I heard this more than once over the last month or so. I said to my client, "I understand, but what if rates go UP". There was a long pause over the phone. "What do you mean, Bob-that's not gonna happen"!
Well, guess what. I did happen. This client could have saved substantial money, but rates STILL haven't been as low as they were on the day we spoke. They weren't at 4.5%, but they weren't far off either! Rates have actually not hit that mythical number (at least not without paying hefty origination fees for it).
The lesson here: if you can refinance and save enough money to give you an attractive rate of return-DO IT!!! Other factors that could harm you if you wait. 1. Values could continue to decline, thereby making future refinancing more difficult. 2. Guidelines continue to tighten, also making future refinancing more difficult.
Really, the decision to refinance or not is simple math. Lets take this scenario:
Client took out a $150,000 loan two years ago at 6.5%, 30 year fixed. Payment is $948.10 P and I.
New loan would be 5.0% @ $151,000. New payment is $810.60. Closing costs are made up in about 1 year.
So, lets say client waited for rates to hit 4.5%, thus saving $183.01 per month The new payment would be $765.09. "What, Mr. and Mrs. homeowner, do you believe the chances are that they will hit 4.5%? "About 70% Bob, that's why I want to wait".
So, if his lofty estimations are correct (and they probably arent) then he will save $183.01 per month 70% of the time and will save ZERO 30% of the time. Keep in mind he would save $137.50 100% of the time by moving on the 5% 30 year fixed. So,
$183.10 savings x 70% (likelihood of success) = $128.17 per month
$137.50 savings, 100% of the time= $137.50 per month
This also doesn't take into account the opportunity cost of waiting 2-6 months to refinance ($137.50 per month) or again, the risk of waiting due to constricting guidelines.
So, if you can benefit by refinancing now, it may be in your best interest to act now!
Studies show that mortgage originations in the October preceding a general election are nearly always significantly lower. This always amazes me, but I think it's true nonetheless. This goes to show how emotional Real Estate really is. I do not see home prices or rates changing significantly solely because of the results on Nov 4th. Now, in this chaotic market rates change all the time, but if people think that rates will lower just because the election is over, they may as well go to Vegas and put $ on red, because that also give you a 50% chance of being right......
Hopefully, people will feel a sense of stabilization (regardless who wins) and will get back to looking at this incredible buyers market after November 4th! Here in West Michigan, you can buy a home in a reasonable area for a price comparable to a new SUV!
Unbelievable is all I have to say. The house rejected the $700 billion bailout package. Many House members claimed their constituents were against it. Well guess what folks, their constituents were wrong! What a gutless vote. Many were against the war in '64. No, not the Vietnam war, the Civil War. What if Lincoln had given in to public opinion then? This is a time to do whats right for the country, NOT whats right to get re-elected.
Paulson, Bernanke and Warren Buffet (the greatest investor of our time) PLEADED with the House to pass this, yet they did not. These three men probably have more market knowledge than the House Members combined.
I have seen many people in our industry against this bill as well. Normally, I would agree that massive Govt intervention is NOT the answer-but these are extraordinary times.
If you are a Realtor or Loan Officer and the bill DOES NOT pass in some form, then you had better update your resume.
If there was a way to prevent the Great Depression in 1929, would you have been in favor of tax payer involvement, or would you rather just let the market take care of it? Well, the market eventually did come back stronger than ever, but it took 15 years and a World War to do so. Millions lost everything.
This isn't about saving Wall St fat cats, Golden Parachutes or the like. This is about ensuring that our financial system recovers.
Yes, if the bailout doesn't happen, the Market will EVENTUALLY recover-but can you afford to wait that long?
The choice of doing nothing will be much more expensive and painful than $700 billion, without a doubt. There are risks on the bailout package, and it will have negative aspects-but I think the stakes are too great. Sitting still while Rome burns is not the answer.
