Poll: How would you prefer to have your mortgage originator compensated?

April 5, 2010 by Leave a Comment

How a mortgage originator is compensated is being reviewed by the Federal Reserve and Washington State's Department of Financial Institutions (DFI).   The traditional method of being paid based on a percentage of the loan amount is getting some heat.  It's unfortunate because I do believe a majority of the bad actors are no longer in the mortgage industry thanks to the SAFE Act and licensing requirements.   Those who do not want to be held to the licensing standards and who want to stay in the mortgage industry will have work for a bank, where they are only registered.  Many banks are limiting what and how a mortgage originator "appears" to be paid to the consumer.  (Only mortgage brokers have had to disclose their compensation on the back end).   

Currently, a consumer can have their mortgage priced with an origination fee (points) or without points, which means rebate pricing is being used to compensate the originator.  The loan does not have to be priced with a full 1% of the loan amount, if you look back at even recent rate post at Mortgage Porter, you'll see that sometimes I quoting 0.75% for a certain rate–it all depends on where the markets are at that moment.

I would love to hear back from my readers how you feel mortgage originators should be compensated.   I will be leaving the poll on left side of my blog during the month of April.   Please vote and feel free to leave your comments on this post.

I'll be sure to share the results with you.

The choices in this poll are:

Flat Fee:  My opinion is that if mortgage originators are forced to go to a flat fee.  Mortgage companies will still have to compensate them for their "market worth".  It's possible that although the fee might look better, the base rate (without discount points) might be higher as it will be set by the bank or mortgage company, and not the originator.

Points:  This is currently the most common method with how a mortgage originator is paid.  Points can be paid by the consumer or by rebate from the bank/lender.

Hourly:  Consumers could select a mortgage originator based on their hourly rate and an estimation of how many hours the mortgage originator estimates their transaction would take.

Filed Under: Polls, The Fed - FOMC

Ben Bernanke’s Mortgage Rate Exit Strategy

February 10, 2010 by Leave a Comment

Ben Bernanke will be testifying before the House Finance Servicing Committee regarding the Fed’s exit strategy.   From his prepared testimony:

All told, the Federal Reserve purchased $300 billion of Treasury securities and currently anticipates concluding purchases of $1.25 trillion of agency MBS and about $175 billion of agency debt securities at the end of March.

What this means is to you and me is that we will start seeing rates increase well before the end of March as the markets will adjust before the Fed stops their support of keeping mortgage rates artificially low.

This is nothing new.  It will be interesting to hear what else Mr. Bernanke has to say to the Committee today.

And for your morning viewing pleasure, how about this clip from Snagglepuss who’s famous for his exits:

I can’t believe I used to watch this stuff while eating my sugary cereal in the morning!

Filed Under: Interest Rates, The Fed - FOMC

And the Fed Said…

January 27, 2010 by Leave a Comment

It's no surprise that the FOMC is leaving the Fed Funds Rate unchanged…the big question is whether or not they are going to extend keeping mortgage rates artificially low beyond March, when the program is said to terminate.    And moments ago, the FOMC Statement confirms that the plans are still sticking to the end of March:

"To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter."

Many experts feel that the Fed's participation in buying mortgage backed securities, which mortgage rates are based on, has kept rates about one full point lower than what they would be with out their helping hand in the markets.

Following the release of this news, mortgage backed securities are deteriorating and I'm anticipating new rate sheets from the lenders we work with featuring pricing for the worse.

Filed Under: The Fed - FOMC

The Fed is Getting Tougher on Credit Card Companies

January 15, 2010 by 2 Comments

In a press release earlier this week, the Fed announced they have approved the final rule amending Reg Z regarding credit cards which will go into effect on February 22, 2010.   The new rules set tougher guidelines on credit cards, especially with regards to protecting consumers against rate changes and how they are billed.  

No interest rate increases for the first twelve months.  There are some exceptions such as if you have a variable rate tied to an index; if your rate is an introductory rate (which in that case, your rate must be fixed for a minimum of 6 months); and if you're more than 60 days late on your bill.

