When you apply for a mortgage to buy a house, how often does the lender ask detailed questions about monthly energy costs or tell the appraiser to factor in the energy-efficiency features of the house when coming up with a value?
Hardly ever. That’s because the big three mortgage players — Fannie Mae, Freddie Mac and the Federal Housing Administration, who together account for more than 90 percent of all loan volume — typically don’t consider energy costs in underwriting. Yet utility bills can be larger annual cash drains than property taxes or insurance — key items in standard underwriting — and can seriously affect a family’s ability to afford a house.
A new, bipartisan effort on Capitol Hill could change all this dramatically and for the first time put energy costs and savings squarely into standard mortgage underwriting equations. A bill introduced Oct. 20 would force the big three mortgage agencies to take account of energy costs in every loan they insure, guarantee or buy. It would also require them to instruct appraisers to adjust their property valuations upward when accurate data on energy efficiency savings are available.
Titled the SAVE Act (Sensible Accounting to Value Energy), the bill is jointly sponsored by Sens. Michael Bennet (D-Colo.) and Johnny Isakson (R-Ga.). Here’s how it would work: Along with the traditional principal, interest, taxes and insurance (PITI) calculations, estimated energy-consumption expenses for the house would be included as a mandatory underwriting factor.
For most houses that have not undergone independent energy audits, loan officers would be required to pull data from either previous utility bills — in the case of refinancings — or from an Energy Department survey database to arrive at an estimated cost. This would then be factored into the debt-to-income ratios that lenders already use to determine whether a borrower can afford the monthly costs of the mortgage. Allowable ratios probably would be adjusted to account for the new energy/utilities component.
For houses with significant energy-efficiency improvements built in and documented with a professional audit, such as a home energy rating system study, lenders would instruct appraisers to calculate the net present value of monthly energy savings — i.e., what that stream of future savings is worth today in terms of market price — and adjust the final appraised value accordingly. This higher valuation, in turn, could be used to justify a higher mortgage amount.
For example, Kateri Callahan, president of the Alliance to Save Energy, a nonprofit advocacy group and a major supporter of the new legislation, estimates that a typical new home that is 30 percent more energy efficient than a similar-sized, average house will save about $20,000 in utility expenses over the life of a mortgage. Under the Bennet-Isakson bill, appraisers would be required to add those savings to the current market valuation of the house. In this instance, Callahan says, the increase in value would be about $10,000.
Dozens of housing, energy and environmental groups have endorsed the new legislation including appraisers, large home builders, the U.S. Chamber of Commerce, the U.S. Green Building Council, the Natural Resources Defense Council, green-designated real estate brokers, the Institute for Market Transformation and the National Association of State Energy Officials, among others.
Business groups such as the U.S. Chamber are backing the legislation because they see it as an employment generator that requires no federal budget outlays, no new taxes or programs. A joint study by the American Council for an Energy-Efficient Economy and the Institute for Market Transformation estimated that 83,000 new jobs in the construction, renovation and manufacturing industries could be stimulated by the legislation if the new underwriting rules were phased in over a period of years.
But not all interest groups are lining up behind the bill. The National Association of Realtors expressed concern that it might hamper a real estate recovery by complicating the mortgage process. “NAR supports efforts to promote energy-efficiency in housing and believes it’s something that all consumers should strive toward,” the group said. “However, we believe that homeowners should move toward energy efficiency at their own pace, without a mandate that impedes their ability to qualify for a mortgage or causes them to incur substantial additional costs to purchase a home, especially while the housing market continues to recover.”
Another group whose members and clients could be affected by the bill, the Mortgage Bankers Association, declined to comment for the record, saying it is still evaluating the bill’s provisions.
But one might ask: In a fractious, polarized Congress, could this bill actually make it through this session? The co-sponsors are optimistic and supporting groups say there is substantial bipartisan support — a rarity — for the idea in both the House and Senate.
In the meantime, for homeowners who think their energy-efficiency and cost-saving improvements should be worth something, there is no rule barring you from asking a qualified appraiser or a lender to assess the added market value of those features. You can get your house rated and documented and insist they do precisely that.
