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.
Using Rebate Pricing to Reduce Closing Cost on your Refi or Home Purchase
August 21, 2011 by 6 Comments
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:
Happy Independence Day
July 4, 2011 by Leave a Comment
Mortgage Master Service Corporation is closed today in observance of Independence Day. With the beautiful sunny weather we're celebrating freely, I hope you and yours have a fun, safe and sane holiday.
Should You Pay Your Mortgage Off Quicker
July 1, 2011 by Leave a Comment
Earlier this week, The Seattle Times published with tips for "paring down your mortgage" siting that many home owners are opting to pay off their mortgages quicker:
The portion of borrowers refinancing in January who took 15-year mortgages rose to 29 percent from 11 percent two years earlier, according to the most recent data available from CoreLogic, a real-estate information firm in Santa Ana, Calif. Mortgages with 30-year terms accounted for 52 percent of refinancings in January, down from 80 percent in January 2009.
The share of cash-in refinancings reached a record 44 percent in the fourth quarter, according to data from Freddie Mac dating to 1985. While the share fell to 21 percent in the first quarter as mortgage rates climbed, it was almost double the quarterly average over the past 26 years.
I've noticed a much healthier, financially responsible "attitude" with my clients over this past year. Instead of home buyers wanting to know "how much" they can buy, they want to know what a certain payment will qualify them for. There's a definite trend where folks are buying less than what they could be preapproved for.
Many are considering shorter terms, as the Seattle Times article mentions, including the 15 year and 10 year amortized mortgage (which is being heavily advertised on the radio). I caution to make sure you have plenty of reserves if you opt for a shorter term mortgage…you can always pay shorten the term of a 30 year mortgage and have the flexibility of only making the 30 year amortized payment; but should you find yourself needing more cash flow in the future, you cannot make a 30 year payment on a 20, 15 or 10 year amortized mortgage. And should you find yourself in a financial squeeze in the future, you may not qualify to refinance into a longer term.
30 Year Fixed: 4.625% (apr 4.790) with a principal and interest payment of $2057.
20 Year Fixed: 4.500% (apr 4.679) with a principal and interest payment of $2531.
15 Year Fixed: 3.750% (apr 3.995) with a principal and interest payment of $2909.
10 Year Fixed: 3.500% (apr 3.808) with a principal and interest payment of $3955.
The savings over the life of the loan is great…but if you're having to refinance to obtain cash back or to reduce your payment or if you're relying on your credit cards, you may want to seriously consider a longer term mortgage. You can reduce the interest you pay by making additional payments towards your principal.
Cash-in refinances are continuing to be popular as many home owners are wanting to take advantage of the lower rates that are available with conforming and conforming high balance loan limits. This has become more of a phenomenon with the loan limits set to be reduced from $567,500 to $506,000 as of October 1, 2011 in the Seattle area for both FHA and Conforming loans and possible reduced lower effective January 1, 2012.
Here's an example of the difference between current conforming high balance and jumbo mortgage rates with a 30 year fixed in greater Seattle:
Conforming High Balance loan amount of $567,500: 4.750% (apr 4.871) principal and interest payment of $2,960.
Non-Conforming Jumbo loan amount of $567,501: 5.375% (apr 5.486) principal and interest payment of $3,178.
With a cash-in refinance, it's important to weigh the lost opportunity of the cash you're investing into your home (you may not have access to it for quite a while) along with the monthly savings of the refinance.
Adjustable rate mortgages are also gaining in popularity. If you're not planning on retaining your home for more than five years, it's worth at least comparing the savings. However if the idea of having a mortgage that will adjust in five, seven or ten years makes you uncomfortable, then you should stick with a fixed rate product.
10/1 ARM: 4.125% (apr 3.911). Interest rate fixed for 120 months with caps of 5/2/5 and a principal and interest payment of $1,930. The highest the rate can adjust on the 121st payment is 9.125% and the lowest is 2.25%.
