Where Do I Sign?

I am a member of a trade group called National Association of Mortgage Brokers (NAMB).  It is an association, like every industry has, that helps to keep the playing field correct and competitive in this market, at least that is my explanation for them.  Recently, laws changed on how appraisals can be ordered for residential home loans.  Something called the Home Valuation Code of Conduct (HVCC) was introduced a bit ago- just a horrible idea and plan.  And it is costing homeowners Billions.  This link takes you to a page that has more detail and a petition provided by the NAMB, if once you realize the negative with this new legislation and want to help us make a change, then please sign!

When to ‘Float’ Your Interest Rate

As a mortgage broker my responsibility to you begins at our first contact, continues through the process and does not end until the house you have chosen is officially yours. I stay involved throughout the entire proceeding, watching the market and advising you to the very best of my ability.
 
When you begin working with a lender and go through the pre-qualification for either a refinance or a purchase, you have the ability – once your loan is approved – to lock that interest rate. The question is always when to lock the rate. No one can answer that with total assurance. It is always possible that, after you have locked your rate, rates may decline which means you locked too early. But maybe just the opposite happens: you choose not to lock your rate and in the next day or so the rates go up and it is a quarter percent more. You cannot go back to the better rate.
 
In order for my clients to make the best decision, I ask them to allow me to be in the driver’s seat on when to lock the rate. I watch the bond market for a curve and when I begin to see a curve develop – either one way or the other – I am able to ascertain whether or not to lock or wait for a better market. Sometimes when the market is very volatile I may choose to lock the rate on a 30 or 45 day lock as soon as a closing date has been set. Loans may also be locked for 60 days and some lenders will even allow us to lock 90 days out. When you are purchasing a property, lenders will not allow you to lock unless you are locking on to an address. In other words, they do not want you to lock a great low interest rate for 90 days and then go out shopping for homes. Their fear is that at the end of 90 days you have either not found the property you want to buy or have decided not to buy at all and cancelled the lock. This means they have taken the amount of your loan off their available line and have not been able to do another transaction with that money. If they are going to lock a loan, they would like the assurance that you intend to close on that loan.
 
My company does not charge to lock an interest rate but I know that several of my competitors do so.  If they locked you into a loan rate, the rates improved and their company did not have the capability to do a float down, they need the money from you to hold you to that loan so you will stay with them. The reasons I do not charge are 1) I want to work with people who want to work with me and 2) I know that the lenders I work with have float down availability. A float down works this way: If we lock an interest rate – let’s say we lock at 5.5% and the market betters to 5.375%. The lender is not going to initiate a float down for you because they are looking at their rate of return and their profit margin. What the lender likes to see is that their profit margin stays the same or improves in a float down environment.
 
The other day I was able to obtain a float down for a client whose rate went from 5.5% to 5%. Unfortunately, this is not something I can do with email so it involved almost an hour on the phone with the lender. The good news is that it did not cost my client a penny but will ultimately save him over $15,000 over the life of his loan. Another friend had a slightly larger loan and I was able to save him over $20,000 over the life of his loan.
 
So there are two things to ask your lender when you are locking your loan.
1.      Are they going to charge you for locking the loan and
2.      Do they have the ability to float it down if the market improves
 
A surprising thing about this business is that it has turned me into a geek – a word I never thought would be applied to me! I spend long hours at my computer reading analyst reports, treasury reports, bond trading information, speculators talk, future earning reports, housing starts, unemployment numbers, LIBOR. But all the time spent enables me to watch for those curves and predict where to place my clients as their closing dates approach. The other day we had a great interest rate for a client – 5.25% – an awesome rate. But the market turned and I was able to float him down to 5%. He did not have to do a thing. And, sure enough, after I did that float down for him and a few other clients I had locked in the pipeline the interest rates began rising. Remember, interest rates move by how the bond and stock markets are doing so I watched the bonds selling off very aggressively one day and I called to initiate the float downs for my clients. The next day interest rates were up by 1/8 to even ¼% on certain programs.
 
So remember those two questions to ask your lender when you are considering a lock:
1.  Are they going to charge you for locking the loan and
2. Do they have the ability to float it down if the market improves
 
You might also ask a third question: Is their lender willing to take the time on the phone to initiate a float down when the market improves?
 
That’s it for now. Thanks for reading!

Adequate Reserves: It doesn’t just apply to Banks

If you’ve been reading newspaper or online articles, you’ve seen the “bank stress tests” and how the government is requiring our lending institutions to have more cash reserves. We are now starting to see the same thing in the mortgage industry relative to second liens. For many of us, coming to the table with 20% down can be a bit of a struggle. So, often my clients will opt to borrow the 80% from one lender (first lien) and then borrow the remaining balance (second lien) required to get to the full purchase price.
 