Or you can invest in documented improvements that save on utility expenses — a worthy goal in its own right — and hope that the federal agencies see the light and change their underwriting and valuation procedures before you go to sell. Sooner or later, this is going to happen.
Friday, October 28, 2011
Monday, October 24, 2011
New Loan Product with No Loan to Value restrictions!
Federal regulators on Monday plan to unveil a major overhaul of an under-used mortgage-refinance program designed to help millions of Americans whose home values have tumbled.
The plan is the latest White House effort to deal with one of the most critical impediments to economic recovery—a stagnant housing market caused in part by a surfeit of homeowners who are unable to refinance.
The overhaul will, among other things, let borrowers refinance regardless of how far their homes have fallen in value, eliminating previous limits. That could open up refinancing to legions of borrowers in Nevada, Arizona, Florida, California and elsewhere who are paying high interest rates and are deeply "underwater," owing more than their houses are worth. President Barack Obama is expected to tout the program in Las Vegas on Monday.
The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments, according to administration officials and an official at the Federal Housing Finance Agency. Fannie and Freddie have also agreed to waive some fees that made refinancing less attractive for some.
The Long Haul
The revamp is aimed at homeowners like Christine and Hector Penunuri of Gilbert, Ariz., who have never missed a mortgage payment and who both have jobs and good credit. Yet their application to refinance their five-bedroom home, which has fallen in value, was denied earlier this year because their tax returns showed a $1,000 loss in start-up costs from Mr. Penunuri's business, which isn't even his day job.
It's "absurd," says their mortgage broker, Steve Walsh of Scottsdale, because the loan is already guaranteed by government-backed mortgage company Freddie Mac.
The Penunuris could save $350 a month by refinancing to a 4% rate from their current 5.75%. They would use that money to put their two sons into junior sports, take a family vacation and pay off other debts, says Ms. Penunuri, 41 years old. "It's a win-win situation."
Freddie Mac declined to comment on the rejection of the Penunuris' earlier refinancing. Freddie Mac and sister company Fannie Mae together guarantee roughly half of the nation's $10.4 trillion in home loans outstanding.
Christine Penunuri, and her husband have never missed a mortgage payment and have jobs and good credit, but have been unsuccessful in refinancing their loan.
Regulators are revamping a program rolled out two years ago, the Home Affordable Refinance Program, or HARP, which lets borrowers with less than 20% in equity refinance if their loans are backed by Fannie Mae or Freddie Mac. President Obama announced HARP roughly one month into his presidency. So far, only 894,000 borrowers have used it, of which just 70,000 are significantly underwater.
"It hasn't worked," said James Parrott, a White House economic adviser, in a speech last month.
Officials at the Federal Housing Finance Agency, which regulates Fannie and Freddie, estimate that between 800,000 and one million more borrowers should be able to refinance. "It's in our interest to have these borrowers refinance into lower rates and continue to pay," said an FHFA official.
Monday's refinance announcement is separate from a recent push by state attorneys general to extract concessions from banks to refinance underwater mortgages. That effort, part of the months-long negotiations to settle alleged foreclosure-processing abuses, would apply only to loans held on the books of five of the nation's largest banks, a much smaller subset of loans.
In past downturns, lower interest rates engineered by the Federal Reserve were a powerful antidote for a sluggish economy. Falling mortgage rates triggered a refinancing wave that lowered homeowners' mortgage payments, freeing up cash for other things. That, in turn, helped to stimulate spending that boosted economic growth.
This time around, falling mortgage rates—now averaging just 4.11% for a 30-year fixed-rate mortgage, according to a Freddie Mac survey—haven't packed the usual oomph. The reason: Many homeowners haven't been able to refinance.
Where Reļ¬nancing Should Be Happening
CoreLogic, a company that tracks 85% of all mortgages, estimates that 20 million borrowers with equity in their homes could cut the interest rates on their loans by more than one percentage point if they could refinance. That's about a quarter of all the homeowners in the country.
