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Mortgage Headlines
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Last Updated Saturday, October
24, 2001 12:34 PM CST
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The Case For Yield Spread Premiums
Last week the HUD Secretary announced new disclosure rules designed to prevent unexpected loan fees at settlement. Among the details of the new policy, HUD sought to clarify its position on "yield spread premiums". HUD has stated that YSPs are not "illegal kickbacks" as some interest groups have charged, but serve "an important purpose" by allowing low-income borrowers to pay lower fees at settlement in return for a higher interest rate. The plain fact is that in the vast majority of loans where YSPs are paid, these fees are used to offset the borrower's typical closing costs. The only way the mortgage industry can offer no point or no cost loans is by offering a higher interest rate with a YSP. Without YSPs, the American consumer would not be given the choice to take a higher rate with lower fees.
No Need to License Colorado Mortgage Brokers, Review Finds
The Colorado Department of Regulatory Agencies (Department) recently released a report that said stricter enforcement of existing laws and more consumer education would better serve the public, according to DenverPost.com. The report -- which is the result of a request for licensure by the Colorado Association of Mortgage Brokers' (CAMB) -- reportedly indicated that licensing would not prevent unscrupulous lending practices and would reduce the level of competition in the mortgage industry. The CAMB president-elect was quoted as saying that he was very disappointed. Another association -- the Colorado Mortgage Lenders Association -- reportedly said it applauded the Department's decision.
"Upcharging" On The Outs, Says HUD
The message from the federal government to mortgage lenders, brokers, title companies and other real estate settlement service firms could not be clearer: No matter what you may have heard to the contrary, marking-up the costs of consumer credit reports, appraisals, title recordations and other routine mortgage closing fees is illegal. In a wide-ranging policy statement last week on mortgage fees, HUD addressed a controversy that's been simmering since this summer: the belief by some real estate and mortgage industry professionals that there is no federal prohibition against "upcharging" clients on routine services. Now HUD has explicitly put upchargers on notice: Mark up consumers at your peril. It's a violation of federal law, and it could lead to fines of thousands of dollars per borrower, or a class action suit involving all your illegally upcharged customers.
Mortgage Market Reshaped by Terrorist Attacks But Proving Resilient
More than a month after the terrorist attacks on New York and Washington, D.C., they still have an appropriately enormous impact on our lives and mortgage market trade. But, according to TheBankingChannel.com, despite this, there were signs last week that both of the latter are getting back on track. Moody's Investors Service managing director Tad Philipp was quoted as saying in a report last week, "the years of upgrades exceeding downgrades by wide margins are likely over." The story went on to say that by and large, even though the mortgage market remains less than entirely immune to the intensified economic downtown, it is still being thought of as one of the sectors better positioned for the challenge than others - or than it has been in the past.
Questions to ask before starting a re-fi
The first factor borrowers should consider, according to a recent SFGate.com story, is how much money they will save. Because the decision to refinance depends on individual circumstances, they would have to decide if the monthly savings is worth the costs of refinancing -- which include application fee, credit check, points, appraisal, title search, title insurance and others. The next factor is whether to pull cash out, and how much. The term is important; while the fifteen-year mortgage costs more each month, the loan will be paid in full at 15 years. On a 30-year loan, the borrower will only be beginning a fifteen-year loan (again).
Getting your name off a mortgage is almost impossible
There is nothing a cosigner can do to force the lender to remove their name from a mortgage the cosigned on, according to a story at SFGate.com. The situation shows the pitfalls of co-signing on a mortgage to help a relative or friend qualify. Even after six years, what incentive does the lender have to let the cosigner off the mortgage? None. Lenders know that the cosigner would probably come to the rescue if principal borrower falls behind in his payments.