I have seen many varied opinions on the ranging from "We should let em take their medicine-dont give em a penny" to "Lets fix in mortgage rates for everyone at 4.75%!"
Well, fixing rates is certainly not the right solution for many, many reasons. My own opinion: If what Bernanke and Paulson say is true, we have no choice. Failure to do so could bring the financial system to a hault. This would not just effect Loan Officers and Realtors, but Small business owners, and to some degree-most everyone.
So, the $64,000 question, Are Bernanke and Paulson correct or is this just the Media peddling fear again? Well, I dont think its the later. Im going to put my trust in these guys. I do not think they were playing Chicken Little here.
Don't get me wrong, there will be SEVERE consequences to the bailout, even if they are correct. Inflationary pressures will increase, the value of the dollar may drop. Our already outrageous debt will rise significantly. There is also I suppose no guarantee that this will work.
BUT.......If Paulson and Bernanke are correct and we do nothing? Then our industry as we know it could come to a screeching hault for the time being. No more liquidity =No mortgages=No buyers=No sellers. No commercial mortgages=no infusion of capital for businesses=massive layoffs.
If the bailout goes thru, I hope that their will be restrictions put in place so that the mistakes of the past will not be repeated. Simply handing Wall St a blank check and saying "OK-start over!" cannot happen. I'm normally not one for excessive regulation, but the time has come to get back to common sense, old school lending. The market has already brought us back to this, but should there be safeguards put in place to make sure that we never leave it again? I tend to think that there should be.
I would be interested to hear Active Rainers thoughts on this.....
When you refer a lender, do you pass out three cards, or do you give one strong recommendation?
I think many agents are under the opinion that they MUST pass out three cards to avoid any liability. I cannot find anywhere in RESPA where this is the case however. For those that do pass out 3 cards, do you do the same with Home Inspectors or Insurance agents? I know some agents do this to avoid any perceived liability, but really is there any liability there if you are only giving a recommendation?
My opinion is that your Clients are looking to you for solid advice, and they want to know who YOU recommend as a great Loan Officer. This of course does not mean that you require that they use that lender. It seems to me that by giving 3 cards, you are giving 3 luke warm referrals.
For those that adhere to the three card rule; is it partly because you havent met one lender that you are completely comfortable with, who you deem as a true professional?
I'm not saying that you should onlywork with one lender. You may have 2-4 that you work with, but when it comes to a referral, it seems to me that referring one exceptional lender (for this particular client) will make you, in the eyes of your client, more of an authority and trusted advisor-which is after all what you want your clients to see you as.
By "wowing" your clients, your lender of choice will make you look that much better! It's also true that if your lender performs poorly, this may not reflect greatly on you-but that is why its so paramount that you work with truly exceptional loan officers.
I would be interested in hearing your feedback.......
Recently, a buyer came to me with a startling dilema. She told me she had been "Pre Approved" by the institution that she worked at and ten days before closing the Loan Officer told her that the file was denied due to credit (isn't this the very first thing that should be analyzed?) Needless to say, she was extremely frustrated. To say that she was on the edge of panic would not be an overstatement! She was amazed that this could happen from her own employer. She couldnt believe that the Loan Officer assured her that "everything was fine" only to see her worst fears come true days before the closing.
I sate down with her and told her there were no guarantees, but that I would have an answer to her within 7 days (not just a pre approval). Well, we were able to give her a great FHA mortgage with 3% down with a low, fixed rate. She was able to purchase the condo of her dreams and was elated!
The point of this is that you and your clients must work with someone that you know and trust. With mortgage financing becoming more and more difficult to obtain it is absolutely crucial that you work with a Loan Officer that knows guidelines inside and out. Loans that two years ago were "no brainers" can now be very problematic. Borderline deals are not just those with marginal credit. It can be an income or appraisal issue as well.