If you are coming to the table with 20% down, this does not apply to you. For those of us only coming with less, say 5% of the purchase price, this is something that will impact your purchasing power in the future. Second liens at 15% are now looking for six months of available cash (e.g., checking, savings accounts) and will no longer count things like 401ks towards your total liquidity. This means that you will need to have more “liquid” cash available to qualify for this kind of loan product. The message for you? Cash is king at this point, and banks want to see that you have the financial staying power to weather your own personal economic downturn-specifically that  you have enough to pay both your first and second mortgages for six months. 

Speaking about mortgages, I like to read letters that are written in to the Dallas Morning News that Scott Burns answers for them.  He is a financial planner and is a great read and the question this day was about biweekly mortgage payments.  You need to read the article here but I like seeing in print what I have been saying for years validated by some of the industries experts.

Town Hall for Hope

Live Dave Ramsey show that is airing on April 23rd all over the country and the world.  See it at St. Philip’s for free.  Doors open at 6:30 and feed starts at 7pm and goes till 8:30pm

A Great Read

The author of this book did something a bit out of the norm to promote his new endeavor.  He made a commercial, hiring normal folks, to share all the advantages his new book has to offer.  I have my order just waiting in the wings as I’m curious to see what the book will be like.  Strange, the one guy in the ad looks a lot like Steve Martin, but I’m sure that is just a coincidence.  Great 2 minutes to start your week!

Town Hall for Hope

Live Dave Ramsey show that is airing on April 23rd all over the country and the world.  See it at St. Philip’s for free.  Doors open at 6:30 and feed starts at 7pm and goes till 8:30pm

My State of the Industry Views

Many of you have watched me and my life changes over the years.  And I bet a few of you were surprised 8 years ago when I decided to change from fun loving bicycle guy to pencil pushing mortgage guy to 2 years ago opening my own Mortgage Company.  I sure was.  Over that time I have engrossed myself into this industry and it amazes me when I see huge changes like we have coming ahead of us.  Simply put- because of the actions of a few greedy individuals- the housing industry will change and not for the better.
 
There are 2 worlds in mortgage lending- Retail and Wholesale.  I am a Mortgage Broker and work out of the Wholesale channel.  We all deliver our loans to the same place for the most part in Retail and Wholesale- the large lenders that set their standards of underwriting and products via the guidelines of Fannie Mae and Freddy Mac.  Be it Wells Fargo, CitiMortgage, Chase or Bank of America- they all carry the same products and after closing, the loans, for the most part turn into a commodity that can be traded and sold without too much affect on us the home owners.
 
Since home values have dropped in many States- those commodities were not generating the same profit and when you don’t show a profit- folks start asking to see your books.  Hence- where we are today- bad books and deception.  Then came the finger pointing, “it wasn’t us, it was them.”  Sort of reminds me of Adam and Eve in the beginning- if only they would have 1. Stayed away from the darn tree and 2. Owned up for their actions instead of placing blame down the line.  Well- us Brokers are the ones that most have decided can’t defend themselves as well and therefore must be the root of all the problems we have.  Hard for me to understand that- if I am simply approving folks on guidelines for products that Fannie and Freddy created and that the Banks then underwrite and approve- how am I the bad guy again?
 
To save us- the Government has created many committees and they have started to put in place new laws and guidelines that Fannie and Freddy should follow and in turn- so must the Banks.  Potential borrowers are seeing new credit and appraisal actions start to take affect and both are stopping folks from that home loan transaction.
 
Credit:  The other day I was working up a refinance scenario for a friend of mine who we had just closed on their home loan a year ago- let’s call that Before Fallout, BF.  So a year ago this person with a credit score of near 689 was, in the Banks and Guidelines views- A Paper loan without any adjustments to their rate.  Today- After Fallout, AF- they are well below that A paper (with the same rate mind you as BF) and if the market rate for perfect credit was 4.875% that day- they would have gotten a 6.25% rate, after factoring in all the adjustments for risk.  Granted- we need to get the ropes pulled tight- but this is just silly.  It is them making up for past mistakes and looking to gain back as much income (risk) as they can and Mark my Words- this will hinder lending going forward.
 
