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Monday Morning Mortgages>
Monday Morning Mortgages
September 28, 2009
Mortgage Broker vs. Bank Lender
There are pros and cons on both sides when deciding on working with a broker or a bank for a loan. According to Bankrate.com, “the majority of people find that better deal with mortgage brokers. About 65 percent of home loans are originated through brokers”. In my opinion, freedom to choose is the best reason to work with a reliable mortgage broker.
Here are some comparisons to understand the background of fundamental differences between getting a home loan through a mortgage broker and using a bank retail lending center.
Marketing - Banks build off existing relationships with customers and the power of their name along with retail presence. Brokers are more like the self-employed building their business through relationships in the real estate community and with past clients through referrals. They have to continue to satisfy clients because their future business is tied to their personal name.
Accountability – The management structure of a bank can offer more accountability for the agent’s performance, because you can go to a manager and complain. If the broker provides poor service, the Sonoma County borrower’s recourse would be to file a complaint with the California Department of Real Estate and fire their broker.
Licensing – Bank loan agents are not required to have any licensing, as they operate under the corporate license of the bank. Loan originators in brokerages in Sonoma County are required to have a California DRE sales license. Many broker loan agents have the higher broker’s level of licensing.
Compensation – Bank loan agents receive a modest salary and benefits, and a commission on each loan from their employer. The bank receives the YSP from the investor. Brokers are paid through either loan origination points, YSP from the investor, or a combination of both.
YSP –Yield Spread Premium (which is the income or cost to the broker or bank, paid by the investor at each rate) is not required to be disclosed by banks. So you really don’t know how much they are making on the loan. Brokers must, by law, disclose their estimated and final YSP to borrower.
Pricing – Retail banks are often not the best on the rate pricing. They will commonly use their higher rates (hence higher income) to pay some of the buyer’s closing costs. Brokers are sifting through competing daily rates from multiple investors to get the best rate for the client. Brokers have lower overhead and no shareholders to satisfy in their pricing model.
Service – At a bank often service is restricted to the confines of bank hours. Service is limited to the reputation of the specific loan officer. Brokers build their business on relationships and loan successes so they work hard to provide the best service.
Underwriting – Some of the smaller banks will be underwriting by their own guidelines and may be more flexible and more willing to listen to a borrower’s “story”. The larger banks who sell their loans have the issues of not having complete control over underwriting decisions since they are trying to anticipate any details that their loan buyers (investors) will cite to refuse to buy the loan. Brokers have the freedom to choose a lender to whom they will send the loan. This choice is based not only on pricing, but on how sensible and quick the lender’s underwriting department is. In both origination channels, the largest bank lenders often have the stickiest underwriting.
Turn times – In Sonoma County, the process seems to be slower and harder to close quickly with bank lenders. Because brokers can choose among many lenders, they are looking for the best turntimes and try to stay clear of the slow responders.
If I were in a situation to finance a home loan, I would shop both a broker and a bank and compare the rates, fees and service. I would expect a Good Faith Estimate from both for the same day’s rates to make sure I am comparing apples to apples. But rate and fees are not the whole picture. Support and service by a trustworthy profession through the complex process is very important.
I have often considered working for a lending bank especially when I have a slow month or brokers again come under attack from the large retail lending institutions. I spent a year at First Republic Bank in their commercial division in 2006. As a result, two glaring concepts keep me being a mortgage broker despite the challenges.
The first concept is the question “who is the agent working for?” A bank agent is working for the bank and will offer the products the bank offers at the rate and profit margin dictated by the bank. The bank is a corporate entity that is working for the stockholders. So ultimately, the client is a means to satisfy the stockholders’ demands for higher return.
In contrast, a broker is working for the client using the offerings of multiple lenders (and the service the broker provides) as the product he or she sells.
The second concept that keeps my in brokering is freedom. Freedom is paramount to my personal values. Working as a broker gives me the freedom to weigh the options available across a broad range of offerings and fit my client to that which best serves them and their personal financial goals.
I’d like to hear your experience comparing service and products of these 2 channels of loan origination. Please let me know!
