Lenders Increasing Extension Fees

I’m receiving notices from a couple  of the lenders we work with that they are temporarily increasing rate lock extension fees due to Fannie Mae’s increased guarantee fees (LLPA) that will hit us in 2014.  An extension fee is an additional cost that may be charged in order to keep a rate locked when the rate lock is expiring.

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Major Bank Jacks up the Cost to Extend Rate Locks

When a mortgage rate is locked, it’s committed for a certain period of times, such as 30, 45 or 60 days. When a mortgage refi or purchase that has been locked does not close by that date, the lender may charge a fee to extend.  The fee is essentially the cost to buy additional days to add to the original lock commitment. 

I just received this notice from one of the lenders we work with that they’re dramatically increasing their extension fees and, even worse, they’re only giving us ONE DAY’S NOTICE!  Kind of stinky if you ask me. This is the same bank that increased their fees just over a month ago.  The bank is doing this as a result of the 0.10% increase to G-Fees by Fannie Mae and Freddie Mac.

Extension Fees 001

Thankfully we work with several lenders and we’re not limited to only working with this bank.

More often than not, it’s better to error on having a longer lock period than a shorter one and paying for an extension.

UPDATE: Another bank just announced they are increasing their pricing by 0.500% basis points to their rates (not extension) as a result of the “G Fees”.

Tis the Season for Vacations

Many families are squeezing in a vacation during the remaining days of summer. I can’t blame them, I’m just back from one myself! If you are in the mortgage process, it’s critical that your let your mortgage originator know of any vacation (or business travel) plans. 

If you’re going to be in a spot where you can receive important documents and respond to emails, it may not be a huge issue. If you’re going off the grid, it may impact your rate lock commitment if your loan is currently locked. Your mortgage originator will need to price out a long enough lock period for your loan (if you’re locking) or you may opt to float and not lock in the current rates available.  And of course, if you run out of time with your lock, the rate lock commitment may be extended

Another factor is signing your final loan documents. Escrow companies can email (I do not recommend sending final docs via email) or send your loan documents via something like FedEx or UPS. This can be a bit risky as well as if a signature is missed or something is not notarized properly, your transaction may be delayed.

The more notice you can provide your mortgage originator about vacation or business travel, the more time they will have to prepare your options for the mortgage process.

Major Lender Increases Cost to Extend Rate Lock Commitments

Yesterday we received a memo from one of the big 3 banks notifying us of an increase to extension fees on all conforming mortgages on locks effective August 9, 2012 by 0.125%.  An extension fee is an additional cost associated with extending the rate lock period of your mortgage loan. For example, if your loan is locked for 30 days, and it takes more than 30 days to close the loan, there will more than likely be a fee to extend the rate lock commitment long enough to close the transaction. Just like a rate lock, the longer the time period that is needed, the higher the cost is. It is typically more cost effective to have a longer lock period than to pay for an extension.

Each lender we work with has their own rate lock and extension policies.  Here is what it cost to extend with this lender:

It’s important to note that this is NOT Mortgage Master Service Corporations general extension fees. We work with several lenders and what ever their fees are to extend are passed on to the transaction. One lender that we work with currently offers extensions on a daily basis (instead of blocks of time) so at a cost of 0.025% per day. If we only need 5 days for an extension, the cost would be 0.125%.

Everyone likes to keep cost down and avoid extension fees. This is why it’s critical to provide your mortgage professional with requested documentation promptly, especially once your loan is locked.

The 10 Factors of Pricing a Mortgage Interest Rate Quote

As an established Mortgage Originator in the greater Seattle area, I’m often asked “what are the current rates” and that’s often answered with “that depends”.  

Mortgage rates have layers of risk factored into them. Fannie Mae refers to them as LLPAs (Loan Level Price Adjustments). 

When I’m pricing a rate quote, I use our pricing engine which sorts through all the lenders we work with and provides their current pricing based on the criteria I enter. The different lenders we work with may have better pricing based on various price points.