Because a refinanced mortgage is treated like a brand new loan, refinancing is nearly impossible for another eight million borrowers whose homes are worth less than their mortgages, unless they qualify for HARP.
But what about those who still have equity in their homes? Some have blemishes on their credit and employment histories or don't have enough income to qualify under today's tougher lending standards. Some find refinancing isn't worthwhile after factoring in new fees imposed by Fannie and Freddie or other closing costs. Still others can't get a refinancing application through a clogged mortgage-processing system.
That's a big obstacle to a stronger economy. Goldman Sachs economists estimate that if current borrowers with a 30-year fixed-rate loan backed by Fannie or Freddie were to refinance, they would save $24 billion annually. Researchers at Columbia Business School estimate that the benefits would accrue primarily to working- and middle-class borrowers with mortgages below $200,000.
Refinancing Rethink
Key points of the overhaul, designed to make refinancing easier for people with mortgages backed by Fannie Mae and Freddie—about half the nation's $10.4 trillion in outstanding home loans:
Open to those owing more than 125% of their home's value
Appraisal and underwriting requirements to be reduced
Loan fees will drop; waived for borrowers who reduce their loan term
Borrowers must be current on previous six payments
The changes should help borrowers like Carol Gesior, who has two underwater mortgages, backed by Freddie Mac, on suburban Chicago properties she bought for siblings. She says she tried to refinance but her bank, Citigroup Inc., told her she couldn't without equity. She was unaware of HARP. If she could refinance both properties, she says she would replace her 1995 Ford Crown Victoria.
"I made a commitment. I signed an agreement to pay. But I didn't do anything to cause the values of these homes to decrease," says Ms. Gesior, 52, an office manager at an investment management firm. "Any logical person would have walked away already."
A Citi spokesman says the company is "happy to work with this client to explore refinancing options that may be available to her."
One problem is that bankers or other mortgage originators shy away from refinancing all but the safest borrowers because Fannie and Freddie can force a lender to buy back a loan if underwriting flaws emerge. In response, lenders are asking for extra documentation of incomes and scrutinizing appraisals, steps that raise costs and lead to more denials.
Another obstacle is new fees that Fannie and Freddie charge borrowers with less-than-perfect credit, even if the borrower's existing mortgage is guaranteed by Fannie or Freddie.
The changes being prepared by federal officials should boost refinancing because they will let banks avoid the risk of any "buy-back" on a HARP mortgage as long as borrowers have made their last six mortgage payments and they prove that they have a job or another source of passive income. They are also set to reduce loan fees that Fannie and Freddie charge. The fees will be waived on borrowers that refinance into loans with shorter terms, such as a 15-year mortgage.
Developments
Pricing details won't be published until mid-November, and lenders could begin refinancing loans under the retooled program as soon as Dec. 1, according to federal officials. Loans that exceed the current limit of 125% of the property's value won't be able to participate until early next year. The program's expiration date, originally next June, will be extended through 2013. HARP is only open to loans that Fannie and Freddie guaranteed as of June 2009.
Mr. Walsh, the Scottsdale broker, says such changes could lead him to hire "a ton" of new loan officers. "I have a line out the door of people who want to refinance under that program and can't," he says.
Refinancing can't fix the biggest problems eating at the housing market. Tight lending standards and high volumes of foreclosed-property sales are putting pressure on home prices at a time when demand is weak, potentially creating more underwater borrowers.
But refinancing could help those borrowers repair their balance sheets and guard against future defaults. If lenders and regulators successfully execute the changes, they could be "amazingly powerful," said mortgage-market pioneer Lewis Ranieri. "It'll start to create the confidence which is largely what's keeping the system from going forward."
The changes could spur an additional 1.6 million refinanced loans by the end of 2013, assuming interest rates don't rise sharply, according to Mark Zandi, chief economist at Moody's Analytics.