Energy Tax Assessment Loans
Fannie Mae has come out with directions on underwriting loans that are to be secured against property that is utilizing a energy tax assessment loan. Once such loan is the very popular Sonoma County Energy Independence efficiency upgrade loan. Since this loan becomes a property tax assessment, it becomes a priority lien position in front of any first mortgage in place. Underwriters will now treat any tax assessment for these loans as added tax liability to be computed into the monthly housing obligation in calculating debt-to-income ratios.
And if the borrower fails to make timely tax payments on these assessments, loan servicers are expected to advance impounded funds (IF there is an escrow account set up) to cover the tax liability in order to protect the lender. For info on the Sonoma County Energy Indepence loan, go to www.sonomacountyengergy.org. For more information on Energy Loan Tax Assessment Programs, go to
www.efanniemae.com.
MERS
MERS is the Mortgage Electronic Registration System. It was created in 1997 to improve profits and efficiency among lenders by eliminating the need to record changes in property ownership manually in local land records. Often you will see “MERS” on the settlement statement for a home purchase as an escrow charge. MERS was set up by Fannie Mae, Freddie Mac and the mortgage industry to record loan assignments electronically.
Operating like an “electronic Phone book for mortgages” MERS saved the mortgage industry $1 billion in the past 10 years. MERS doesn’t own the mortgages but will sometimes be named as “mortgagee” (the holder of the mortgage) in title. If that is the case, can MERS foreclosure and collect security on a defaulted property loan? Recently, the Kansas Supreme Court ruled that MERS didn’t have an interest in the underlying mortgage in a 2006 property foreclosure and could not be named to receive property sale proceeds. This is a reversal in direction of preceding rulings and may affect millions of property liens recorded in MERS name. Expect MERS to address the issue in federal court soon and the mortgage industry to come up with a more secure way to re-record these mortgages. (Gretchen Morgenson, NY Times, 9-28-09).
Mark Your Calendar!
I will have presentation on the Fast and Easy Rehab Loan with an FHA appraiser present to answer any and all FHA appraisal and improvement valuation questions:
This Wednesday, September 30, 2009
1pm- 2:30pm
First American Title Company
3333 Mendocino Avenue, suite #100
Educate Yourself. Space is limited. RSVP to me.
Rates
Rates open this week under 5%! But this week we will see quite a bit of economic news that may end up moving rates. We start with today – where there is no news. The yield on the 10-yr is down to 3.33%, and mortgage prices are a shade better. Tomorrow, however, we have Consumer Confidence and the S&P/Case-Shiller Price Index. On Wednesday we have the Chicago Purchasing Manager’s Index, and on Thursday Jobless Claims, Pending Home Sales, the ISM number, and the Treasury’s announcement of next week’s auctions. On Friday we will have the Unemployment Data, always sure to grab headlines. Estimates are running around a loss to Nonfarm Payroll of about 200k, with the Unemployment Rate going from 9.7% to 9.9%. And for good measure this week we’ll also see Personal Income & Consumption, Final GDP, Construction Spending, and Factory Orders. (R. Chrisman, RPM Director of Capital Markets). If the economic news is good, rates may inch up.
The US Treasury announced that it will be winding up its purchases of mortgage backed securities in March of 2010, slowing down the buying as we close out the year. This is a clear signal to ANYONE WITH A CURRENT MORTGAGE OVER 5.75% TO LOOK TO REFINANCING NOW. Don’t say you weren’t warned. I can provide a no-obligation refinance analysis to let you know if refinance makes financial sense.
Today's Rates (see current days throughout the day with APR calculations at www.sonomacountyhomeloans.com
WITH ONE LOAN POINT
Conforming (<= $417,000)
30 Year 4.75%
5/1 ARM 4.0%
5/1 ARM IO 4.0%
Jumbo Agency ($417,001 - $662,500 in Sonoma County)
30 Year 5.0 %
FHA Conforming (<= $417,000)
5.0%
FHA Jumbo (to $520,950)
5. 125%
Super Jumbo (<= $3 million)
30 year fixed 6.375%
3/1 ARM 4.75%
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