Appraisal Under Scrutiny

Click on the title to link. Our poor intentioned, poor planning government has so screwed up the appraisal process for loans it should be a case study in college of what not to do (any questions about where we stand on this issue?). They revamped the appraisal process to "protect the consumer" from over inflated appraisals. Instead it has:

1. Driven up the costs for appraisal because competition is over.
2. Caused appraisals to come in under value because the appraisers are so scared of the lenders over analyzing their work and not giving them move orders.
3. Made it so that you, the consumer, can no longer get at least a "feel" for what your house may appraise before dropping 500 bones.

The current appraisal system is the poster child for anti-government interference.

Fees Are Up...Thank Congress

Just watched a video talking about how the average amount of closing costs this year is up 37% from what it was last year! And this after the Feds came out with the new and "improved" Good Faith Estimate, which was suppose to stop lenders from adding on last second fees. Well, that has happened, no doubt. But for us honest lenders out there who never did something so stupid in the first place, it just complicated things for everyone. Now we use the old Good Faith to explain the new one. If that's not proof that people making laws that have no clue what they are doing then I don't know what is.

Why are costs higher? Simple...more regulation = more overhead to be compliant = more costs = higher fees to the consumer. It's simple math really; it's only hard to understand for those residing in Washington D.C. Just wait 'till the new health care goes into effect, especially for these large companies.

Don't like it? Write your congress folks and let them know what you think of it.

Real Service

We talk with clients often about the inward reality vs. the outward perception. Simply put, this is the tension between what you say you are vs. who you really are. So for a business, if I say that I have the best service in town then what are the things internally that will consistantly deliver to that end. This is something sorely lacking in our industry as lenders constantly over promise and under deliver.
We received a quick thanks from a client today and were compelled to share it. We have created many internal systems that ensure we over deliver. Plus, we just have an amazing team of people whose desire is truley to serve. We are here for you and anybody you may know needing a mortgage.

My husband and I wanted to thank you for your excellence in processing all of our loan documents especially considering the time constraints. Thank you and your lovely wife for the bread. We had some this morning and it was so delicious.
Thank you and Kimberly also for all that you do and we will certainly refer you to our friends and neighbors for their home mortgage needs.
Thanks again.

Online Lenders

We never cease to be amazed at the perception in the eyes of people that online lenders have the best rates. You need to hear us out on this...that is usually not the case. And one thing that is never, ever the case with online lenders...they cannot compete with us in how they treat clients. Why on earth would you want to work with a lender who does not know you and, really, does not care at all about you because you are a number to them. Do you honestly think they will do anything to "wow" you so that you will refer people to them? It is all about volume; they could not care less.
This is all stemming from the fact that we received a call yesterday (from a past client, no less) who was talking to an online lender. He really thought he was getting a great deal from this lender and was not even going to call us to run it through the "sniff test". Huh? We just will never understand why one would not go back to a company that operates the way we do and, at the absolutely least, have us advise him on whether it is a good idea or not. Unbelievable.
Folks, here us out on this...if you are blindly trusting what an online (or just any other) lender is telling you as fact then you are setting yourself for getting burned, or at least getting a bad deal. USE US, THAT IS WHAT WE ARE HERE FOR. We call it our three E's: Educate, Evaluate and Eliminate. If a lender is not doing the three E's (and we assure they will not) then you are at risk.

