Marc's Mortgage Matter's

Locking in a mortgage rate gives borrowers some protection from sudden spikes in interest rates, which not only helps them save money over time but also provides peace of mind. 

The credit crisis hasn’t removed this option — mortgage lenders, brokers and bank loan officers will still freeze rates on a loan. But borrowers looking for such guarantees these days face more hurdles and higher fees, especially if they need to lock in a rate for more than a month.

The shift is part of the industry’s more conservative business approach. Only a few years ago, during the last ‘refi’ boom, lenders were locking in people willy-nilly, no questions asked. But things have shifted, because lenders are more attuned to the bottom line.

Indeed, before the credit crisis, lenders were doing such brisk business that many of them seemed to care little if they spent time working on a loan that ultimately fell through. But because lending standards were so liberal, few loans actually did.

Loan officers will more carefully scrutinize applications now, to ensure that borrowers can qualify for a loan. Nowadays,a high percentage of people don’t have the income or assets or equity in their homes to qualify for a mortgage. Before the credit crunch, an oral estimate of borrowers’ earnings and home values was often enough for many lenders and brokers.

The cost of a rate lock is usually built into the lender’s fee, which is expressed in “points.” An up-front charge, a point is equal to 1 percent of the loan amount. For a 30-year mortgage of $250,000, for instance,  borrowers with good credit would have received an interest rate of 5.125 percent earlier this month and would have paid a point, or $2,500, to lock that rate for 30 days.

Thirty days is usually enough time for borrowers and lenders to compile and process the documents needed to complete a loan. But more complicated loans, like those involving co-ops, can often take longer. This is also the case, for so-called consolidation and extension mortgage agreements (mortgage tax in the five Boros), used by those who are refinancing their loans.

Some lenders recently started charging an extra half point to lock a rate beyond 15 days on refinance loans, and an extra point to lock a rate for 45 days.

And if rates happen to fall while the application is being processed? Borrowers are still required to accept the rate they locked in, but often we could renegotiate the rate. They can go elsewhere, and forfeit any fees already paid, but in the current economic climate, there is absolutely no guarantee that their new application will get approved!

Nothing you have acquired is real unless you worked for it. If you were born a nice guy, the niceness isn't yours. If you started off not so nice, and now you do a little better, that's Divine.

He went to the doctor and the doctor was able to have him fitted for a set of microscopic hearing aids that allowed him to hear 100% perfectly.

He went back in a month and the doctor said, “Your hearing is perfect. Your family must be really pleased that you can hear again.”
The gentleman replied, “Oh, I haven't told my family yet. I just sit around and listen to the conversations. I've changed my will three times!”

Where is the “smart money” going these days? If you believe that debt is being nationalized around the world, increasing its percentage of GDP’s to take it off the consumer’s back. That shifting the leverage to government balance sheets will be a drag on the world economy for years to come. That corporate earnings are heading down, since they no longer have the leverage available to them to increase their income. That forcing banks to lend money on assets that may depreciate just leads to outcomes like we are enduring now. That besides refinancing mortgages, most consumers would be better off reducing their debt, not increasing it, and will be better off spending less and saving more – and this will take years. If you believe all that, please let me know where to put my money, because I sure as heck don’t know.

Weekly Lesson:

In traditional capitalism, you have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

In American capitalism you have two cows. You sell one, and force the other to produce the milk of four cows. You are surprised when the cow drops dead.

In French capitalism you have two cows. You go on strike because you want three cows.

In Italian capitalism you have two cows, but you don’t know where they are. You break for lunch.

In Real capitalism you don’t have any cows. The bank will not lend you money to buy cows, because you don’t have any cows to put up as collateral.

In Enron Capitalism you have two cows.
You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. Sell one cow to buy a new president of the United States, leaving you with nine cows. No balance sheet provided with the release.

The public buys your bull.

In Californian Capitalism you have two cows. They are happy.

In Arkansas capitalism you have two cows. That one on the left is kinda cute…

As mortgage rates hit new lows every week, the number of homeowners seeking to refinance their homes has spiked to its highest level in five years. However, many have been unable to win approval for their applications. And even some of the homeowners who do qualify have backed off, once they found out how difficult it was to get the advertised rate.

