FED RULE INCREASES BORROWER COSTS
A message from the National Association of Independent Housing Professionals:
On August 17, 2010, Bankrate reported, closing costs jumped 36.6% year over year, (2009-2010).
For the past few years, Congress and several federal agencies, have been imposing new rules, regulations and laws, all designed to reduce real estate closing costs and protect consumers from being steered into more expensive loans.
Recently, the Federal Reserve Board (FRB) finalized a new rule on originator compensation. According to the FRB, the rule affects “all originators.” It specifically mentions originators who work for brokers, broker businesses and originators that work for banks. However, banks (as a business), were exempt. Once again, it appears our government is in the business of picking winners and losers. Originators and broker businesses have expenses too. It’s not all about profits. Moreover, many of these expenses were created by the government, IE: The Safe Act.
Some have “applauded,” or are “satisfied” with the new rule, because it includes “all originators.” I’ll let you draw your own conclusions as to why these statements were made. However, if you’re a broker, or an originator, you understand there’s nothing to applaud about, or be satisfied with.
A few years ago, brokers originated almost 67% of all residential loans in this country. Last year, that number dropped to about 17%. This huge reduction can be attributed to a campaign to blame brokers for the housing crisis and the over regulation of the brokerage industry. These factors created substantially less competition, which is directly related to the increase reported by Bankrate. Another factor is the government itself. Government is the biggest offender of steering, by way of the implementation of rules, regulations and laws that favor the deep pocket, industry participants.
Competition reduces consumer costs, NOT Financial Reform, RESPA Reform, or FRB Rules. HUD claimed RESPA Reform would reduce a borrower’s closing costs by $700.00. That never happened! Need more proof, look at HVCC. Consumer costs increased, along with valuation fraud.
NAIHP pledges to continue fighting for restoration of a competitive market place and level playing field for all consumers.
Marc Savitt, President – NAIHP
Thank you again for supporting your local mortgage broker. We are still here because we offer the most competitive loan options, rates and fees, and we offer a higher level of customer service than large banking institutions. We work nights, weekends, and holidays. Ultimately, we would not still be here if it were not for you. Thank you.
MORTGAGE TALES (NEW EDITION)
Every month we will be adding a story of a mortgage / real estate transaction that actually took place. Some of these stories will be painful and some will give you faith that banks are still lending money. I will start the New Year off with one that is more promising.
FHA Flips and Splits
The application was taken on the 3rd of November. Our close of escrow date was the 9th of December. We were competing with a big bank (i.e. Bank of America) which is generally easy to beat, but this time they came out guns a blazing. Because we go through wholesale channels, we still came in lower.
The seller had purchased the property and was flipping it to our buyer. A flip is a a property that is purchased and resold within 90 days of initial purchase. This is allowed by FHA, but frowned on if the property is resold for more than 20% of the initial purchase price.
The seller was selling the property for the same price that the seller had purchased it for so the 20% price increase was not a factor; or was it. The seller had subdivided the lot prior to our buyer’s purchase. Although the price did not change, the asset had.
The first lender approval was actually a “SUSPENSE”, due to the appraiser listing the wrong seller on the appraisal; which was easily corrected creating only minor delays. On the morning of the 8th, one day prior to our close of escrow date, we received a “DECLINE” from the lender due to property flipping. As it turns out, the splitting of the property was a non-issue. The “decline” was issued by the underwriter because she simply misunderstood the FHA guideline with regards to property flipping. After educating the lender, a final approval was granted. My nervous first time homebuyer would close on the house; just a few days late. The loan funded December 14th, 2010.
On a side note, this loan was locked and closed, with no discount points (a percent of the loan amount to buy the interest rate down) on a 30 year fixed mortgage, at 3.875%. I am quite certain that was the lowest rate for a 30 year fixed mortgage I have ever closed a loan at. I wish I could credit it all to skill.
Unforeseen delays are all too common in today’s lending environment. Loan officers are generally the ones blamed for such delays, whether they are at fault or not. Delays are typically due to tight underwriting guidelines and everyone’s fear to fund a loan that is not insurable or saleable. The public demanded tougher guidelines, and got them. Many will now complain that they are too tight, especially if you are currently in the loan process. Have patience; your loan will fund; it just may take a little while longer. Despite longer turn times, we fund nearly every file submitted to underwriting.
TAX CUT EXTENTION CAUSES INTEREST RATES TO SPIKE
Last month the Federal Reserve announced that it would continue to purchase hundreds of billions of dollars’ worth of Treasuries in an effort to keep mortgage rates low, now coined as “quantitative easing.” The announcement alone would typically have been cause for interest rates to fall, but due to a public backlash by conservative politicians and economists raising fears of runaway inflation; rates started to move up.