For the very safest homeowners, falling mortgage rates have been a bonanza. Some have become serial refinancers. Jim Wozniak locked in a 3.88% rate for 30-year fixed-rate mortgages for his primary residence in Brookfield, Wis., and his lakefront home in nearby Hartland late last month. Replacing 4.25% loans, he will save $2,700 annually.
"This is probably my third time in three years," says Mr. Wozniak, a 54-year-old investment adviser who says he has an excellent credit score and lots of equity in both properties.
For others, the hurdles are insurmountable. Appraisals are a big one. When an appraisal shows that a property has too little equity, lenders sometimes order a second appraisal. "You get into these appraisal wars, often at the borrowers' expense," says Marietta Rodriguez, the national director for home-ownership and lending at NeighborWorks America, a nonprofit housing group.
Steven Eisner, a 59-year-old attorney in Haddonfield, N.J., says he expected to sail through the process when he tried to refinance last month because he has good credit and strong income. Instead, he was startled to find that the appraisal on his vacation condo in Bonita Springs, Fla., came in so low he would have needed to ante up $52,000.
He put 25% down when he bought it four years ago. But, because of sagging home prices, his equity has declined to just 10% of the property's value. Refinancing "is simply not worth the trouble," says Mr. Eisner, whose mortgage is guaranteed by Fannie.
Not everyone benefits from encouraging more refinancing, of course. Banks and investors in mortgage-backed securities—including Fannie and Freddie and the Federal Reserve—stand to lose billions if performing loans pay off, leaving investors with cash to reinvest at today's lower rates.
"Somebody's going to get hit. This isn't a free good," says Anthony Sanders, a real-estate finance professor at George Mason University in Fairfax, Va.
That doesn't faze Mr. Eisner. "We've certainly done enough to prop the banks up," he says. "These are loans that everyone knew could prepay."
The success of any refinance push rests not only on whether policy makers can untangle a Gordian knot of technical hurdles, but also on whether they can get buy-in from private-sector players. One major obstacle to refinancing is that the mortgage industry has shrunk. Four big banks now control more than 60% of the mortgage market. Many originators, including the biggest banks, have cut staff or shifted loan underwriters into units working through piles of delinquent mortgages.
New rules designed to prevent independent mortgage brokers—who originate loans on behalf of a bank or other lender—from fleecing consumers have made it harder for them to compete with bigger lenders that aren't subject to the same rules. For example, new compensation rules make it less attractive for brokers to originate smaller or more complicated loans.
The reduced competition has led to longer processing times and higher prices for consumers. When their borrowing costs fall, banks aren't necessarily reducing the rates they charge borrowers by the same amount. Banks with big market share "know they can get away with it," says Thomas Lawler, an independent housing economist in Leesburg, Va. "The market's just not as competitive as it once was."
Industry executives dispute the notion that the market isn't competitive but concede that the industry wasn't ready to handle a surge in applications after rates dropped two months ago.
"Capacity constraints" will be temporary because lenders are hiring more staff, but "in the short run, there's no question that's a challenge," says David Stevens, the chief executive of the Mortgage Bankers Association. Lenders are going "through a lot more checks and balances simply to get a loan approved safely and soundly."
Some spurned borrowers aren't giving up. Barb Skaer, 70, of Appleton, Wis., and her husband wanted to refinance a $402,000 mortgage on a second home that appraised at $547,000 two years ago. She says they have strong credit scores and own part of a manufacturing business that makes bobby pins and hair clips.
Ms. Skaer says their bank, J.P. Morgan Chase & Co., quoted a 4% rate. But she says her loan officer told her she and her husband wouldn't qualify for a new loan because their income from their factory business declined the past two years. A J.P. Morgan spokesman declined to comment.
Ms. Skaer says they are appealing the decision at their bank and may go elsewhere if that doesn't work.
"Our theory is that if we can afford [the current payment of] $2,189 per month, we should be able to afford $200 less by refinancing," says Ms. Skaer. "This makes absolutely no sense to us, and we are not taking 'no' for an answer."
The plan is the latest White House effort to deal with one of the most critical impediments to economic recovery—a stagnant housing market caused in part by a surfeit of homeowners who are unable to refinance.