Good Video On Refinancing

Click on the title to link to a good video about the refinancing going on right now. We agree with them that these low rates are not at all what is going to get the housing market back on track. Refinancing is booming right now; buying homes is way down. But, as we have continued to say, now is a perfect time to be buying a house because rates are low, and so are home prices. If you were to wait too long then you may miss out on both. It is not like the housing market is pushing up right now, but it is a "perfect storm" for buying a house also.
For those refinancing, just keep in mind that now is not the cheapest time to refi. Rates are very low, the lowest we can remember. But you must pay a point to get those rates. When rates were this low a while back you did not have to pay points to get those rates. So they are low, yes. But not cheap. However, what is different about rates this time is if you do not pay a point then the rate is way higher. So when you calculate the break even point by using the payment savings vs. the loan costs it is interesting to see that it is virtually the same whether you pay the point or not since the rate goes so far up if you do not. That said, it is essential then (and makes the most sense) to pay the point because then you are also saving more money due to the interest savings. Make sense? If not, call us at 830-9685 and we will walk you through it.
Lastly, remember this, you cannot get hung up the costs associated with refinancing. What, you say? There are two major factors in refinancing, rate and payment. Sure costs are important; we are not saying to ignor that because then you are paying frivolous amounts. But you could be paying very little in costs and not seeing much of a difference in payment and rate. You have to analyze how much it will save you, of course. But probably more importantly is how long will it take you to break even on the costs of the refinance. It is critical that you understand the importance of looking at the big picture of what the refi will do for you in the long run, and do not get so hung up on the costs. If a mortgage costs you a rediculous amount, like 30K let's just say for arguement, but you are making up that cost in 12 months then who cares what it costs. Do you see? If you make up the costs in a reasonable time frame then the costs are not near as relavant because of the savings you will experience long term. There are many, many factors that go into this analysis. So if you want us to run through your scenario for you then get in touch with us.

Non-Refundable Deposits

If you are considering a new mortgage one thing to make sure you do NOT do is work with a lender that requires a non-refundable deposit. Frankly, this is completely lame because all they are doing is trying to get you to put some "skin in the game" so you feel obligated to move forward. This is a very popular trick the larger lenders like to play, but any lender may ask for this. If they do then walk away because they are not a company you want to work with.

What is the Real Cost of Financing?

Annual Percentage Rate (APR) is a tool that you can use as a starting point to compare loan programs. However, it's important to keep in mind that APR is not a perfect system, and not all lenders calculate APR in the same way. While the Federal Truth-in-Lending Act does require any mortgage broker or lender to disclose APR to the consumer, there is no rule written in stone for calculating this number that each and every lender agrees upon. Thus why shopping for loans can be so difficult and frustrating.

The point of calculating APR is to let you know what the actual cost of your financing is in the form of a yearly rate. APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate. The objective is to give you a clearer picture of what your actual costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.

Fees that are generally included in the APR calculation are points, pre-paid interest, loan processing fees, underwriting fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow, attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.

Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of making pre-payments, moving or refinancing. Unless the interest rate is tied to a fixed instrument, APR is even more confusing.

Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way of knowing what future rates will be.

If all lenders calculated APR the same way, you could make easy comparisons when deciding on what loan program to go with. Since they don't, however, you should know that APR is simply a starting point for comparison. You should rely on our skills as a well-versed Mortgage Advisor to assist you in obtaining the loan that meets your specific needs. The more important things to consider are how long the loan is needed? What are your long-term goals regarding the house? If you only expect to stay in the home for five years, there's not a lot of sense in looking exclusively at 30-Year Fixed rates because the APR seems more reasonable. If, for example, a young couple is buying a home, knowing they will refinance in eight years to pay for their son's college education, then once again, APR is not a realistic factor to take into consideration.

Any loan person should be prepared to answer questions about APR once the lender provides the Truth-in-Lending Disclosure Statement (Reg Z), such as why the "amount financed" listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases. You will get a clear definition about the fees associated with your loan in the good-faith estimate, but the Truth-in-Lending Disclosure is often an area that is confusing to the borrower. And, unfortunately, that is how most lenders like it. So give us a call and we will walk you through it step by step.

Don't Believe the Media!

Please allow me to vent. The stuff we hear come out of the media's so called "experts" never ceases to amaze me. Take the following excerpt from an article (there were many others I could vent about) from a well known financial web site:

The yield-spread premium
One dirty little secret of the mortgage industry is the yield-spread premium. In return for arranging loans with inflated interest rates, some brokers receive fattened payments -- referred to as the yield-spread premium -- from lenders, says Allen Fishbein, the director of housing and credit policy for the Consumer Federation of America, an advocacy group.

