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are there "no closing cost" loans available? What should one be cautious of?

I have heard the Lenox financial "biggest no brainer" ads. What are the caveats?
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January 10 2009 - Sedalia
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( cont'd from last post )
The OP of this post asked what the caveats are of Lenox' loan, yet it turns out he has already dealt with them. Now you are on here telling us all the benefits, using a comparison of someone with a 7 or 7.5% existing rate ( they are few and far between ). NCC loans have been good in the past when the rate was only raised about .375%. However. today the spread is .75%-1.00%, so a borrower should compare the difference in getting 4.5% with closing costs or 5.25%-5.5% and no closing costs. You also forgot to point out ( just like the commercials dont ) that if your balance is $150,000, you wont be doing a ncc loan because you cant make enough premium to cover the costs. BTW, your comment that Lenox' rate is sometimes LOWER is absurd.
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January 13 2009
John Shibley has mastered this through partnerships with Lenders, attorneys, title companies and appraisals.  They generally charge a slightly higher rate (sometimes even lower), but it costs you nothing. PADG, I want to share something with you. Last I heard there are over 3,000 lenders/brokers on Zillow and every single one of them can give the same loan as Lenox, EVERY ONE. There is no " mastering " to it, it is simply taking the premium from a higher rate to pay the closing costs including an origination fee to the originator. I have done these loans for aprx 12 years. Just because someone spends thousands of dollars to advertise a loan does not mean they are the only ones who can do it. ANY loan originator in the US, whether they work for a credit union, a bank, a lender, a broker, a WHATEVER, they can all do the exact same loan, period. ( cont'd )  
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January 13 2009
Seem to be coming out of the woodwork G---
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January 12 2009
Sorry OH58, your thread has been highjacked by Timothy's comments.

Timothy, when ZMM approves you to quote, look out! I think a lot of Red Flags will be headed your way!
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January 12 2009
Timothy,
What a ridiculous post on your part.  Your assumptions are extremely broad and who is charging 1% origination fee for a 5.00 loan?  I am not and most are not either as we are paid by the investor.
"They generally charge a slightly higher rate . . ."  Do you feel comfortable in saying that that slight difference is, today, about .625 higher than the norm?
If I do a 500k loan and the investor is paying me 1.250 ysp, I can do a no-cost loan too at 5.00 or, "slightly" higher  :-).  But, I don't pay escrows.
Man, where are these geniuses coming from?

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January 12 2009

Timothy,

Just curious, are you an affiliate of Lenox? I realize they have negotiated attorney fees,title fees and utilize a delegated underwriting channel, to help keep cost down. This does not mean these cost disappear- some move from transactional to the P&L. In the currnet rate environment, higher rate coupons are just not paying the same spreads as they were in the recent past. I do not believe Lenox is immune to this pricing since it appears to be an industry wide issue. They may have mastered a prudent process and flow with a little lower fee structure- but they have not master a way to make closing cost disappear.

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January 12 2009
That is correct.  There are truly no closing costs.  John Shibley has mastered this through partnerships with Lenders, attorneys, title companies and appraisals.  They generally charge a slightly higher rate (sometimes even lower), but it costs you nothing.  If you have a 7% rate and want to refinance to a 5% rate, then you will generally pay:

$350,000
1% Origination Loan Officer $3,500
Attorney $500 -$700
Appraisal $300 - $750
Title can vary state to state (?) avg.$2,700 - $7,000 

Total closing costs $7,000 - $12,000

So basically right now you could go to Lenox and take you existing 7.5% rate and get a 5.25% rate and it would cost you nothing.  Seems like a pretty smart idea to me.
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January 12 2009

Wonder if he carries around a whistle all day....

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January 12 2009
Michael,
Very good post.  Your last sentence is a little, "Spammy," but not enough to ruin the solid content of what you said.  Just saying . . .   :-)

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January 12 2009
The short answer is there really is no "free lunch" Everyone involved in the transaction gets paid, it is just a matter of how and how much. There are is only one way for a true no cost and that is to pay a higher interest rate on your loan. The mortgage company (loan officer) will recieve more money on the back from the lender. The loan officer will use this money to pay everyone (appraiser, title company, processor, underwritter and themselves). So you have no out of pocket cost, and if you were doing a refinance your loan balance would not increase.  These types of true no cost loans are harder to do as the interest rate must be fairly high to pay enough on the back to cover all cost. This is due to current market conditions and economic crisis.  The second way is "no out of pocket" cost. This is probalby a better way to go in this market if you have the equity. In this case you increase your loan balance (on refinace) to pay all (or most) the fees involved.  You can actually do a combination of both and many loans are done this way. The only way to know is to compare all the options, with a written Total Cost Analysis over a fixed time period. If interested I would be glad to provide or discuss.
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January 12 2009
Sorry, those are HIS comments, not mine in the last post, beginning with "Goes to show you "
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January 11 2009



AA, how do you pass yourself off as some expert on APR's and TIL,s when you dont understand how the APR can be lower on an ARM?