Increases to your interest rate can only be applied to your new balance.  Your old balance will keep the lower rate.

Payments will be applied towards the highest interest rates first when you pay more than the minimum payment.  (Some exceptions may apply).

Statements must be mailed or delivered at least 21 days before your payment is due.  Your due date should always be the same day of the month unless it falls on a weekend, in which case your due date will be the following business day.

Charges you make "over the limit" may be restricted (not allowed) unless you give your credit card company permission.

If you're under 21, you may need a cosigner such as a parent, to obtain a credit card.  Guess those credit card companies will have to stop preying on college students unless Mom or Dad agree to cosign.

No two-cycle (double-cycle) billing.  According to the FOMC's site "credit card companies can only impose interest charges on balances in the current billing cycle.

When your rate or fees are going to change, you must be notified 45 days priorto the change taking place.  You will have the option to refuse the change, however this probably means that your canceling your account.  If you do refuse the change, and your account is canceled, the creditor can impose higher payments by requiring to pay off your account in five years.  NOTE: Canceling your account may be damaging to your credit scores.  Should you get a notice that your rate or terms are changing and you don't agree with it, you are probably better off (as far as your credit score is concerned) paying off the card by applying more principal than canceling it with the creditor.

New monthly statements will show you how long it will take you to pay off your credit card making minimum monthly payments as well as what your monthly payment would need to be if you wanted to pay off your card in three years.

I applaud the new credit card rules.  Since their not going into effect until February 22, 2010 you may want to keep an eye on your interest rates…with just over a month before they take place, sly credit card companies may try to sneak a few changes in before things get tougher. 

Filed Under: Credit Scores and Reporting, Debt Restructuring, The Fed - FOMC

From the Fed: Mortgage Excerpts from December’s FOMC Minutes

January 8, 2010 by Leave a Comment

If your little heart desires, you can read the entire FOMC Minutes from the December 15-16, 2009 meeting.  I'm posting bits and pieces that relate to mortgage interest rates, which have been artificially low due to the Fed's purchase of MBS (mortgage backed securities) and home buying/selling.

In particular, they noted the risk that improvements in the housing sector might be undercut next year as the Federal Reserve's purchases of MBS wind down, the homebuyer tax credits expire, and foreclosures and distress sales continue. Though the near-term outlook remains uncertain, participants generally thought the most likely outcome was that economic growth would gradually strengthen over the next two years as financial conditions improved further, leading to more-substantial increases in resource utilization….

In the residential real estate sector, home sales and construction had risen relative to the very low levels reported in the spring; moreover, house prices appeared to be stabilizing and in some areas had reportedly moved higher. Generally, the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness, including the termination next year of the temporary tax credits for homebuyers and the downward pressure that further increases in foreclosures could put on house prices. Moreover, mortgage markets could come under pressure as the Federal Reserve's agency MBS purchases wind down….

Accordingly, the Committee affirmed its intention to purchase $1.25 trillion of agency MBS and about $175 billion of agency debt by the end of the first quarter of 2010 and to gradually slow the pace of these purchases to promote a smooth transition in markets. The Committee emphasized that it would continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.  A few members noted that resource slack was expected to diminish only slowly and observed that it might become desirable at some point in the future to provide more policy stimulus by expanding the planned scale of the Committee's large-scale asset purchases and continuing them beyond the first quarter, especially if the outlook for economic growth were to weaken or if mortgage market functioning were to deteriorate….

Bernanke has stated that there is a lot of uncertainty of what the effect of the Fed no longer purchasing MBS will be and that the FOMC will continue to watch the economy and decide if they'll actually be done with their purchase program in March or if they're going to continue. 

What we do know is where mortgage rates for the Seattle/Bellevue area are currently and what options with mortgage programs are available now (HUD has been talking about tightening up FHA this month).  I've been talking to clients who I encouraged to refi a few months ago when rates where slightly lower and FHA still had an attractive streamline (with no appraisal required and closing costs financed)–rates are higher and benefits to that program are gone.  For refinancing, it may not pay to be patient.