Appraisals:  Soon I won’t be able to 1. Pick the appraiser to use on your transaction and 2. Have any communication with the appraiser that is picked.  The belief here is when Mortgage Brokers pick and speak with appraisers- we manipulate the market and push the values to what is most needed to make that loan work.  On my web site I list a few trusted appraisers that I have worked with for years, want a challenge? – call any of them and see if you can “manipulate” them into getting you the value you want for your home.  Can’t be done- these guys have licenses and risk all if even one appraisal comes back from a 3rd party reviewer and can either lose their license or go to jail.
 
I want this not to be a grim picture of the 2009 home buying and refinance season- just my views as to what I have been watching.  My belief is that many in power view Mortgage Brokers so poorly- they are looking for any and all ways to make us appear less attractive and to encourage the client straight to the Retail side of the banks.  Currently I am in a great place and have more business than I can keep up with and hope that those oh so powerful folks don’t look for more ways to change that.  Thanks for reading-

I Found this Interesting

Just as Barack Obama plans to unveil plans for banks to offer better mortgage products and rates, in another office, they also have a plan to unveil.  One of my favorite writers is Kenneth Harney.  Below is an article he wrote for the Wall Street Journal.  Scary stuff.
 
By Kenneth R. Harney
Saturday, February 14, 2009; Page F03
It may not be what home buyers, sellers and refinancers want to hear, but they need to know: Fannie Mae and Freddie Mac are ratcheting up their mandatory fees and toughening credit score and down-payment rules as of April 1.

Most major lenders already are pricing in these higher fees, effectively raising costs to borrowers immediately and reducing the impact of housing stimulus efforts from Congress and the Obama administration.
Under Fannie’s and Freddie’s new guidelines, even applicants who assumed that their FICO credit scores would get them favorable rates will be charged more unless they can come up with down payments of 30 percent or more. For example, a buyer with a 699 FICO score who brings a sizable down payment of about 25 percent to the table will be hit with a 1.5 percent “delivery” fee at closing under the new guidelines.
A buyer with a FICO score between 700 and 720 will pay an extra three-quarters of a point. Even someone with a 739 FICO — once considered a platinum guarantee of the best rates available — will get dinged with a quarter-point add-on.

To continue reading the article please follow this link

One of my Groups Writes a Letter

I am a member of an organization known as the National Association of Mortgage Brokers, NAMB.  Our current president wrote a letter to President Obama and I thought I would share a bit.  He basically is looking to help the President learn more about what Brokers do and maybe who to blame for some of this mess we are in.
 
Dear Mr. President:
 
I represent tens of thousands of small business mortgage professionals who are being forced out of business by some of the nation’s largest national banks, lenders and mortgage insurance companies.
 
As you are well aware, this country is experiencing the worst financial crisis since the Great Depression. While your Administration and Congress search to find a solution to our economic troubles, others are conducting a campaign of blame, with the goal of eliminating competition and controlling all aspects of mortgage financing.
 
From the very moment mainstream media first used the words “mortgage meltdown,” mortgage brokers were labeled as the group that inflicted the predatory practices that gave rise to record foreclosures. As a result, mortgage brokers have been subjected to intense scrutiny and consequently over-regulation. Moreover, some of our former wholesale lenders and private mortgage insurance outlets have cut off our source of funds to operate, all under the guise of consumer protection. Make no mistake about it; this campaign to eliminate our profession has absolutely nothing to do with consumer protection. It’s all about market share!
 
Let’s examine the facts.  Brokers have been blamed for putting consumers into predatory loan programs. False! Mortgage brokers never developed one single loan product or program. However, some lenders and banks did, aided by Fannie Mae, Freddie Mac and Wall Street. These same institutions set the guidelines for such programs, without any broker input. Most importantly, mortgage brokers did not underwrite or approve any of these loans. The responsibility for approving loans was that of the banks and lenders.
If we didn’t develop the programs, set the guidelines or approve loans, how could this be our fault?
 
To read more just follow the link

Why are Rates Moving?

We all see the news: the Government is buying Mortgage Bonds to help stimulate one sector of the financing troubles.  So, if they are buying all these bonds, why the up-tick  in rates over the last week?  It is because we have a very conservative Government.  The Fed is buying FNMA 30-yr 5.5% & 5.0% bonds.  In real terms, those are loans with rates between 6-6.5% and are the ones that are the most likely to be refinanced right now.  Given that, it’s probably also why the Fed said they would most likely continue to buy these bonds through June if necessary.  Each time a loan refinances from that group, the Fed gets that part of their investment back.  The government buying this aspect of Bonds might not help to lower our Mortgage rates, but it will put a ceiling on how high rates can go in the near term–and that is good news.