FHA/VA and Rural Development have always been wonderful programs. It seems that some lenders and brokers are just getting into Government Financing, but if I were a Realtor I would make SURE that the Loan Officers that I work with were EXPERTS on Government financing. It could be the difference between a thrilled homeowner who is a client for life, versus a dissapointed renter who you never hear from again!
With the subprime meltdown, and foreclosure numbers increasing it seems that Mortgage Brokers are taking much of the blame. Our company is not a broker, but I do have sympathy with what the Broker world is going thru. There are some bad actors-no doubt, but to paint them all with the same brush is unfair.
There are 3 main types of mortgage lending channells:
BROKER: The broker will take the mortgage application, run credit, gather documents, order appraisal, etc and send it off to the end investor to be underwritten. The end investor draws the docs, the client closes, and the broker gets paid. The broker typically has very little risk if the loan goes belly up-some, but not much.
Bank: The bank will underwrite and fund the loan. The bank will often retain the servicing of the loan. However, the loan is still usually sold to Fannie Mae/Freddie Mac but the bank retains the servicing rights.
Correspondent Lender: This is what City Federal is. We underwrite and fund the loan, and ultimatley sell the servicing.
Many banks have wholesale channells that accept loans from brokers. I have read that that the default rate on these loans is higher than on the banks retail channell.
A few years ago, Brokers had access to a multitude of lending products, much more so than most banks. Many of these products were sub prime (higher rate mortgaes). Often times a client could not qualify for a conventional loan, so a sub prime was their only option.
What has gone largely unnoticed is that the brokers DID NOT create these loans! Subprime mortgages were created on Wall Street as a way for investors to realize greater returns on their portflolio (conventional loans had safer, but lower rates of return). Wall Street would promote these products to brokers, correspondent lenders and many banks. For years, sub prime mortgages actually worked very well but when wages leveled off and the housing market tanked, the you-know-what hit the fan!
So, Wall Street is actually the entitiy that created these products. This DOES NOT absolve brokers that participated in fraud schemes such as Straw Buyers etc, or put a client in a sub prime loan instead of FHA just because it was "easier". This happened, and it was incredibly irresponsible.
So, after the mortgage credit crisis (which in itself is overblown just a bit-but thats another topic!) the mortgage brokers seem to take the blame. They do not have the Lobby that Correspondent Lenders and banks do, so they are left holding the bag. Many banks have cut off the broker channell, and the ones that do exist often give the brokers higher pricing, which makes it tougher for them to compete. There is also pending legislation that will make it tougher on brokers (such as: not being able to talk to the appraiser, GFE reform etc). At the end of the year, loan officers will be required to be licensed (this is LONG overdue!). Ironically, those working for banks will not need to be licensed. Does this seem unfair? Yes it is. But this is directly from the results of the banking lobby. I dont know-I would think that banks would want their loan officers to be licensed anyway, but it seems that this isnt going to happen.
Ironically, if you have a relationship with a great mortgage broker, you have an incredible ally in the lending arena. Broker pricing is still very competitive with banks, and that broker can shop it around a bit for you (the same is true with a correspondent lender). Many brokers have a long tenure in the business and are not looking to make "every penny the can on every deal". They are looking out for your best interest. The problem is that the bad actors have tainted the term "Mortgage Broker" and the good ones are suffering for it.
So, what will happpen to Mortgage Brokers? Are they going the way of Full Serviced gas stations? I don't know. I think the landscape will change for them, and it will get tougher. If I were a broker, I would definetely have a backup plan! I would be interested to hear a brokers' opinion on this!
Many homeowners opt for a 15 year mortgage, or sign up for bi-weekly payment programs. The question is, is this really the right strategy for most people?
Generally speaking (and I do mean generally, as there is no "one size fits all solution") I believe the answer is no. For those with a low, market interest rate on their mortgage (say, anything in the 7 or 6% range) they would probably be better off investing the difference rather than pay extra on their mortgage.