The overhaul will, among other things, let borrowers refinance regardless of how far their homes have fallen in value, eliminating previous limits. That could open up refinancing to legions of borrowers in Nevada, Arizona, Florida, California and elsewhere who are paying high interest rates and are deeply "underwater," owing more than their houses are worth. President Barack Obama is expected to tout the program in Las Vegas on Monday.
The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments, according to administration officials and an official at the Federal Housing Finance Agency. Fannie and Freddie have also agreed to waive some fees that made refinancing less attractive for some.
The Long Haul
The revamp is aimed at homeowners like Christine and Hector Penunuri of Gilbert, Ariz., who have never missed a mortgage payment and who both have jobs and good credit. Yet their application to refinance their five-bedroom home, which has fallen in value, was denied earlier this year because their tax returns showed a $1,000 loss in start-up costs from Mr. Penunuri's business, which isn't even his day job.
It's "absurd," says their mortgage broker, Steve Walsh of Scottsdale, because the loan is already guaranteed by government-backed mortgage company Freddie Mac.
The Penunuris could save $350 a month by refinancing to a 4% rate from their current 5.75%. They would use that money to put their two sons into junior sports, take a family vacation and pay off other debts, says Ms. Penunuri, 41 years old. "It's a win-win situation."
Freddie Mac declined to comment on the rejection of the Penunuris' earlier refinancing. Freddie Mac and sister company Fannie Mae together guarantee roughly half of the nation's $10.4 trillion in home loans outstanding.
Christine Penunuri, and her husband have never missed a mortgage payment and have jobs and good credit, but have been unsuccessful in refinancing their loan.
Regulators are revamping a program rolled out two years ago, the Home Affordable Refinance Program, or HARP, which lets borrowers with less than 20% in equity refinance if their loans are backed by Fannie Mae or Freddie Mac. President Obama announced HARP roughly one month into his presidency. So far, only 894,000 borrowers have used it, of which just 70,000 are significantly underwater.
"It hasn't worked," said James Parrott, a White House economic adviser, in a speech last month.
Officials at the Federal Housing Finance Agency, which regulates Fannie and Freddie, estimate that between 800,000 and one million more borrowers should be able to refinance. "It's in our interest to have these borrowers refinance into lower rates and continue to pay," said an FHFA official.
Monday's refinance announcement is separate from a recent push by state attorneys general to extract concessions from banks to refinance underwater mortgages. That effort, part of the months-long negotiations to settle alleged foreclosure-processing abuses, would apply only to loans held on the books of five of the nation's largest banks, a much smaller subset of loans.
In past downturns, lower interest rates engineered by the Federal Reserve were a powerful antidote for a sluggish economy. Falling mortgage rates triggered a refinancing wave that lowered homeowners' mortgage payments, freeing up cash for other things. That, in turn, helped to stimulate spending that boosted economic growth.
This time around, falling mortgage rates—now averaging just 4.11% for a 30-year fixed-rate mortgage, according to a Freddie Mac survey—haven't packed the usual oomph. The reason: Many homeowners haven't been able to refinance.
Where Reļ¬nancing Should Be Happening
CoreLogic, a company that tracks 85% of all mortgages, estimates that 20 million borrowers with equity in their homes could cut the interest rates on their loans by more than one percentage point if they could refinance. That's about a quarter of all the homeowners in the country.
Because a refinanced mortgage is treated like a brand new loan, refinancing is nearly impossible for another eight million borrowers whose homes are worth less than their mortgages, unless they qualify for HARP.
But what about those who still have equity in their homes? Some have blemishes on their credit and employment histories or don't have enough income to qualify under today's tougher lending standards. Some find refinancing isn't worthwhile after factoring in new fees imposed by Fannie and Freddie or other closing costs. Still others can't get a refinancing application through a clogged mortgage-processing system.