Goes to show you an APR's is full of fluff and not real even those posted by a major bank. The only real one will be the one at closing.  5 year adjustable notes have a floor of the start rate so an APR below the interest rate can not be possible.  Not to mention closing cost. 

APR is only as good as the input. Be it the LOS or a HP.
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January 11 2009

AA, point taken and correct. He was trying to make the case that the start rate was the floor and that Wells' Arm APR's were incorrect because of that. Wells knows how to prepare a TIL and they also have many lawyers so if I were him I would hot be accusing them of VIOLATING FDIC regulations in a public forum like Zillow.
 See his quote below:

That rate is not real but posted. 
Fraudulent advertisement by Wells Fargo and against Reg Z, no one cares,  no one looks, it is BUYER BEWARE.:

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January 11 2009
Most ARMs have a margin of 2.25% or more.  Since an index cannot go negative you could argue the margin is the floor rate.
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January 11 2009
Jaime, there is no rate floor on conf arms or Jumbo Arms for that matter. 1% Arms, the only Arms with a start rate of 1% were Neg Am loans, is that what you originated or have you originated?  The issue is not moot as there are thousands of Arms being originated every day. One of the largest portfolio lenders does not do fixed and only has 5 and 7 yr arms. To give you an idea of how many they have, it takes 8 weeks to close a purchase loan, 
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January 10 2009

Lenox Financial does not service loans. Their ad's claim what the Op stated about lenders making tons of money over the life of the loan.

Look at the disclosure regarding their servicing record in your initial disclosures.

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January 10 2009
Clay, I have never seen an adjustable with out a floor.  Just checked with Freddie and they have the floor on Conforming arms.  I will double check with other lenders but I thing the point is moot,  Unless you own one, new ones are very expensive.  No lender wants to lend at 1%.

Greg, that was the point, APR is very manipulated and it needs to be structured to each client.  The APR at closing is the final based on Federal guidelines but each client has other considerations that need to be included, especially if they did a refinance just 36 months ago. 

Examples of cost not in an APR are an appraisal, title insurance, and an appraisal review?  But these are real cash costs not in an APR.
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January 10 2009
Jaime, I think you are getting Wells' Arm mixed up with the old subprime terms. Where does it state there is a floor on the rate? In fact, the lifetime cap of 5 is over/under. The APR is correct.

Greg, if you stay below the original loan amount on FHA, you can roll in closing costs on a no appraisal streamline.
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January 10 2009
Where is this going?  A streamline refi either it be FHA or VA is pretty simple: with or without an appraisal.
1.  Without an appraisal, closing costs can't be added.
2.  With an appraisal closing cost can be added.
If a VA veteran does not currently have a VA loan the it is considered a Cash-Out Refinance and and the VA funding fee is 3.30%.  If the VA veteran is disabled due to injury sustained in the military, the the funding fee is exempt.
APR is a very manipulated figure, Jaime.  The most important figures are the interest rate and the closing costs.
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January 10 2009
Rudi, OT:  Check out the Wells Fargo's APR on the 5 year arm!!

Goes to show you an APR's is full of fluff and not real even those posted by a major bank. The only real one will be the one at closing.  5 year adjustable notes have a floor of the start rate so an APR below the interest rate can not be possible.  Not to mention closing cost. 

APR is only as good as the input. Be it the LOS or a HP.

That rate is not real but posted.  Fraudulent advertisement by Wells Fargo and against Reg Z, no one cares,  no one looks, it is BUYER BEWARE.
 