Example: You are deciding between a $200,000 loan @ 6.25% 30 year fixed, and $200,000 @ 6.0% on a 15 year fixed. The payments on the 30 year fixed are $1,231 per month. The payments on a 15 year are $1,687. If instead of taking the 15 year, you took the 30 year and invested the difference ($456 per month) and realized a 7.5% rate of return, (this is quite conservative) you would have over $250,000 in 20 years. Furthermore, you would see a greater tax deduction on the 30 year vs. the 15.
Depending on your deductions, the true cost of that 6.25% mortgage rate is going to be lower. It is very realistic to say that it would be @ 5.625% (could be even lower). Can you average better than 5.625% over 15, 20 or 30 years? Most likely, YES! Furthermore, the money is liquid. This is very important for two scenarios: 1. If things in your life go very wrong (job loss, serious illness) or if they go very RIGHT (investment opportunities). If the money is trapped in your home (meaning you have paid down your mortgage) you often cannot access it. Try getting a loan if you don't have a job! Paying down your mortgage is certainly not a bad idea, but it probably isn't the best of ideas, particularly if your retirement accounts, college savings plans, ect aren't fully funded.
MORTGAGE ACCELERATION PLANS-GOOD OR BAD? As the mortgage business continues to slow down, once high flying mortgage brokers clamor on to something that can help replace their lost revenue. They need to make they payment on their lexus somehow, right? Along comes the "Mortgage Accelerator". This actually has been around for a long time, and has been practiced in Australia for many years. For those that are debt adverse, this actually isn't a bad plan at all. You must have 1. Good credit. 2. Some equity in your home 3. A decent average balance in your bank account each month.
However, their are BAD MA plans, and TERRIBLE plans. First the bad: These are often sold by MLM hucksters who have little or no experience in the mortgage business. All they promote is "pay your mortgage off in 8 years with no change to your life style!" The no change to your lifestyle thing is misleading, particularly if you fall into the same category as most Americans who more or less live pay check to pay check. Also, they charge typically $3,500 for their "magic" software that will guide you thru this process to pay down your mortgage. The software is completely unnecessary, and is little more than a marketing tool.
Now on to the TERRIBLE: Same as above, except that these companies also require you to refinance your first mortgage to a 1 month adjustable. Their counter to this is that "the rate doesn't matter, just think of how quick you will pay off the loan"! Utter nonsense. The rate most certainly DOES matter! The overall plan is much less effective if you are required to refinance to this, particularly if rates go up.
The plan though does work, but so does paying down the mortgage yourself. However, the plan works a bit better than just doing it on your own, provided that you find a company that charges a reasonable fee (under $1,500) to do this! All you need is good credit, equity, and a relatively large running balance each month, and a home equity loan! We will set these up (for the right client) for $950. Thats it! Now, I believe that investing your extra money is a better way to go than a mortgage acceleration plan, but for those that are truly debt adverse, this isn't a bad way to go. But let me repeat: run, don't walk away from anyone that either:
Many loan officers dont even know the answer to this one. Fixed rate 1st lien mortgages are based on Mortgage Backed Securities, or Mortgage Bonds. They have nothing to do with the prime rate, or the 10 year T-bill (even though many loan officers continue to think that they do!) Also, I always get many callls on the day that the Fed lowers the discount rate. (I took a call while typing this!) People are often surprised as to why mortgage rates havent fallen as well. The reason is that by making a rate cut, they have made obtaining money cheaper and have possibly increased the odds of inflation increasing. Now, as inflation increases, this erodes the value of mortgage bonds (as they offer a fixed low rate return) thereby lowering the price of the bond, resulting in higher rates on your mortgage.
There are programs out there that a loan officer can buy for their clients that will track the price of this bond on an hourly basis, as well as give them a listing of importnat economic reports coming up in the future. While nobody can forecast rates months in advance, these tools help give a loan officer the knowledge necessary so that they can advise their clients as to trends in mortgage rates on a given day. Most loan officers dont invest the needed money in these services. You should only work with ones that do.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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