So what should be a bright spot in an otherwise dismal economy — throngs of homeowners locking in low, fixed-rate mortgages that will free them up to spend elsewhere — threatens to become another example of how even the best government intentions do not always pan out.

That was the case when the government, through its Troubled Asset Relief Program(TARP), started pumping money into banks with the goal of shoring up their balance sheets and spurring lending. And it appears to be happening again as the Federal Reserve buys up mortgage securities. The Fed is pushing down interest rates, but that has not been enough to bring the housing market back to life. 
 
While rates are falling, borrowers face higher costs every step of the way, from rising fees for mortgage insurance to added costs that drive up the mortgage rate. At the same time, lenders have become more cautious about whom they will lend to, as more people lose their jobs, watch their incomes decline and fall behind on their bills. One of the biggest stumbling blocks for many people is their plunging property values, which have erased all or most of the equity in their homes. Others cannot meet the increasingly stringent credit requirements, which either disqualify them or increase their costs. 

On top of that Fannie Mae, and Freddie Mac, the two big mortgage guarantors now under government control, have raised the fees they charge lenders on loans that they insure or buy. Those fees — in part the result of the two agencies’ losses in the housing market — are passed on to borrowers, with Fannie’s latest increase about to go into effect. While the agencies have always charged more for mortgages for riskier borrowers, their fee structure has steadily risen over the last year. Applicants with credit scores above 720 and equity of more than 20 percent in their homes still generally escape these fees. Other applicants may qualify for refinancing but must pay the higher costs.

All borrowers pay a fee known as an “adverse market delivery charge” of 0.25 to 0.50 percent of the loan amount. Fannie, for example, also imposes a fee of 0.75 percent on owners of a condominium or cooperative apartment with less than 25 percent equity. Borrowers with a home equity loan or line of credit may pay another Fannie charge of up to 0.50 percent, depending on a variety of factors. And borrowers who want to take cash out of their homes when they refinance — if they have enough equity — are charged a fee ranging from 0.25 percent to 3 percent of the loan amount, depending on their credit score and amount of home equity. Borrowers have a choice of either paying these fees upfront or wrapping the fees into their mortgage rate. 

Many borrowers with less than 20 percent in home equity have had better luck getting loans or refinancing through the Federal Housing Administration, which insures lenders that make loans that meet its guidelines. F.H.A. loans require as little as 3.5 percent down, though borrowers pay slightly higher interest rates, as well as an upfront mortgage premium of 1.5 to 1.75 percent. For some borrowers, F.H.A. loans have become a more cost-effective option. In fact, F.H.A. loans now account for 20 percent of outstanding mortgages, up from 3 percent in 2006. 

I have joined Wall Street Mortgage Bankers aka Power Express. They will be underwriting our loans and handling all financial issues pertaining to the actual mortgage closing and funding. You will see no other change on my end other then stress-free conditions, swift commitment and rather fast closings. Of course if you have a complicated situation you may encounter some stress. ;)

Power Express began in 1976 as a privately held mortgage company and has only grown over the years. With lots of change over the years they have weathered, and proven very stable and proactive in what they do best. I believe with my clients and borrowers needs foremost in my mind, this was the best move with the mortgage financing landscape the way it is.

The FBI now says that 80% of the crime in the U.S. is being carried out by ruthless gangs... But enough about Citigroup, Bank of America and Goldman Sachs.

When a community builds a concrete pier into the ocean, eventually the tides prove stronger, and unless it is maintained, the pier is eventually taken under by the tides. Is this happening with the Fed trying to artificially spot mortgage rates, in the face of market forces? Ever since the magical 4.5% mortgage was “targeted”, rates have moved up, and we now find ourselves at 6%.

No one is arguing that the economy is weak, so what is holding rates up? Increased borrowing by the federal government to fund stimulus packages has helped drive underlying Treasury yields, and to some extent mortgage rates, higher. And no one knows what will happen when the music stops, i.e., when the Fed stops buying MBS’s (mortgage backed securities), yikes!

Yup I know what you're thinking. Many neighborhood banks and lenders are offering 5% or lower deals 'n all. I've tried them myself, most are not approving the loan(s) in the end of the day, and most borrowers end up paying higher rates for a zillion various excuses.