortgage brokers. I find that on average they close loans faster. But to be fair, it’s not the lending institution but the individual loan officer that makes the most difference. There are also top-service loan officers at large banks, and loan officers who are lazy about service at smaller companies.

A great loan officer — the type I like to call Mortgage Stars in my books — will not charge more for providing the excellent service and communication you should receive.

As always, thank you for stopping by to read my blog. I welcome your opinion, and you’ll find the Comment link at the top of this post.

Forclosure Stopped for 91-Year Old Widow

~ Carolyn Warren ~ 3 Comments

interior Mid-February, I posted about a 91-year old widow who was losing her home to foreclosure simply because her husband died. What happened is that the loan officer who did their reverse mortgage (a program that enables seniors to take cash out of their home equity) wrote the loan in the husband’s name only. Mr. and Mrs. Ogle didn’t understand what was happening, because there was paperwork for each of them to sign. They didn’t understand the consequences. When a reverse mortgage is written in only one spouse’s name, if that spouse dies, the survivor no longer owns the home.

Why would anyone do that? Some loan officers set up the loan for the oldest person so they can get more cash out. In the case of the Ogles, Jeanette didn’t understand that she was signing away the home she had and her husband had paid for and lived in together for over 30 years. And now the lender, Reverse Mortgage Solutions of Spring, Texas, was taking the property and throwing the 91-year old out on the street.

I posted and asked folks to write in a complaint to HUD (U.S. Dept. of Housing and Urban Development.) In addition, the AARP and others protested.

March 1st, Kenneth R. Harney, syndicated columnist, Nation’s Housing, reported that Reverse Mortgage Solutions has had a change of heart about taking away Mrs. Ogle’s home. They said they are now “committed to allow you to remain in your home” and will “take no action to displace you as long as the mortgage agreement… is not in default.” Meaning that as long as she pays the property taxes, all is good.

With a reverse mortgage, there is no payment — the company pays you — so the only way it can go into default is if the property taxes are not paid.

Jeanette Ogle said it was the best birthday present she could receive. She got the good news just as she was turning 92.

Mrs. Ogle said, “I’m on cloud nine. I’m staying put in my house. I don’t have to move. And even though I’m 92, I’ve got all my marbles–so everybody should know I plan to be around for a while.”

You go, Jeanette Ogle! We’re all cheering with and for you!

No Good Faith Estimate Without a Rate Lock?

~ Carolyn Warren ~ 9 Comments

frustrated “I was just pre-approved for my loan, and although I was assured that I would receive a GFE, when I got my paperwork, I don’t have one. Just the lender’s own loan summary form. Two managers told me they don’t give out GFEs until a rate is locked. Isn’t this against the law? This isn’t the only lender that has told me that they cannot provide a GFE without a rate lock,” wrote a savvy but frustrated lady who’s read my books.

Since a lot of folks are hitting up against this brick wall, I thought it best to answer the question for everyone at the same time.

ANSWER

The short answer is yes, it sounds like they are in violation of the law. I’ll explain.

Effective January 1, 2010, a Good Faith Estimate is required to be issued no later than three  business days after the loan officer has received all of the following:

  • borrower’s full names
  • monthly income
  • social security numbers to obtain a credit report
  • property address
  • estimated value of the property
  • loan amount
  • any other information deemed necessary by the loan originator to complete an application

Receipt of the above items are how Federal banking law (HUD) defines a loan application.

From HUD’s Real Estate Settlement Procedures Act (RSPA) FAQ 23:

An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information.

So we see that a loan officer  can issue a Good Faith Estimate without the rate being locked; and in fact, is required to do so. A rate lock is not borrower information required for a credit decision, so there’s no loophole there.

What’s more, a loan officer must not require your signature before providing the Good Faith Estimate, because that might inhibit you from shopping, which you are fully entitled to. Here’s the quote fro the law.

HUD’s RESPA FAQ 31:

…a loan originator may not require a borrower to sign consents to verify employment, income or deposits as a condition of issuing a GFE as such a requirement may inhibit borrowers from shopping for the best loan by leading borrowers to believe that they are committed to obtaining a loan from that loan originator.

THE BOTTOM LINE

If you have provided all the information stated above to complete an application, your lender must either issue a Good Faith Estimate within three business days or deny your application.   If they do not, they are violating RESPA. I suggest you refer them to this blog post with a friendly reminder that they probably don’t want to be reported to HUD (U.S. Dept. of Housing and Urban Development), the legal watchdog that is happy–if not eager–to “follow up” on lenders who violate the law.

ONE LAST COMMENT

Personally, I find the Loan Summary/Cost Estimate Worksheet/Initial Fees Worksheet (whatever your lender wants to call it) to be more revealing and more helpful than the new 3-page GFE that the Feds designed, because they show the breakdown of fees better and include more information (such as total monthly payment and cash to close) than the GFE does.

As always, your comments are welcome.

 

Senior Saves $6K on Reverse Mortgage Fees

~ Carolyn Warren ~ Leave a comment

Richard_Cashman Don’t you just love good news?

I received an interesting telephone call today from a friend and colleague, Mr. Rick Cashman. A senior citizen was just about to sign loan papers for a reverse mortgage when her neighbor happened to see my blog post warning people about over-priced loans and scams. She then clicked on the link, which connected her to my recommended ethical, honest reverse mortgage specialists.

The bottom line to this story is that Rick Cashman’s advice saved her $6,000 in upfront fees. That is huge! Six grand can mean a lot to a senior citizen. What was Rick’s commission for doing this good deed? Zero. That’s right, he helped this woman for free, because she happened to be in a state where he isn’t licensed to do loans.

“I like helping people. It’s the right thing to do,” Mr. Cashman said.

With all the negative news out these days, I thought you’d like to hear a story about one of the good guys, the Mortgage Stars, as I call them in my books.

If you know of someone who is interested in obtaining a reverse mortgage, please make them aware that not all lenders are the same, not all reverse mortgages are the same, and that all loan officers are not the same. When it comes to borrowing money, you must always do a proper shop-and-compare. It just might save you $6,000.

Happy Presidents Day!