That's a big obstacle to a stronger economy. Goldman Sachs economists estimate that if current borrowers with a 30-year fixed-rate loan backed by Fannie or Freddie were to refinance, they would save $24 billion annually. Researchers at Columbia Business School estimate that the benefits would accrue primarily to working- and middle-class borrowers with mortgages below $200,000.
Refinancing Rethink
Key points of the overhaul, designed to make refinancing easier for people with mortgages backed by Fannie Mae and Freddie—about half the nation's $10.4 trillion in outstanding home loans:
Open to those owing more than 125% of their home's value
Appraisal and underwriting requirements to be reduced
Loan fees will drop; waived for borrowers who reduce their loan term
Borrowers must be current on previous six payments
The changes should help borrowers like Carol Gesior, who has two underwater mortgages, backed by Freddie Mac, on suburban Chicago properties she bought for siblings. She says she tried to refinance but her bank, Citigroup Inc., told her she couldn't without equity. She was unaware of HARP. If she could refinance both properties, she says she would replace her 1995 Ford Crown Victoria.
"I made a commitment. I signed an agreement to pay. But I didn't do anything to cause the values of these homes to decrease," says Ms. Gesior, 52, an office manager at an investment management firm. "Any logical person would have walked away already."
A Citi spokesman says the company is "happy to work with this client to explore refinancing options that may be available to her."
One problem is that bankers or other mortgage originators shy away from refinancing all but the safest borrowers because Fannie and Freddie can force a lender to buy back a loan if underwriting flaws emerge. In response, lenders are asking for extra documentation of incomes and scrutinizing appraisals, steps that raise costs and lead to more denials.
Another obstacle is new fees that Fannie and Freddie charge borrowers with less-than-perfect credit, even if the borrower's existing mortgage is guaranteed by Fannie or Freddie.
The changes being prepared by federal officials should boost refinancing because they will let banks avoid the risk of any "buy-back" on a HARP mortgage as long as borrowers have made their last six mortgage payments and they prove that they have a job or another source of passive income. They are also set to reduce loan fees that Fannie and Freddie charge. The fees will be waived on borrowers that refinance into loans with shorter terms, such as a 15-year mortgage.
Developments
Pricing details won't be published until mid-November, and lenders could begin refinancing loans under the retooled program as soon as Dec. 1, according to federal officials. Loans that exceed the current limit of 125% of the property's value won't be able to participate until early next year. The program's expiration date, originally next June, will be extended through 2013. HARP is only open to loans that Fannie and Freddie guaranteed as of June 2009.
Mr. Walsh, the Scottsdale broker, says such changes could lead him to hire "a ton" of new loan officers. "I have a line out the door of people who want to refinance under that program and can't," he says.
Refinancing can't fix the biggest problems eating at the housing market. Tight lending standards and high volumes of foreclosed-property sales are putting pressure on home prices at a time when demand is weak, potentially creating more underwater borrowers.
But refinancing could help those borrowers repair their balance sheets and guard against future defaults. If lenders and regulators successfully execute the changes, they could be "amazingly powerful," said mortgage-market pioneer Lewis Ranieri. "It'll start to create the confidence which is largely what's keeping the system from going forward."
The changes could spur an additional 1.6 million refinanced loans by the end of 2013, assuming interest rates don't rise sharply, according to Mark Zandi, chief economist at Moody's Analytics.
For the very safest homeowners, falling mortgage rates have been a bonanza. Some have become serial refinancers. Jim Wozniak locked in a 3.88% rate for 30-year fixed-rate mortgages for his primary residence in Brookfield, Wis., and his lakefront home in nearby Hartland late last month. Replacing 4.25% loans, he will save $2,700 annually.
"This is probably my third time in three years," says Mr. Wozniak, a 54-year-old investment adviser who says he has an excellent credit score and lots of equity in both properties.
For others, the hurdles are insurmountable. Appraisals are a big one. When an appraisal shows that a property has too little equity, lenders sometimes order a second appraisal. "You get into these appraisal wars, often at the borrowers' expense," says Marietta Rodriguez, the national director for home-ownership and lending at NeighborWorks America, a nonprofit housing group.