7/1 ARM: 3.625% (apr 3.537). Interest rate fixed for 84 months with caps of 5/2/5 with a principal and interest payment of $1,852. The highest the rate can adjust on the 85th payment is 8.625% and the lowest is 2.25%.
5/1 ARM: 3.250% (apr 3.359). Interest rate fixed for 60 months with caps of 5/2/5 and a principal and interest payment of $1,714. The highest the rate can adjust to on the 61st payment is 8.250% and the lowest is 2.25%.
If you have questions or are interested in obtaining a mortgage for a home located anywhere in Washington state, please contact me! Nothing makes me happier than helping my readers.
Rates quoted above are effective as of July 1, 2011 at 11:45 a.m. and may change at anytime. Rates are based on 740 or higher credit scores with an 80% loan to value for a purchase or rate-term refinance in Washington.
Ben, the Fed and Mortgage Interest Rates [Live Post]
June 22, 2011 by Leave a Comment
Today the Fed will announce if they're going to change the Fed Funds rate. It's highly anticipated that they will leave the rate where it's currently at. What ever action the Fed takes does not directly change mortgage rates, however it does have a strong INFLUENCE on mortgage rates. Following the Fed's announcement, Ben Bernanke will be holding a press conference which may also impact mortgage rates. Remember, mortgage rates are based on mortgage backed securities (bonds) and inflation will drive mortgage rates higher.
This is a live post to illustrate how the Feds actions may impact mortgage rates, assuming the markets don't shrug off the information.
As of 9:00 am this morning, prior to the Fed's monetary decision and MBS (FNMA 30yr 4.00%) are up 34bps. What you and I probably relate to more than mortgage backed securities (MBS) are how this translates to mortgage rates.
I can lock in a 30 year fixed at 4.375% (based on the criteria I use for rate quotes) with a discount of 0.198% (apr 4.503).
5/1 ARM is currently at 2.875% (apr 3.256) with a discount of 0.043%. 5/1 ARM is fixed for 60 months and has caps of 5/2/5. The highest this rate can be at the 61st payment (or the life of the loan) is 7.875%.
11:10 am: we're minutes before Ben Bernanke's news conference. Mortgage rates that I've quoted are unchanged.
9:25 am: DOW is down about 7 points.
"No change" to interest rates is announced. The Feds Funds rate is unchanged at 0 – 0.25%. Good news to those who have home equity lines of credit which are based on the prime rate, they've dodged another bullet!
Initial reaction: markets seem unmoved. No real surprises in the FOMC press release.
9:31 am: Receiving an intraday rate sheet with pricing for the better from one of the lenders we work with. This lender did not have as competive pricing as what I quoted above (they're still far from it) as the began the day with worse pricing. The rate quotes above is still current pricing that I have available.
9:50 am: In just over an hour, we'll hear from Fed Head, Ben Bernanke. Stay tuned. I'll continue to share rate updates and updating this "live" post.
10:30 am: MBS down to session lows at 15bps for the 30yr.
11:10 am: minutes before Ben Bernanke's news conference and mortgage rates are unchanged from what I've quoted above. DOW is up 7.46.
12:15 pm: Ben Bernanke has wrapped up the news conference. MBS are up slightly to 22bps with the DOW down 32. Mortgage rates and pricing that I quoted above are unchanged.
I listened to as much of Bernanke's conferene as I could while I was work on my day job, originating mortgage on homes located in Washington. Some bits that I extracted (and shared on Twitter) are that Bernanke referred to the pace of unemployment being "frustratingly slow". During the Q&A he said that "we don't use words like "extended period" to be intentionally opaque, it means that we really don't know how long". Regarding housing, he commented that "those who can get credit, can buy a lot more house than they could a few years ago" referring to low rates and affordable home prices. He would like to see further efforts from mortgage servicers to modify loans when appropriate and to speed up the foreclosure process when appropriate.
DOW closes down 80.34.
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