Refis Jump 22.5%; Set New Record
Applications for mortgage refinances jumped more than twenty-two percent from the prior week, according to the Mortgage Bankers Association of America's (MBA) survey for the week ending October 12th. The composite index, which includes all loan application types, increased more than eighteen percent from last week. Freddie Mac reported that the average 30-year fixed rate mortgage (FRM) rose slightly to 6.61% from 6.58 percent the prior week. The fifteen-year FRM also climbed 3 basis points (BPS) to 6.09%. BankRate.com reported that the majority of the 100 mortgage experts it surveyed for the week ending October 24th expect rates to remained unchanged.
Is Now The Time To Lock-In?
Federal Reserve Chairman Greenspan served up an impromptu rate intervention to help stave an Asian financial collapse in October 1998. Rates had already been heading downward because of financial instability, but the Fed cuts helped spur a sharp drop in mortgage rates. For about five days. After that, rates took off and never looked back, reaching a peak almost 18 months later, when rates moved above the 8.50 percent mark. No one, knows where rates are headed. If you're now thinking about locking in, think about it this way...assume you'll decide but make the wrong decision. In other words, if you decide to lock today yet rates go down another 1/4 percent in 60 days you still really won, didn't you? No, you may not have hit the absolute bottom, but at least you got a record-setter. On the other hand, let's say you didn't lock and made a mistake...rates shot up and never went back down. Which way would you rather be wrong?
$59 Billion Real Estate Package Proposed For Washington
For the first time in years, real estate has a shot at substantially changing the federal policies governing the sector and its sister industries. As Congress continues to wade through budget proposals for the year, pros on both sides of the political spectrum are desperately seeking ways to stimulate the sputtering U.S. economy. And any measure that does not cause a significant impact on tax revenue is getting close scrutiny. By some estimates, real estate contributes more than 12 percent to the nation's gross domestic product, which means that energizing real estate can lead to broader economic growth. Since January, 2001, says MBA the industry added 25,300 jobs, bringing the total real estate industry employment level to a record 1.56 million. This week the MBA launched its lobbying effort to enact a pro-real estate economic agenda. The organization claims that its suggestions would pump $11.8 billion into the American economy and create 55,000 jobs in the first year. Over five years, agenda items would generate $59.2 billion and create 275,000 jobs, according to the association.
Refinance is not wash or roll-over transaction in bond market
When a loan is refinanced, the payoff extinguishes a part of an existing mortgage-backed security (MBS), and a new buyer must be found for the MBS into which the new loan must go, according to a recent story at Inman.com. The flood of new, refinancing mortgages constitutes selling pressure in the bond market, and equally upward pressure on rates. Many investors drop out of the MBS market during a period of rapidly falling rates for fear that they will be "prepaid out" -- just as many have been by re-refinancing this year. Most existing 30-year mortgages bear a seven-point-something rate. It takes about a one percent drop in rates to justify a refinance. Since Labor Day, borrowers with rates 7.75-7.875 percent have had their first good, economic opportunity to refinance... ever.
Mortgage Fraud Case May Upset Balance Of Power In NY County
In a case that could affect the balance of power in New York's Nassau County, Patrick Williams was indicted by a federal grand jury in Brooklyn on one count of conspiracy, one count of making false statements to a federally insured bank and three counts of defrauding HUD, according to a story by Newsday.com (Newsday). Williams, 51, was reportedly charged with illegally obtaining $1.28 million in mortgage loans for five home buyers. Newsday said that if he is convicted of the charge of making false statements to a federally insured bank, Williams -- who was a former bank regulator for the Federal Deposit Insurance Corp. and a former vice president of the Freedom National Bank of New York -- could reportedly face up to 30 years in prison but will likely face much less, under federal sentencing guidelines.
Mortgage Broker Sentenced
Raymond T. Jackman, JR. appeared in federal court recently and was sentenced to two years' probation, according to an announcement from the U.S. Attorney's office. Jackman also received a $1,000 fine for his participation in the scheme to commit bank fraud. The sentence is significantly less than the maximum penalty of 5 years' incarceration and a $250,000 fine. Jackman, who worked as a mortgage broker & originator, pleaded guilty to conspiracy to commit bank fraud in July.
