Survey Says: Consumers Do NOT Want Higher Mortgage Rates

April 3, 2011 by Leave a Comment

I posted a survey last week with three questions regarding loan originator compensation for people who either have or who are considering obtaining a mortgage.  Here are the results as of 7:20 this morning (click image for a better view).

LOComp1 

80% of those who took the poll would rather allow their mortgage originator to have the freedom to price rates as they choose and to be able to use their commission to help with cost after locking (typically at closing).

20% would rather that rates were detached from the LOs commission and are willing to pay a slightly higher rate in order to have this "protection" and have the LOs commission restricted from being allowed to go towards any cost.

The results are overwhelming.  Consumers would much rather leave mortgage originator compensation alone.  They do  not want government interference with how a mortgage originator is paid.   Many mortgage originators do not want this rule either even though many will actually receive a "raise" since their commission will be fixed (no pricing leaning on an easier loan) and their commission is forbidden to be used in the transaction for anything (including helping out paying for an extension or other closing cost).

The Fed's Rule on "LO Comp" has been delayed by dramatic intervervention late Thursday (the eve before the the rule was to go into effect) by the U.S. Circuit Court.  We should have more information this Tuesday.

As of right now, you'll find that some mortgage companies and banks are proceeding with the rule and others are holding back until more is learned on Tuesday.  This can make a significant difference in your interest rate so you may want to check with your mortgage originator if you're locking on Monday if they are proceeding with the Fed LO Comp rule or not. 

Mortgage Master Service Corporation is delaying following the Fed Rule on LO Comp until we learn more on Tuesday from the Circuit Court Judges.   This means that I have freedom to price and lock your rates as I see as "fair" for at least one more day.

I will be posting mortgage rates tomorrow morning on my blog "as usual".  It could be my last mortgage rate post where I'm able to quote rates based on how I want to price them.

Related post:

The Feds Loan Originator Rule is a bad April Fools Joke on You, the Consumer

Filed Under: Polls, The Fed - FOMC

Mortgage Loan Originator Compensation Changing on April Fools

February 25, 2011 by 2 Comments

I’m going to start this post by saying I can bet certain people are going to chime in that this needed to happen and LO’s will still thrive and do fine…and I can also bet that those who will sing that song have not recently been a mortgage originator.  They may be exposed to mortgage originators from being employed in the real estate industry, but in my opinion, they are “arm-chair quarterbacks” at best.  Enough said…on to my post.

Effective April 1, 2011 rules regarding how mortgage originators (anyone who takes a residential loan application) may be compensated will be implemented.  Currently most mortgage loan originators (MLO) are paid by the consumer (points), by the wholesale lender (rebate pricing) or a combination of both.  MLOs may also be paid a salary and receive additional compensation based on volume (many banks pay this way).  These rules are created by the Fed through modifications to Reg Z.  Even though the rule goes into effect on April 1, 2011; lenders will probably enact deadlines in advance (sometime in March). 

It’s no surprise to me that there are two different sets of rules based on if the mortgage loan originator is employed by a bank or true corresponent lender (like Mortgage Master Service Corporation) verses a mortgage broker.  MLO’s who are employed by a bank or true correspondent are not paid directly by the consumer, they are paid by their employer (also referred to as the “creditor”).  Mortgage Brokers are once again kicked in the teeth with the changes to Reg Z.  I do wish we all had the same set of rules (including all being licensed) as consumers should not have to determine the type of originator and varying set of the regulations that apply.

Mortgage Brokers will no longer be allowed to receive “dual compensation”.  This means that MLOs employed by a mortgage broker will only be able to recieve compensation paid by the consumer OR paid by the wholesale lender.  Let’s say that today, a rate priced with zero points is 5.000% (rebate pricing is 1 pt to the broker) and priced with 1 point origination fee paid by the consumer buys the rate to 4.75% (zero rebate from the lender), a mortgage broker could offer these scenarios.  If the consumer decided they would like to have the rate of 4.875% and are willing to pay 0.5% in origination fee with the broker receiving 0.5% from the wholesale lender in rebate, this is not allowed per Reg Z.  From my understanding, retail mortgage loan officers (employed by banks and true correspondents) will still have this option because the consumer is not directly paying the mortgage originator.  I’m very thankful that I work for a correspondent lender, however it’s really not fair for the mortgage brokers.

Mortgage Loan Originators may not be paid based on the terms and conditions of the loan.  The loan amount is not considered a term or condition however the interest rate is.   This rule also prohibits “steering” a consumer to lender offering less favorable terms in order to increase the loan originator’s compensation”.  

Owners of mortgage companies are currently scrambling trying to figure out how to compensate their mortgage originators.  

In my opinion, changes to RegZ seem to favor how many big banks have been paying their mortgage originators: volume.  How does a consumer benefit when the MLO who is taking care of their purchase or refinance is compensated by how many loans they can close in a specific period of time?  Banks will continue to pay their MLOs less per transaction as they complete as many loan applications as possible as they sit and wait for next trusting bank customer to walk into the branch.  In my opinion, banks want to pull the industry (quality of mortgage originator) down to their level so they have less competition.

I’m wondering which industry will our government get into next to control how one is paid?  With what’s gone wrong in the housing industry, are the commissions paid to a real estate agent low hanging fruit?

Related post:

If your bank doesn’t charge an overage or points, what do you call this? 

How am I paid? (2007)

Filed Under: Mortgage, The Fed - FOMC

The Fed Leaves Rates Unchanged

September 21, 2010 by Leave a Comment

It was widely expected that the FOMC would not make changes to the Fed Funds rate today…and that's what happened. 

Here are excerpts from the FOMC statement today:

"Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit…. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months…"

You can read the entire press release here.

If you have a home equity line of credit, your rates should be remaining the same (for now).   Other than loans attached to the prime rate, mortgage rates are not directly controlled by the Fed.  Mortgage rates, however, may be influenced by the actions of the FOMC.   Mortgage interest rates are based on bonds (like mortgage backed securities).  Investors reacting to the FOMC may impact mortgage rates.  Fellow mortgage blogger, Dan Green, has authored an excellent post: The Federal Reserve May *Influence* Mortgage Rates, But It Doesn't *Set* Them.

Mortgage rates remain at very low levels.  As the economy improves, we will see rates trend higher.  Inflation will also cause mortgage rates to rise. 

If you're a home owner (primary or investment) in Washington state, I highly recommend contacting your mortgage professional to see if refinancing today makes sense for you.   If you haven't heard from your mortgage originator in the past few months, it's possible they may no longer be originating as many have left industry.  I'm happy to adopt your mortgage and you as a client, regardless of if you refinance or not.

Filed Under: The Fed - FOMC

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
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