(Regulatory) Inflation in the Mortgage Industry

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Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141

(Regulatory) Inflation in the Mortgage Industry

 

 

Inflation is a term that gets thrown around a lot in economics.  The definition of inflation is a sustained increase in prices for goods and services.  Under normal conditions, inflation occurs because of market forces - supply and demand.  We see this in every aspect of our life.  Even without taxes and artificial increases in prices for the sake of profit, inflation is a constant.  When market conditions move in a different direction, we see deflation.  

 Mortgage Costs

 

In the mortgage market, when it comes to rates and fees, we've had deflationary forces.  A market that can't support high rates, more informed consumers pressuring fees and costs lower, and a secondary market (although propped by QE and the Treasury) that offers a seemingly unlimited number of mortgage transactions.

 

 

In reality though, we've seen industry inflation on a grand scale.  Pre-HVCC, appraisal costs were normally in the $300-350 range.  Now, it's common to see a $450 price tag on even the simplest of appraisal assignments.  Interest rates seem low, but compared to where they would be without government imposed G Fee increases (padded into the rates of course, so consumers can't see this tax) and loan level pricing adjustments (LLPAs -- again, padded into the rates so people won't notice just how much they're paying....hint....it's thousands....on every deal), rates are higher than they should be.  Lender fees? They've jumped, too.  Lenders have additional compliance staffing and technology in place to try to fend off the CFPB witch hunt, and the costs of these measures are passed on to consumers.  A healthy level of inflation, according to the Fed, lies in the ballpark of 2% per year.  Why then, has the mortgage market seen a jump in prices (when factoring in fee & rate adjustments) more akin to 50%?  

 

 

Simple.  Government involvement, over-regulation, and the fact that someone, somewhere, discovered that the economic collapse was a great opportunity to tax home owners, especially since none of the price increases are deemed "taxes". 

 

 

Now, with the realization of TRID, the latest government monster, you'll see another tax - the rate lock tax.  Lenders can lock an interest rate in for a client for a certain period of time - the longer the time period, the more costly the lock.  A lock is consumer protection, and when working with a good mortgage loan officer, clients benefit from the guidance of their lender when it comes to a lock period.  A good LO tries to lock their client into the shortest lock term that'll guarantee an on-time closing and great pricing for a client.  In the recent past, a 30 day lock was standard.  Under TRID, a 30 day lock is no longer the gold standard of lock periods.  We've moved to 45.  Some lenders have gone 60.  What does this mean?  Worse pricing (rates) for consumers, of course. 

 

 

This isn't a HUGE deal, as the cost for a rate lock at 45 days isn't a great deal better than 30 days.  But it's something to keep in mind - with appraisal costs higher, lender costs higher, interest rate adjustments MUCH higher, it begs to question - when is enough, enough?

 

 

The costs of everything go up - that's life.  But in the mortgage industry, things have gotten out of control.

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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

John when we trully take a close look at the time table to close between contingency and closing under the new TRID guidelines, it will mostly likely be between 2-3 weeks.  So even a 45 day close is optimistic until everyone refines the new procedure.

Sep 25, 2015 11:12 AM #1
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Patricia Kennedy
Redfin - Washington, DC
Home in the Capital

John, back when I worked for the federal agency that regulated airlines, we used to get horrendous complaints where airlines blamed us for awful things they did to passengers.  In one case, the flight attendant told a blind passenger that our regulations required that all handicapped people sit on towels during the flight.  Just in case of incontinence.  Of course there was no such regulation.  And I thought about that incident when I read this post.

If any industry needs to be regulated, it's mortgage (and all banking for that matter).  But I don't think that federal regulators are requiring higher fees for appraisals - which cost in the $200-300 range when I started out in 1983.  I remember reading here on ActiveRain about how some of the banks were charging high appraisal fees, then paying the appraisers in their appraisal managment outfits a small fraction of that. So IMHO, the banks are charging higher fees because they can and because consumers don't tend to shop for loans solely on fees. It will be interesting to see if consumers even bother to read the new disclosures designed to protect them.

 OK!  I'm heading over the to the Friday Fotos group where I can comment without sounding like a crank!

Sep 25, 2015 11:30 AM #2
Rainmaker
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Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good morning John. You are so right. So the story has been no increase in the tax rate, we all the additional increased you so eloquently stated in your post are all tax increases and most have no clue or really understand these increases.

Your post should be featured.

Make it a great weekend!

Sep 26, 2015 12:23 AM #3
Rainmaker
719,075
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

John Meussner What another fee increase? OMG. I am so tired of all this over-regulation in the name of consumer protection.

Bill Roberts

Sep 26, 2015 01:01 AM #4
Rainmaker
2,869,794
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

Oh things sure are out of control in the mortgage industry. Consumer protection my ass. 

Sep 26, 2015 06:12 AM #5
Rainmaker
2,869,794
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

FEATURED IN CRAP-TACULAR

 

 

 

Mr. Crappy knows what they are doing is a load of crap all in the name of consumer protection ... that's bull crap!

 

 

Sep 26, 2015 06:14 AM #6
Rainmaker
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Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

John

It seems that we are being nicked and dimed to death . . . . and it's turning into big bucks.

Good luck and success.

Lou Ludwig

Sep 27, 2015 12:21 PM #7
Rainmaker
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Jill Murty, Realtor - Orange County, CA
Sunset Properties, Powered by Movoto - Laguna Niguel, CA

What do you see?

Sep 28, 2015 12:45 PM #8
Rainmaker
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Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

I learned a lot from your post.

Sep 29, 2015 10:11 PM #9
Rainmaker
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Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

It's very important for inflation to match the cost of things at any given time no matter where we are.

Sep 30, 2015 04:54 PM #10
Rainmaker
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Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

I also learned a lot like most of these people are saying and I'm very thankful for it and do not take it for granted.

Sep 30, 2015 04:54 PM #11
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