March should be interesting with the end of the home buying tax credit looming and the FOMC nearly phased out of their support of our artificial low mortgage rates.  

Filed Under: The Fed - FOMC

Overdraft Protection and Your Credit Score

November 18, 2009 by Leave a Comment

I have to admit, a lot of my content for the articles I write come from my clients or other home owners who have really good questions.  When I can't find an answer ready to refer them to here at Mortgage Porter, it's time to write a post!   Here's a great example of a question I recently received from one of my refi clients:

"I have a question about a possible impact on our credit score, which you may have some insight into.  We have been meaning for some time to get overdraft coverage on our checking account for "just in case" and today, we got that lined up.   However, I'm reading over the documents from our bank this evening and it looks like they just issued us a credit card.  Is this something that would play poorly on our FICO score?"

Overdraft protection is often a new credit card issued from your bank that is attached to your bank account.  Because this is "new credit" it will impact credit scores.

According to Linda Ferrari's book "The Big Score – Getting It and Keeping It"

"New accounts will lower your overall account age and diminish your length of credit history for a period of 3-6 months, so be sure to have cushion in your score.  Even if you've used credit for a very long time, opening a new account can lower your credit scores."

How much your score is impacted is hard to say–it depends on your overall credit picture.  If you're someone with perfect credit and 800 scores, your credit score may be barely impacted.  However, if you are someone with pretty good credit (around 720) BEFORE the new debt (over-draft protection) and you're considering a refinance or using a mortgage to purchase a home, you might have just dipped your credit low enough to have been impacted by higher mortgage loan rates.

Overdraft fees can add up quick and due to recently regulations by the Fed preventing banks from charging overdraft fees on certain transactions (ATM/debt cards) which will go into effect July 1, 2010, banks are sure to offer overdraft protection to help make up for lost revenue.

The Federal Reserve Board on Thursday [November 12, 2009] announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

If you are considering adding overdraft protection to your bank account, do find out what type of account it is: a line of credit (or credit card) or maybe it's attached to your savings account.   If you are considering a mortgage (or other type of financing where credit scores are considered) you may want to delay obtaining overdraft protection until after your transaction has closed to avoid having your credit score dinged.

Filed Under: Credit Scores and Reporting, The Fed - FOMC

FOMC leaves the Fed Funds Rate Unchanged

November 4, 2009 by Leave a Comment

I'm just reading through the Fed's press release which announces that they are leaving the Fed Funds rate unchanged at 0-0.25%.  Good news for those of you with variable rates on your home equity loans–your rate is not going up…yet.

From today's FOMC Statement:

Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

The Fed's statement is fairly positive and good news for the economy means that investors will trade the safety of bonds (such as mortgage backed securities) for stocks; causing mortgage rates to trend higher.  In addition, the Fed reiterated they will be phasing keeping mortgage rates at artificial low rates by March 2010.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010.

The next big market mover that tends to dramatically impact mortgage rates is the Jobs Report.  Watch for it this Friday morning.

Filed Under: The Fed - FOMC

Fed Funds are Unchanged

August 12, 2009 by Leave a Comment

To the average American home owner with a home equity line of credit, the Fed leaving the Funds Rate at a target range of 0-0.25% means that they can enjoy their low rate on their HELOC for the time being.  Once they begin to adjust the Funds Rate upward, HELOCs which are most often attached to the Prime Rate, will rise as well.

Today's Press Release from the FOMC states:

"Conditions in financial markets improved further in recent weeks.  Household spending has continued to show signs of stabilization but remains constrained  by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit…."

The Fed reiterated their commitment to "employ all available tools to promote economic recovery" and to the purchase of mortgage backed securities and treasury securities:

"…to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October…."

I take this last line to mean that we are not going to see the 4.5% conforming rates that were manipulated earlier this year to the artificial lows.  It would take other forces outside the Fed to see rates dip that low again.  Only time will tell.

Filed Under: The Fed - FOMC
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