Even a slight difference in rate -- say, 6.779% instead of 6.495% -- amounts to nearly $17,000 in extra interest over the life of a 30-year, $250,000 loan. To avoid getting suckered, ask your broker whether the lender pays a flat rate or a percentage commission based on loan terms. Also, obtain a copy of your credit score and use Fair Isaac's MyFICO.com to get a realistic estimate for a fixed-rate mortgage based on your score.

Dirty little secret?! Inflated interest rates?! Fattened payments??!! These people have NO IDEA what they're talking about. Now, I'm sure your 1st thought is "of course he's upset, he's a mortgage broker". The TRUTH is, I would have no problem with these "experts" (yes, I feel I must use quotes each time I use the word "experts") objectively educating the consumer. But the bantering you read above does no such thing. In fact, printing this is irresponsible.

Here's more of the truth: mortgage brokers are in fact compensated, in some cases, by the yield spread premium paid to them by lenders. Yield spread premium is synonymous with commission. I didn't realize that earning a commission in one's business endeavors was such a travesty. I'm pretty sure many other professions earn commissions, but please, correct me if I'm wrong. The real question is: what are you getting for the commissions paid? Are you getting a fair interest rate at fair prices (i.e. loan fees)? Are you getting the education and attention to detail you expect for one of the most important transactions of your lifetime? Are you getting the communication throughout the loan process so as to ensure there are no surprises?

If you've not received these benefits as part of your home loan process, then perhaps you've obtained your mortgage from the wrong company, whether or not there is a yield spread premium or a "flat rate" or any other form of compensation.

Most folks don't realize that over 2/3's of all mortgages are obtained through mortgage brokers. I have enough confidence in consumers to think that if mortgage brokers were ripping people off, this would no longer be the case. You see, while we are generally compensated by yield spread premiums, we can, in most cases, provide the same, if not better, rate and fee structure than any bank or credit union. And just as importantly, one would receive a level of service with our firm that they've never experienced with any other mortgage lender.

It is simply false to say that yield spread premiums automatically equate to higher rates. As in any industry, there are bad apples who do take advantage of this system, but the majority of us are doing everything we can to give our clients the absolute best combination of rate, cost and experience as we possibly can. We would be unable to continue our business if we thought this was not possible - our conscience would not allow us to.

So, if you come across an article or listen to an "expert" on television discussing this subject (or any other for that matter), be sure and take what they say with a grain of salt. Not that you need to be told that now days.

The Lying Game

So yesterday we get a call from an individual who was referred by a past client. They were already working with another broker, but were encouraged to call us to double check what they were being told. This is a great borrower in every aspect.

The Lies:

• The other lenders rate quote was not that good. They said it was because their DTI was too high (lie #1) and their credit score was not high enough (lie #2). Plus, they were charging 1 point (1% of the loan amount).

The Truth:

• Your DTI does NOT have any affect at all on your interest rate.
• In this particular case, the borrowers credit score was actually helping their rate, not hurting it.

The Conclusion:

1. We were able to get her a rate that was .375% lower than the other broker, and do it with no points at all.
2. This borrower stated they thought they could trust this guy because he worked with people in their particular industry. Let us assure you of this, no matter who people work with they can still be a bunch of yahoos. Check them out! Ask for references; then call them.
3. Lenders will make up anything to get you to believe what they say. Why? Because they think you are a bunch of idiots and will not know any better. Unfortunately, it is often because you do not know where to turn to check what they are saying vs. reality.

This is why we are here...email us with any questions or scenarios you have. We will happily help educate you on your situation to ensure you are doing something that will actually be good for you, and not just screw you. As a referral based company, actually doing your loan is way down the line. If we take care of you, help you understand the process and point you in the best direction, then you will refer us whether or not we do your loan. There is no doubt, however, that our process is so far superior to others it really is not comparable. But advocating for you is our priority; your loan is secondary (nice, but still secondary).