Has Your Credit Changed?
Lenders typically qualify borrowers on the basis of two measures: front ratios and back ratios. In general terms, these standards work like this: The "front ratio" is the percent of gross monthly income used for mortgage principal, mortgage interest, property taxes, and property insurance. Depending on the loan program, lenders might allow 28 to 41 percent of a borrower's income for "PITI." The "back ratio" includes PITI plus car payments, student loan payments, credit card payments, auto loan payments, etc. Back ratios typically range from 36 to 41 percent, but can be greater. The ratios can be lowered to acceptable levels by defering major expenses until after the close, avoiding new credit, paying down debt and cosolidating bills.
How To Assure Loan Rates
Unless the loan officer issues a written lock-in agreement, borrowers are subject to market fluctuations in interest rates. A lock-in agreement is a written commitment by the lender that guarantees the interest rate and terms for a specified period of time. This time period should be long enough to get the loan processed and closed. "Bait and switch" is a generic term to describe the unethical practice of quoting below-market rates to secure the loan application appointment. When the formal loan application is made, the loan officer jacks up the rate. Loan officers are very busy right now because of so many refinancings. Loan officer gives out several rate quotes a day and and quote the current rate at the time.The loan officer should make it very clear that quoted rates are subject to change unless locked. The responsibility of ensuring that the customer understands this rests upon the loan officer.
Freddie Sees 30-yr At 6.6% For Remainder Of 2001
Freddie Mac's chief economist said that 30-year fixed rates should average 6.6% for the rest of the year. He also said that the recovery next year may place upward pressure on mortgage rates, but mortgage rates should still remain below seven percent through 2002.
HUD Clarifies YSP's
The Department of Housing and Urban Development (HUD issued an opinion on yield spread premiums (YSP). HUD clarified its policy by restating that excessive and unreasonable fees are illegal under RESPA because they are unreasonable and not a payment for a bona fide service.
Mortgage Bankers Seek Real Estate Stimulus Package
The Mortgage Bankers Association of America is expected to unveil a far-reaching, $58 billion real estate "economic stimulus" package at its annual convention in Toronto. The package of proposals, an advance copy of which was obtained by RealtyTimes, involves no new federal spending, but is chock-full of recommendations for tax cuts and improvements to federal housing programs. Among the proposals are capital gains tax reductions, and improvements to a variety of other housing-related areas of the federal tax code. One of the most intriguing concepts is a call for an expansion of mortgage interest tax deductions to all taxpaying homeowners, including those who don't itemize. Under current law, only households who itemize on their federal returns can write off mortgage interest payments.Under the MBA's plan, non-itemizing homeowners who take the standard deduction would get a new write-off -- the mortgage interest they paid their lender during the tax year.
What Happens When Surprise Liens Are Found?
The "promissory" note is a legal document which spells out the loan terms. An original loan amount of $160,000, amortized over 30 years, at an interest rate of 7% would have a principal and interest payment of $1,064.48. The promissory note simply states that the borrower acknowledges borrowing $160,000, and agrees to repay this loan at 7 percent, on a monthly basis. The note also spells out the penalty (late charge) should the payment be late. The promissory note also permits the lender to accelerate the remaining balance due on the note should a default occur. The "deed of trust" is the mortgage document. In order to assure the lender that their loan is secured, the borrower signs a deed of trust, which has the effect of giving certain rights to a trustee (or trustees) selected by the lender. In some states, a deed of trust actually conveys legal title in the property to these trustees, giving them the right to immediately foreclose on the property should the borrower be in default. In the majority of states, however, the deed of trust only gives the lender a lien on the property; title remains with the borrower. Trustees under a deed of trust have two basic functions. If the borrower pays off the loan, the trustees are required to release the deed of trust from the land records. Different states have different procedures for accomplishing this release; regardless of what form is used, a paid off mortgage must be released from land records.The trustees also have the right to foreclose on the property. In some states, the trustees have to go to Court and obtain a Judge's approval to proceed with the foreclosure. This is known as a "judicial foreclosure". In other states, the trustees have the right to advertise the property with a local auctioneer and sell the property under a trustees deed to a successful bidder. This is known as a "non-judicial" foreclosure.