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January 10 2009
The VA refi with no appraisal is only if you have a VA already. If you are conventional now, keep it that way. I did have a client tell me 10 days ago his GFE from Lenox had $2500 in closing costs so it will be interesting to see if they can still cover all closing costs and quote at 5%. I am betting it will be 5.5% but good luck. You should still post a quote request here and put in your notes, all closing costs paid by lender so you can compare to them. It is VERY competative on Zillow and you may be surprised. It's also anonymous so no one calling you.
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January 10 2009
I don't know about a Wells Fargo promotion and there's no mention of one on their website. Here's Wells Fargo's 1/9/2009 retail rates.
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January 10 2009
OH58pilot,
In your post you say, "For mortgage companies to tell you that they make money on closing costs, and that "no one could do no cc" is dishonest. That is not where they make their money and is is predatory to even charge closing costs (loan origination)."
The above statement is not accurate at all.  Lenders make their money on the YSP and SRP, if they service the loan.  Closing costs, such as underwriting, processing, tax service and flood cert fees are legitimate costs and do not make an investor fat in profit.  It costs to get a flood cert fee, check the tax records, pay underwriters and process the loan.  These are not junk, fat fees but help keep the doors open on day-to-day expenses.  On the title side, title search etc., are necessary as the lender wants to make sure what is on the title.  Recording fees etc., are paid to 3rd party people to finalize the transaction and make sure it is recording correctly at the courthouse.  I think you are confusing closing costs with Loan Origination fees.  Loan Origination fees are a fee that the LO decides to charge: it is optional.  Professionally, I do not believe in origination fees unless the borrower has circumstances that warrants it, understand and agrees to such.
In this enviroment, many in the public don't understand the lending business but throw rocks as the media and politicians have put so much blame and attention on the industry.  Sure, there were and still are many bloodthirsty, predatory lenders out there.  However, if you want to look at predatory, ask Wall Street why they designed many of the exotic loans they did and the billions in losses, foreclosures, ruined families, bankrupties that they designed caused.  For it was Wall Street who presented many of the loans to lenders, said, sell them and this is how we will take them, bundle them up and the secondary market to sell them.
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January 10 2009
OH58pilot,
You are dead wrong in your post to Andrew.  Lenders get their money from Fannie, Freddie and or on government money.  The margins are so narrow in today's market that it is rather impossible to do a nc loan at what you are referring to.
The reason why the margins are so narrow is the Feds fear that the notes can be flipped in a rather short period of time thus causing huge losses.
Lenders do not make hundred of thousands of dollars on the life of the loan because the average loan life is less than five years.  How can a lender make hundreds of thousands of dollars when the loan gets flipped in that period of time?  They can't.

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January 10 2009
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Thanks Clay.
Not , not really a fast flyer. OH58 Army helicopters. Kinda old and slow (like me),but lots fun. Thanks for your info. It has been helpful and given me some  food for intelligent thought. I may look into the VA thing after I look at the GFE from Lenox. I have upper 700's fico score and good equity.
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January 10 2009
I missed the post about the offer you have now at 5.125 ncc. If you can get it at 5.125% and they are paying everything, take it. Is that a 30 or 15 year? 
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January 10 2009
OH58pilot, so you were out flying something really fast then? Expect to pay about 5.625% rate for a ncc loan at $417K. I do not loan in CO so I dont know what the hard costs are to calculate the fees but I do know the premium from lenders. A partial closing cost loan should be about 5.125%, a loan that rolls in the hard costs but origination is paid in the premium, not by you. No closing cost loans are good when the balance is high, 400K or more, and the rates are up in the 6's or 7's because the cycle will always come around enabling you to drop it every .500 when it's on the way down. However, after this refi you will probably never get another opportunity to refi lower so If you plan to stay in the home for more than 3 years, I would look at all 3 options for a final loan. If you have lived in the home for a few years already, you may want to look at a partial closing cost loan and lowering the term to 20 also. BTW, your lender could have refinanced you already and they should have been calling you in December with the news, did they? What rate are they offering now? You will do better here even if you want the ncc loan. Since you are military, if you have a VA loan, the rate could be 5.5% on a ncc, 5% on a no point loan, and no appraisal required either.
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January 10 2009
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6.25 is what I closed on a year ago...compared to 6.0 ncc. 5.1 is what I a quoted today...ncc compared to 4.87. 
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January 10 2009
It may be your opinion but it is a misinformed opinion!

If mortgages were actually held for 30 years and never refinanced yes lenders would make far more on loans than they do in the current enviornment.

The life of a loan on average is 4-7 years.

the 6.25% was what I thought you closed at a year ago.  4.875% is the rate today.
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January 10 2009
Profile picture for OH58pilot
Thanks Andrew.
The problem I see with your comparison is that it isn't apples to apples.  comparing 6.25 to 4.87 isn't what we are doing here.  We are comparing 6.25 to 6.00.....or 5.1 to 4.87....  Also, the way I see it is that it is not that lenders can't "cover the cost" of  no closing loans, it is rather, are they willing to invest for a long term return?  After all, they make hundreds of thousands of dollars on these notes over the life of the note. For mortgage companies to tell you that they make money on closing costs, and that "no one could do no cc" is dishonest. That is not where they make their money and is is predatory to even charge closing costs (loan origination). There is no reason to charge them other than to discourage serial refinancing. Just my opinion.
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January 10 2009
Related Questions
are there "no closing cost" loans available? What should one be cautious of?
Profile picture for Clay Branch
Latest answer by Clay Branch
January 13 2009 | 61 answers
  • Asked by OH58pilot
  • In Refinance
  • January 10 2009
Mortgage Rates
 
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