Here are some of the required criteria I need to consider before I’m able to produce live rates for my quote:

  1. loan amounts for the first mortgage and (if applicable) second mortgage or heloc balance
  2. estimated value of the property or sales price
  3. purpose of the loan (is it a purchase, refi, cash-out refi, etc.)
  4. occupancy (primary residence, second home or investment property)
  5. estimated mid-credit score
  6. property type (detached, condo, 2-4 plex, et.c)
  7. loan type (conforming, jumbo, fha, va, usda, etc.)
  8. loan term/amortization (30, 20, 15, etc.)
  9. amortization type: fixed or adjustable rate (arm)
  10. lock period (when is the transaction anticipated to close)

Any of the above factors can impact how a rate is priced. Add to this criteria that we’re dealing with live, changing pricing that is impacted by mortgage backed securities (bond markets). There also may be bank pricing overlays or special programs, like HARP 2 or Fannie Mae Homepath.

When I post live rate quotes on Twitter, I do my best to provide as much information as possible so my “followers” can get an idea of where rates are heading and what the factors were to to the quote posted while remaining “generic”.  A borrower with a 719 credit score will most likely have a different rate than a borrower with a 720 credit score depending on loan to value and program type.  A condo with 20% down is different than a townhouse that is not legally described as a condo.  And this morning’s rates may not be the same as this afternoons.  

This is why rates that are “static” (advertised in print or other media that is not live, like tv or radio commercials that are recorded in advance) are not reliable, considering how often rates may change during a day.  Static rates you see posted on a website – especially if these rates do not refer to the terms that factored into arriving at the quoted rate, may not be reliable either. If a mortgage originator blurts out a rate over the phone without having the 10 points of information I’ve listed above, that rate is probably not accurate.

This is why when a potential client requests a rate quote, I gather the 10 points of information listed above and provide them a detailed quote, which includes apr and all closing cost associated with the transaction.

Click here if you would like me to provide you with a mortgage rate quote for your property located anywhere in Washington state.

Related post:

Do I have the best rate possible?

Using rebate pricing to reduce closing cost.

Do I have the best rate possible?

One of my preapproved first-time home buyers asked me if they have the “best rate possible”.  The phrase “best rate” can mean different things to different people, in my opinion, the most common definitions to a borrower would be:

  • best rate possible based on qualifying; or
  • lowest rate possible based on current market pricing.

Best rate based on qualifying means that your credit scores are as high as they can possibly be and you’re putting enough money down (or have enough equity) to where there are as few price adjustments to your scenario.

With FHA loans, there are no price improvements after a credit score of 720 or higher. There is a slight improvement to mortgage insurance premiums with FHA at 5% down. With FHA a 720 score with 5% down will provide you the “best payment”.

With conventional financing, you can see by Fannie Mae’s chart below that there are different price adjustments based on credit score and loan to value. The best pricing on this chart is with 40% down (or equity) with credit scores of 700 or higher. There are additional charts for conventional depending on program features, such as an adjustable rate or the Home Affordable Refinance.

FannieLLPA

Below is a chart from a lender showing various adjustments based on program, credit score and loan to value.

LenderPricing

If you’re interested in obtaining the best rate possible based on qualifying, consider starting the preapproval process very early so that you have time to work on your credit, debts and/or down payment. I enjoy helping my clients develop a plan to put them in best possible situation based on their scenario. Sometimes this may take a month or two and sometimes it may be a year or more, depending on what my clients situation is.

Best rate based on pricing may be the very lowest rate available at that moment, which would take paying additional discount points and would increase your closing cost. Some might think “best rate” is lowest rate at the least amount of cost (par pricing or using rebate pricing).  Whether you want your rate priced with discount (higher fees/lower rate) or rebate credit to pay for closing cost (lower fees/higher rate) is up to the borrower. 

Keep in mind that mortgage rates are a moving target, much like buying stocks. Rates often change several times a day. A mortgage interest rate is only secure once it is locked. Once you pull the trigger to lock in a rate, rates may improve or deteriorate. You can lock in a rate once you have a signed around contract with a specific closing date if you’re buying a home. If you’re refinancing a home, you can lock in whenever you know what your approximate closing date should be.

Mortgage originators are restricted from advertising that they have the “best rate” since this is something a lender cannot guarantee. It’s impossible to know what all our competitors are currently offering in pricing and therefore, no lender can truly say they have the “best” or “lowest” rates.

