I love social media and technology. Here's a quick presentation I created using powerpoint and slideshare. Let me know what you think!
Mind the Gap: High Balance Loan Amounts are Running Out of Time
August 25, 2011 by Leave a Comment
Conforming and FHA high balance loan limits set to be reduced effective October 1, 2011. Banks and lenders have different cut-off dates in order to assure they're able to deliver loans without being stuck with a "jumbo" loan priced at a conforming rate.
If mortgage transactions are currently taking 30 days to close and mortgage companies are setting their own deadlines to make sure they can deliver before time runs out, borrowers need to act fast IF their loan amount is in the gap between the current and reduced limits. In King, Snohomish and Pierce Counties, loan amounts between $506,001 and $567,500 for single family dwellings will be impacted by reduced loan limits. This post I wrote a few weeks ago contains a complete list of reduced loan limits for conforming and FHA mortgages by county in Washington.
If you are refinancing or buying a home and your loan amount is "in the gap" between current and pending loan limits AND you're closing in late September, contact your mortgage originator as soon as possible to make sure that everything is in place so that your transaction closes in time (which may require closing prior to September 30 depending on your lender's guidelines). Be aware that you will most likely NOT be able to extend your rate lock commitments at the end of September if the loan amounts are in "the gap" range.
If you would like me to provide you a mortgage rate quote for your home located anywhere in Washington, click here.
Chasing Last Week’s Mortgage Rates | How Rates Change
August 23, 2011 by Leave a Comment
Yesterday, a Seattle area homeowner I’ve been providing rate quotes to told me they’d like to lock if they could have the rate quote I provided him last week when mortgage rates were at an all time low. Six months ago, there would be a greater possibility that I would be able to offer her the same rate at the same price as last week prior to the Fed’s ruling on how mortgage originators are compensated (referred to as LO Comp).
LO Comp has done two things:
Using Rebate Pricing to Reduce Closing Cost on your Refi or Home Purchase
August 21, 2011 by 6 Comments
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.
Make Sure Your Loan is Locked
August 19, 2011 by Leave a Comment
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.
Plenty of Economic Reports On-Deck this Week
August 1, 2011 by Leave a Comment
As if waiting to see whether or not our elected officials in Congress can agree on a plan addressing our debt issues, we have several economic indicators scheduled to be released this week that have historically impacted the direction of mortgage interest rates. The DOW started off very positive (up 139) anticipating a deal had been reached, only to dramatically tank when the lowest ISM Manufacturing figures in two years were released this morning. The market has been very volatile and remember, “typically” when the stock market is tanking, mortgage rates tend to improve as investors will trade stocks for the safety of bonds (like mortgage backed securities). The reverse is also true.
Self Employed Borrowers should seek an Experienced Mortgage Professional
July 18, 2011 by Leave a Comment
I recently closed a transaction for a nice couple who buying a home in Edmonds. They had been working with a large bank for almost a month and they were not able to provide loan approval. My clients forwarded me their loan package from this bank and it was amazing to see what a poor job they did completing the loan application. So much information was missing or miscalculated with their incomes. After reading this article in the Seattle PI stating that 25% of loan applications taken by large lenders were declined, I have to wonder how many of those applicants are self-employed borrowers in the same boat as my clients? I would also love to know the experience levels of the mortgage originators who were ap-takers trying to originator those declined loans. I'm coming to the conclusion that many mortgage originators, processors and underwriters heavily relied on stated income loans for self-employed borrowers because they were easier to process.
Determining income of self-employed borrowers is not as easy as someone who has a fixed annual salary; but it doesn't have to be that hard! Stated income or low doc loans, which were created for this type of scenario, are gone. There is more documentation required, including a minimum of two years tax returns (business and personal) with all schedules. Lenders are looking for trends that your business and income are steady or improving. Be prepared to provide plenty of documentation.
If you work with a mortgage professional who is experienced with reading tax returns, you're going to have much better results. I think it also helps to work with someone who has underwriters on location. It seems like many of the larger institutions have pooled processing and underwriting that is often not located at the mortgage originators location. If exceptions are needed, it's not unusual to find management (if not the processors or underwriters) located out of the area.