How Low Can Rates Go?
Could mortgage rates again drop that low? Can we ever expect to get the kind of mortgage our parents had? Could rates ever creep high again? Could we ever go back to a time when mortgage rates were more than 16 percent, as was the case in 1981 and 1982? The Washington Post reports that the answer to both questions is probably not -- under current conditions that is, according to economists and bankers. Most analysts believe that rates will decline a bit for the rest of 2001, perhaps bottoming out by the end of the year. The decline will likely be slight, however, with 30-year loans remaining at more than 6 percent. Predictions call for rates to stay low in the first quarter of 2002, rising only after an economic recovery sets in. One of the most significant factors affecting long-term rate movements is inflation expectations. Lenders seek to set the interest rate high enough to ensure a profit even if inflation over time erodes the value of the money lent. Thus, if inflation is low -- and the expectation is that it will stay low -- rates can be set lower than otherwise. If inflation is high, however, as it was in the 1980s, then rates would rapidly increase.
Mortgage Brokers Likely to Disclose Fees Under New U.S. Guidelines
Millions of American home buyers and refinancers who use mortgage brokers to obtain their loans could be in line for important new federal consumer protections, according to the Washington Post. Lending and brokerage trade groups have reportedly signaled their willingness to divulge far more about their compensation and services to their customers. Mortgage brokers have offered to provide all borrowers a uniform disclosure on brokers' duties and services, to be handed out at application. Mortgage lenders -- banks and others who fund the loans originated by brokers -- have offered to go further. They support new, legally binding disclosures requiring brokers to commit to a specified maximum charge for their fees at application, plus explanations of where the fees come from, and the legal nature of their duties to the consumer.
15-yr Rate At Decade Low Level
The average fifteen-year fixed rate mortgage (FRM) fell 0.05% or five basis points (BPS) from last week to 6.06%, its lowest point since Freddie Mac began tracking the average in 1991. Nationally, Freddie reported the average thirty-year FRM fell six BPS to 6.58%, 1.26 percent better than a year ago. BankRate.com's mortgage experts disagree with the economist; in this week's survey, the majority of respondents predict rates will fall, while just over a third think rates will increase. MBA reported that applications for mortgage refinances surged 23.87% from last week. MBA said that the seasonally adjusted market composite index -- which rose 11.54% from last week -- and the refinance indexes both reached their second highest levels since the survey started in January 1990. The highest level was reached on October 9, 1998.
Anthrax Scare At Standard Federal
Standard Federal Bank announced that the Michigan Department of Community Health has declared that its Operations Center building in Troy, Michigan is safe. According to the announcement, a white powder was found in the building Tuesday evening. A company spokesman told MortgageDaily.com that an employee reported influenza after encountering the powder. Michigan State Police and the Federal Bureau of Investigation closed the building as a precautionary measure. The employee was examined at a local hospital and releasedThe Detroit Free Press reports that according to mortgage securities industry estimates, slightly more than one-half of the country's outstanding home loans carry rates of 7% or higher. One out of four loans carries a rate higher than 7.5 percent, one out of eight a rate of 8% or higher. But now many refinancers --even those who closed on new loans within the last 12 months --are looking at fixed 30-year rates of 6.75 percent and below, 15-year rates of 6.25 percent and adjustable-rate mortgages in the 5 percent range. Low interest rates this fall are also focusing new attention on a technique that allows home owners in the above 7 percent mortgage-rate bracket to refinance with little or no money out of pocket. Known as zero-cost refinancings, these transactions involve no appraisal, credit, title or other closing fees at settlement. The rate, for instance, might be one-quarter of a percentage point higher than the otherwise prevailing rate for a particular type of mortgage.
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