As a correspondent lender, we work with several banks and lenders and utilize a pricing engine which compares their mortgage rates based on a borrower’s specific scenario so that we can select who has the most competitive pricing at that time available to our company for that borrower.

If you’re considering buying a refinancing a home anywhere in Washington, from Redmond to Walla Walla (and everywhere in between), I’m happy to help you with your mortgage needs. Click here for your personal rate quote.

Using Rebate Pricing to Reduce Closing Cost on your Refi or Home Purchase

Mortgage rates are priced with rebate, a credit towards closing cost, or discount points, an additional cost paid to reduce the interest rate (Note rate).  The amount of the rebate or discount is based on a percentage of the loan amount. The difference in pricing (rebate or credit) varies throughout the day, just as mortgage interest rates change. In fact, it’s not so much that the mortgage rates change throughout the day, it’s actually the cost or credit associated with that rate.

Here’s an example of pricing from earlier this month. I’ve removed the interest rate column as what I’m most interested in illustrating to you is how rebate or discount pricing works. I’m happy to provide you with a current rate quote based on your personal scenario for your home located anywhere in Washington.

Rebate
The loan amount used in the above figure is $400,000 and when I priced this scenario, the borrower had the option of using just about any of price points (rebate or credit above) as long as they could document they had the funds to pay for additional discount points to buy down the rate or receive as much rebate as long as the rebate did not exceed the allowable closing cost, prepaids and reserves (rebate may not be paid to the borrower as cash).

Each line above is a difference of 0.125% in rate. For example, based on the above scenario, a borrower could opt to pay 0.128% in discount points ($512 more in closing cost) in order to have a rate that is 0.125% lower than the rate priced with a rebate credit 0.357% of the loan amount (receive a credit of $1428 towards closing cost). It’s the borrowers choice.  The difference in mortgage payment for this scenario is roughly $30. The difference in closing cost between an 0.125% in rate with this scenario is $1940. Would you rather have a mortgage payment that’s $30 less or spend $1940 less towards closing cost. The answer totally depends on your personal scenario.

Rebate pricing works nicely with a refinance scenario since it helps the homeowner break even on closing cost much quicker.  With how low rates are today, many may decide they would like to have their rate priced with enough rebate to cover all of the closing cost and are still dramatically reducing their mortgage payment.

This also works with purchases and if a home buyer is receiving a generous contribution towards closing cost from the seller, they may opt to buy the rate down with discount pricing.

Here’s some background information on mortgage rates. It used to be that rates were generally priced with either a flat 1% or 1.5% or zero points, however, since the Fed rule on Loan Officer Compensation, this is no longer the case. Borrowers now have rebate or discount pricing and the mortgage originator’s compensation is divorced from the rate or closing cost fee equation. The Fed no longer allows mortgage originators to have any influence on pricing on the rate, including contributing any of their compensation to the borrower.  In the scenario above, pre “LO Comp” it was not uncommon for me to pay for a small discount, such as the 0.128% fee in order for my client to have a slightly lower rate – often times, I did this without ever letting my client know. The Fed Rule prohibits this. 

When or if you do request to a rate quoted with “no closing cost” please understand that your quote indeed will have closing cost along with an amount of “rebate credit” to off-set those fees. You’re paying for the reduced closing cost with a higher rate than a quote priced without as much rebate.  This is actually nothing new, banks and mortgage companies have tried to promote they offer no cost loans when odds are, their rates where higher to absorb the cost.  I’ve written about that a few times here.

Bottom line, I want you to know that how your rate is priced is really up to you.

I’m happy to provide you with a rate quote, with our without points or with rebate pricing, for your home located any where in Washington state.

Make Sure Your Loan is Locked

I’m taking a few days off and thought I’d share an post I wrote a few years ago (April 2008) at Rain City Guide.  It’s interesting how much higher the rates were back then. You can read the original post here

I’ve been communicating with a home owner who thought their loan was locked in at a certain rate only to learn that this is not the case.   Here’s their story:

Their existing ARM reset in March.   In late February, they informed the LO they wanted to lock at  5.5%, no points, 30 year fixed, and close before April 1 and the LO said it was reasonable and doable.  The appraisal was complete in late March with a LTV 79%.  The LO did not lock in at that time.   The LO presented a GFE 55 days after the application was signed and not the program that was agreed on…the LO admits he dropped the ball but cannot fix it with his bank.