As a Correspondent Lender, our processing and underwriting are done under one roof at our main office in Kent. I've worked with our lead underwriter for over eleven years at Mortgage Master Service Corporation. If you're self employed, I'd love to help you with your next mortgage for your home located anywhere in Washington.
The Difference One Dollar Makes: Conforming vs Jumbo Rates
July 14, 2011 by Leave a Comment
This morning via Twitter, Talon Title asked me what the difference in rate is between a conforming and jumbo mortgage. Currently, as of October 1, 2011, the jumbo loan limit is set to be reduced unless Congress passes an extension. In the Seattle area, the loan amount for jumbos will be anything over $506,000 (currently the loan limit is $567,500) for a single family dwelling. Ben Bernanke has stated that private banking will step in to finance these borrowers needing a mortgage over the conforming loan amounts…this is at a price. He doesn't feel this will squeeze those borrowers out of the market. I wonder if this will squeeze more buyers into adjustable rate mortgages.
Here's the difference in rates based on current pricing (as of 8:30 a.m. on July 14, 2011) with 740+ credit and an 80% loan to value. We know the difference in the greater Seattle area between a jumbo and conforming rate will be $61,500 in down payment or equity.
Conforming loan amount of $417,000 or lower.
30 Year Fixed: 4.500% (apr 4.602).
5/1 ARM: 3.000% (apr 3.292). With 5/2/5 caps, this product is fixed at 3.000% for 60 months (P&I $1686) and then may adjust up 5% to 8.000% at the 61st payment (P&I $2744) or as low as 2.25% (P&I $1114). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8% or lower than 2.25%. Based on a $400,000 loan amount.
Conforming High Balance loan amount of $417,001 to $567,500 (for King County, Snohomish County or Pierce County).
30 Year Fixed: 4.625% (apr 4.602).
5/1 ARM: 3.875% (apr 3.912). With 5/2/5 caps, this product is fixed at 3.875% for 60 months (P&I $2379) and then may adjust up 5% to 8.875% at the 61st payment (P&I $3786) or as low as 2.75% (P&I $2102). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8.875% or lower than 2.75%. Based on a $506,000 loan amount.
5/1 ARM: 2.875% (apr 3.231). With 5/2/5 caps, this product is fixed at 2.875% for 60 months (P&I $2099) and then may adjust up 5% to 7.875% (P&I $3420)at the 61st payment or as low as 2.25% (P&I $1953). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 7.875% or lower than 2.25%. NOTE: 5% additional down payment (75% LTV) is required for this scenario. Based on a $506,000 loan amount.
Non-Conforming – Jumbo loan amounts $567,501 and higher (until October 1, 2011).
30 Year Fixed: 5.250% (apr 5.371).
5/1 ARM: 3.875% (apr 3.904). With 5/2/5 caps, this product is fixed at 3.875% for 60 months (P&I $2669) and then may adjust up 5% to 8.875% at the 61st payment (P&I $4246) or as low as 2.75% (P&I $2358). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8.875% or lower than 2.75%. Based on a $567,501 loan amount.
Let's pretend that it's October 1, 2011 and that the changes to conforming loan limits are in place and somehow, mortgage rates are exactly the same as what I've quoted above.
The difference between the conforming high balance and jumbo rates are currently 0.625% in interest rate with the 30 year fixed mortgage. A loan amount of $506,001 or more (proposed future jumbo) would have a $193 higher mortgage payment with the jumbo rate over the conforming high balance based on rates above.
Are people going to stop buying homes that are in the current conforming high balance price range? I don't think so… I do think that when the conforming loan limits are reduced later this year, it will cause some to select mortgage programs they might not have considered such as adjustable rate mortgages or piggy-back second mortgages. It seems to me that Congress should allow the temporary higher loan limits to stay in place until housing becomes more stable. There was some discussion during testimony yesterday by Congressman Miller in California, however as I mentioned, Ben Bernanke doesn't seem to think that the reduction in loan limits will impact housing significantly. We'll know more in a few months…and don't forget, Fannie has issued "warnings" via their FAQs that we may see loan limits further reduced effective January 1, 2012.
Just for fun… since we're pretending to be in the future, here's a trip down 80s memory lane:
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