In December the President announced plans on passing an $858 billion dollar proposal to extend the Bush era tax cuts for all income levels. The move to extend the tax cuts “while not perfect, will help grow our economy and create jobs in the private sector,” said the President. The Republicans demanded the cut for all income levels, while the Democrats were overwhelmingly pushing to extend the cuts to just the lower and middle income classes. The announcement by the President caused the 10-year bond yields to spike up and long term mortgage rates to follow suit.
NEW CREDIT SCORE DISCLOSURES
Yes, another mortgage disclosure is on the way. Starting January 1st, 2011, lenders will have to disclose when a factor on the borrower’s credit report has an adverse effect to the interest rate on a given loan. Risk based pricing, which can cause an increase to a borrower’s interest rate, due to the actual credit score, will now be disclosed to borrowers prior to close.
PHOENIX HOMES SALES POST UNEXPECTED GAIN
“Phoenix-area home sales in November increased 2% from the previous month, a time when sales are usually on the decline, according to real estate data provider MDA DataQuick. There were 7,127 new and existing homes and condos sold during the month. Since 1994, home sales fell an average 7.3% from October to November in Phoenix. But this year's gain shows some buyers are taking advantage of more affordable homes and historically low mortgage rates. Still, Phoenix home sales remain down 16.6% from a year ago, taking median home prices down with it for the fifth consecutive month. Buyers paid a median $127,500 for all new and resold homes in November, down 10.7% from a year ago and down 1% from October. More than 36% of all homes sold for less than $100,000, up from 27% the year before.” – Housingwire.com
Nationally existing home sales rose 5.6% in November, with the median home price of $170,600, according to the National Association of Realtors.
A DOUBLE DIP FOR HOUSING
Prices in 20 key cities fell 1.3% in October from a month earlier, an annualized decline of 15%, according to the S&P/Case-Shiller index. Prices were down 0.8% from 12 months earlier. "The double-dip is almost here," said David Blitzer, chairman of the Index Committee at Standard & Poor's. "There is no good news in October's report. Home prices across the country continue to fall."– cnnfn.com
Banks are still holding an estimated 2 million housing units which will eventually need to be released to the market. A drastic increase in units for sale on the market will put exponential pressure on an already unstable housing market.
MORTGAGE APPLICATIONS SINK
“Mortgage application volume continues to decline with a huge drop last week, as interest rates remain on an upward swing and demand for refinancings plummets. The Mortgage Bankers Association said its market composite index decreased 18.6% for the week ended Dec. 17 on a seasonally adjusted basis. Unadjusted, the index fell 20% from the prior week. Refinancing applications have decreased for six consecutive weeks and volume is at the lowest point since the end of April after another 24.6% drop last week. The seasonally adjusted purchase index fell 2.5% last week. The unadjusted purchase index declined 4.9% and was 8.4% lower than a year earlier.” – Housingwire.com
RATE WATCH
Interest rates are on the rise. Rates are currently 0.625% higher on a 30 year fixed mortgage than they were only 30 days ago. Industry speculation is that interest rates will be in the high 5%s or low 6%s by the end of 2011.
Mortgage Type Interest Rate APR
30 Year Fixed 4.500% 4.548%
15 Year Fixed 3.750% 3.832%
5/1 ARM 2.750% 2.979%
Interest rates as of 12/28/10. Conforming interest rates. Interest rates and APR based on loan amounts not to exceed $417,000. Loan to values not to exceed 80%. 720+ credit score. Owner occupied only. Purchase and rate in term refinances. Not all applicants will qualify. Call today for your individual scenario rate quote.
Conventional Refinance: If you have a conventional mortgage (must be owned or guaranteed by Fannie Mae or Freddie Mac) without mortgage insurance, you may be able to refinance up to 125% of the home’s value. Owe more than 125%? With enough compensating factors (i.e. credit, assets, etc.), you may be able to get an appraisal waiver and slip into the 125% range you need to be in. Rates are slightly higher than a standard conventional loan, but with good credit, they are still quite low.
FHA Streamline Refinance: FHA streamlines do not require an appraisal. It does not matter how much you owe verses the value of the home. Anyone with a 5% interest rate or more should look into a streamline refinance. A streamline refinance allows the homeowner to lower their rate with little or no closing costs, and no appraisal. It will not solve your value issues, but it will lower your payment. Streamline refinances are applicable for owner occupied and non-owner occupied properties.
MARKET UPDATE brought to you by:
CHRIS TILLER
602-561-1346
FAX: 602-595-5450
tiller34@hotmail.com
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