Ouch.  Big ouch. 
Part of the problem that I can see by reviewing rates I’ve posted is that in late February (at least on Fridays) rates where in the high 5’s with 1 point.  So a borrower could easily tell a Loan Originator, “this” is the rate I want you to lock me in at…and if that rate does not happen at that time, the LO will most likely not lock the borrower since this is what the borrower has instructed the LO to do.
 
For the LO to tell these borrowers “reasonable and doable” was a stretch. Reasonable, maybe but in this current market when we’re averaging two rate sheets/changes a day: almost anything and nothing may be reasonable and who’s to say what’s doable unless you’re the dough fronting the mortgage.  The appraisal should not have been ordered without the borrowers consent.  The LO could have easily told the borrowers, your rate has not become available, should we order the appraisal (worse case, borrower is out a couple hundred dollars) or would you like to wait to see if your rate becomes available?   The Good Faith Estimate being presented almost two months of application is inexcusable.  
Hindsight is so clear and you can see the warning signs about this transaction skidding down the wrong track. So what can you do to try to make sure your loan is actually locked?
 
Obtain a written Lock Confirmation.   Your lock confirmation is not a guarantee.  I’m sorry…I wish it were.  If the information you provided on your application, your credit scores change (expired credit report), the appraisal comes in lower; may impact your interest rate and thus the lock.   Once you request a lock from your LO, or they say your locked, get it in writing!   If you don’t receive a Lock Confirmation by the following day, contact your Loan Originator to find out when you will have one. 
 
I have recommended that this couple contact the LO’s supervisor…but here’s the challenge:
 
If the LO told them they were indeed locked, the bank might try to honor (eat) the lock, as they should.  Based on today’s pricing, buying that rate would cost an additional 2 points.  However, without documentation of any sort (no email or lock confirmation), it will be challenging to prove that the LO promised or committed to this rate.  It’s your word against theirs.   If the borrower stated, I want “x” rate at “y” cost and these factors never happened…the Loan Originator is off the hook.  The LO cannot provide what is not available (specific rate/cost).   It’s an expensive lesson.
 
But what if the borrowers rate/cost was available and the LO committed to locking in that rate?  Mind you, rates can and do change even while they’re being locked–which is very frustrating.  In that case, the LO should contact the borrower immediately to let them know there’s been a change for better or worse (usually better is no problem).   Again, assuming the rates available and the LO either screws up and doesn’t lock the rate or tells the borrower it’s locked when in reality the LO is “gambling” the market.   What can the consumer do if they discover their rate was never locked?  I contacted fellow RCG contributor and attorney, Craig Blackmon regarding if there’s any recourse for someone with an unhonored written lock confirmation (assuming the program is still available and the other factors I mentioned above that may impact a lock):
 
Here’s Craig’s answer:
 
That would depend on the “written lock confirmation.”  If that document constitutes a binding contract, then yes the borrower would have a breach of contract claim against the party to the contract for the difference between the promised rate and the actual rate.  Even if the document does not constitute a contract, the borrower might still have a negligence claim (i.e. a malpractice claim) against the LO if the LO failed to exercise a reasonable degree of skill and care in attempting to lock in at the promised rate.  In either event, the borrower’s recourse would be against the LO (I think — again, I would need to see the “confirmation” to confirm in regards to the breach of contract claim).  
Bottom line, be sure to get documentation of your lock in writing.   Lenders should provide lock confirmations with an updated Good Faith Estimate if the rate or cost have changed from the last one provided.  If something smells fishy and they’re no cooperating or stalling, it’s probably shark.  Oh…and last but not least, I don’t recommend chasing a rate.  If you like the rate, lock it or be prepared to lose it.
 
UPDATE AUGUST 2011:  Once a good faith estimate is issued (since 2010), a bona fide “changed circumstance” is required before a loan officer can reissue or update it…locking your loan (going from a float to a lock) is considered a “changed circumstance” and if a Good Faith Estimate has not been issued, one is required within 3 days.