Steven Eisner, a 59-year-old attorney in Haddonfield, N.J., says he expected to sail through the process when he tried to refinance last month because he has good credit and strong income. Instead, he was startled to find that the appraisal on his vacation condo in Bonita Springs, Fla., came in so low he would have needed to ante up $52,000.
He put 25% down when he bought it four years ago. But, because of sagging home prices, his equity has declined to just 10% of the property's value. Refinancing "is simply not worth the trouble," says Mr. Eisner, whose mortgage is guaranteed by Fannie.
Not everyone benefits from encouraging more refinancing, of course. Banks and investors in mortgage-backed securities—including Fannie and Freddie and the Federal Reserve—stand to lose billions if performing loans pay off, leaving investors with cash to reinvest at today's lower rates.
"Somebody's going to get hit. This isn't a free good," says Anthony Sanders, a real-estate finance professor at George Mason University in Fairfax, Va.
That doesn't faze Mr. Eisner. "We've certainly done enough to prop the banks up," he says. "These are loans that everyone knew could prepay."
The success of any refinance push rests not only on whether policy makers can untangle a Gordian knot of technical hurdles, but also on whether they can get buy-in from private-sector players. One major obstacle to refinancing is that the mortgage industry has shrunk. Four big banks now control more than 60% of the mortgage market. Many originators, including the biggest banks, have cut staff or shifted loan underwriters into units working through piles of delinquent mortgages.
New rules designed to prevent independent mortgage brokers—who originate loans on behalf of a bank or other lender—from fleecing consumers have made it harder for them to compete with bigger lenders that aren't subject to the same rules. For example, new compensation rules make it less attractive for brokers to originate smaller or more complicated loans.
The reduced competition has led to longer processing times and higher prices for consumers. When their borrowing costs fall, banks aren't necessarily reducing the rates they charge borrowers by the same amount. Banks with big market share "know they can get away with it," says Thomas Lawler, an independent housing economist in Leesburg, Va. "The market's just not as competitive as it once was."
Industry executives dispute the notion that the market isn't competitive but concede that the industry wasn't ready to handle a surge in applications after rates dropped two months ago.
"Capacity constraints" will be temporary because lenders are hiring more staff, but "in the short run, there's no question that's a challenge," says David Stevens, the chief executive of the Mortgage Bankers Association. Lenders are going "through a lot more checks and balances simply to get a loan approved safely and soundly."
Some spurned borrowers aren't giving up. Barb Skaer, 70, of Appleton, Wis., and her husband wanted to refinance a $402,000 mortgage on a second home that appraised at $547,000 two years ago. She says they have strong credit scores and own part of a manufacturing business that makes bobby pins and hair clips.
Ms. Skaer says their bank, J.P. Morgan Chase & Co., quoted a 4% rate. But she says her loan officer told her she and her husband wouldn't qualify for a new loan because their income from their factory business declined the past two years. A J.P. Morgan spokesman declined to comment.
Ms. Skaer says they are appealing the decision at their bank and may go elsewhere if that doesn't work.
"Our theory is that if we can afford [the current payment of] $2,189 per month, we should be able to afford $200 less by refinancing," says Ms. Skaer. "This makes absolutely no sense to us, and we are not taking 'no' for an answer."
Friday, October 21, 2011
How To Shop for a Home Loan
After hitting record lows of 3.94% with 0.8 points the week of October 3, rates are up .375% in the past two weeks. And while rates are still extremely low, refinancers and homebuyers are always looking for the lowest.
A primary reason rates rose is market optimism about Eurozone leaders acting more forcefully to contain problems with insolvent member nations like Greece. Eurozone issues are also a big reason rates got so low.
Here's why:
If one or more Eurozone nations defaulted on their debts, European and U.S. banks would both suffer and it could lead to market turmoil on the level we saw in 2008. These concerns have driven global investors into safer bets like U.S. mortgage bonds, and rates fall when bond prices rise on this buying. This extreme volatility won’t stop as the Eurozone crisis plays out in the coming weeks and months. Rates trade in realtime and react to each little development. This is why it's rates will likely touch early-October lows again. But these lows come and go in minutes during specific trading intervals each trading day. And this kind of volatility drastically changes the way consumers should shop for a mortgage. Because markets move up and down so fast right now, the rates you see in mainstream media* headlines are long gone by the time you can do anything about it.
So here’s how to shop for a mortgage in this new world. Shop For Loan Agents, Not Rates
Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate. Here’s what happens when shoppers focused only on rate get quoted by a good loan agent: Loan agent quotes a rate only after they've analyzed the client's entire financial profile and analyzed their home’s value and condition—also known as pre-approving them.
The client will either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else. Then 80% of those cases come back to that loan agent because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.
Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms. What’s not the same lender to lender is the loan agent’s ability to: (1) advise properly, (2) analyze borrower and property profiles, and (3) close with no surprises. So shop to find the lender and loan agent you feel most confident can perform on these three things. Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it. These guidelines are for refinancers.
For homebuyers, you can’t lock a rate until you’re in contract to buy a home, but once you’re in contract, the same approach applies.
Rate Targeting
Their are two reasons for the pre-approval and rate targeting tactics discussed above: (1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on. (2) Rate lows are here and gone in minutes each trading day as mortgage bonds rise and fall on economic and technical trading signals. So if you don't first get pre-approved then set a rate target with a standing lock order, it's nearly impossible to hit the lows AND close with no surprises.
Your loan agent also must be able to brief you daily or weekly on the market outlook, so if you're not sensing market competence from your agent, then keep shopping. A loan agent must have a strong read on what's impacting the rate market ups and downs to deliver you the best terms.
*Mainstream media is almost always off the mark on rate data
Crystal Clear Mortgage
888-634-6911
A primary reason rates rose is market optimism about Eurozone leaders acting more forcefully to contain problems with insolvent member nations like Greece. Eurozone issues are also a big reason rates got so low.
Here's why:
If one or more Eurozone nations defaulted on their debts, European and U.S. banks would both suffer and it could lead to market turmoil on the level we saw in 2008. These concerns have driven global investors into safer bets like U.S. mortgage bonds, and rates fall when bond prices rise on this buying. This extreme volatility won’t stop as the Eurozone crisis plays out in the coming weeks and months. Rates trade in realtime and react to each little development. This is why it's rates will likely touch early-October lows again. But these lows come and go in minutes during specific trading intervals each trading day. And this kind of volatility drastically changes the way consumers should shop for a mortgage. Because markets move up and down so fast right now, the rates you see in mainstream media* headlines are long gone by the time you can do anything about it.
So here’s how to shop for a mortgage in this new world. Shop For Loan Agents, Not Rates
Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate. Here’s what happens when shoppers focused only on rate get quoted by a good loan agent: Loan agent quotes a rate only after they've analyzed the client's entire financial profile and analyzed their home’s value and condition—also known as pre-approving them.
The client will either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else. Then 80% of those cases come back to that loan agent because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.
Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms. What’s not the same lender to lender is the loan agent’s ability to: (1) advise properly, (2) analyze borrower and property profiles, and (3) close with no surprises. So shop to find the lender and loan agent you feel most confident can perform on these three things. Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it. These guidelines are for refinancers.
For homebuyers, you can’t lock a rate until you’re in contract to buy a home, but once you’re in contract, the same approach applies.
Rate Targeting
Their are two reasons for the pre-approval and rate targeting tactics discussed above: (1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on. (2) Rate lows are here and gone in minutes each trading day as mortgage bonds rise and fall on economic and technical trading signals. So if you don't first get pre-approved then set a rate target with a standing lock order, it's nearly impossible to hit the lows AND close with no surprises.
Your loan agent also must be able to brief you daily or weekly on the market outlook, so if you're not sensing market competence from your agent, then keep shopping. A loan agent must have a strong read on what's impacting the rate market ups and downs to deliver you the best terms.
*Mainstream media is almost always off the mark on rate data
Crystal Clear Mortgage
888-634-6911
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