Mortgage Broker category archives

President Barack Obama recently proposed that all lenders offer “plain vanilla” mortgages so consumers could understand the loan terms and the risks associated with the mortgages.  The proposal includes creating a Consumer Financial Protection Agency that would be responsible for these and other laws that help consumers make better decisions.   This proposal met strong opposition by the lending industry for trying to impose too many rules and limiting the flexibility of lenders.

“Under Obama’s plan, a new government agency would be established to monitor the fine print on such products as mortgages and credit cards. The Consumer Financial Protection Agency would require that lenders be up front about the cost of their products and offer customers a standard low-risk alternative.“

On Zillow Mortgage Marketplace we focus on consumer advocacy in a slightly different way.   Instead of limiting what lenders can do, our goal is to educate borrowers on the risks and benefits of each loan program so they can make the right decision themselves.  We have created a number of tools to educate consumers on how to compare mortgage types, analyze the risk associated with different loan programs, and find a trustworthy mortgage lender.

Here are some of the tools we built and why we think they are important:
•    Monthly Payment Graphs – each quote has a graph showing what the monthly payments will be over the life of the loan.  For adjustable rate mortgages, we always show the worst case scenario so borrowers can clearly see any risks associated with the mortgage.
•    True Cost – this calculation shows the interest and fees costs of all loans over any time period.  This helps borrowers compare prices for quotes across all of the different loan programs.
•    Comparison Page – compare all loan details in an apples-to-apples fashion across multiple quotes in one place.  Quotes are completely accurate and show all ARM details including margins, caps, and index.
•    Cumulative Costs Graphs – these graphs show the total cost of the loan over time so you can see how much you will end up paying in interest, insurance, and fees.
•    Lender Ratings – every lender on Zillow Mortgage Marketplace is held accountable for their actions and customer service through borrower ratings.
•    Mortgage Calculators and Help Articles – we created a whole library for consumers so they can figure out how much they can afford and the best way to repair their credit.

Helping consumers make better choices is extremely important to us.  If you have ideas for other tools or features that you think would help educate consumers, please let us know.

These days, shopping for a loan involves more than your average rate comparison.  The lowest interest rate doesn’t necessarily yield the best mortgage to fit your needs.  For example - did you know that you can actually save money by taking a higher interest rate with a 15-year loan?

Today’s homebuyers and investors are exposed to countless rate quotes and market updates - many of which combine different trends from different sources.  That’s why, when shopping for a home loan, the company with the lowest interest rate doesn’t guarantee the best overall experience and financial health for the life of your loan.

Which loan programs are on the table?
Does your mortgage company have a wide array of programs to offer? Banks usually only offer a single set of programs, but mortgage bankers are like personal shoppers — they can search a database of programs and find the best investor for your loan.  That translates to more options and a better chance of finding the right loan to fit your needs.

Do you get a call back right away?
Does your mortgage company call you back in a timely fashion?  Are you getting the right level of personal attention?  Response time is an enormous initial indicator of overall customer satisfaction.

Will the company outsource your loan?
Is your mortgage company’s process simple?  Do they have to outsource your loan to a different office or state? A mortgage banker who can process your loan in-house has more control, can answer more questions in a timely fashion, and provides more security for your sensitive information.

How soon do you need to close?
Can your mortgage company provide you with a closing timeline? A mortgage banker with more control over the process gives customers a more accurate estimate of how long it will take to close your loan.

Did you receive proper disclosures?
Once you go through the initial application process, your mortgage advisor will send you a Truth-In-Lending and a Good Faith Estimate, listing specific fees and the APR associated with your proposed loan.

Did your loan officer fully explain the mortgage fees and APR?
Know your options.  Is your mortgage company up-front about fees associated with the loan?  What about the APR of your proposed mortgage? Are they providing you with enough options?  Make sure you’re working with a company committed to full transparency and an attention to smallest details.

Do you trust them?
The best way to find a trustworthy mortgage broker that you feel comfortable with is to consult friends, family, neighbors and co-workers. You can also use helpful sites such as AngiesList.com and Yelp.com to find or reinforce your decision.

Bottom Line
Use detailed financial disclosures, response time, advice from trusted sources, and your overall intuition to help solidify your choice of a mortgage consultant.

After all, mortgage interest rates change every day.

Long-term relationships stay the same.

This morning we got a question over on the “Ask Zillow” side that reminded me again that the jargon in the lender world is imperfectly understood by the general borrowing public.

No, strike that.  My English teacher would be appalled (right, Mrs. Russell?).  Here’s what I meant to say: It reminded me that most people haven’t a clue what loan people are talking about most of the time.

The question was, “When is my rate locked?” One of the answers was “is this a rhetorical question?  It’s locked when it’s locked.”  I am not making this up.  Obviously, that answer is true, yet monumentally unhelpful.  When we reach a point where the lenders and the borrowers don’t even understand what the other party doesn’t understand, then we’re in trouble.  So in an attempt to bridge the gap, I offer the following.

A rate lock is a commitment by a lender to the party taking out the loan.  This can be on the part of the servicing lender to the funding lender (secondary-to-primary) or on the part of the broker to the borrower, or a number of other possible combinations.  Confused yet?  Sorry.  It’s actually simpler than it sounds.

Here’s an analogy: I have a big vat of lemonade.  You want to buy some lemonade from me so you can set up a lemonade stand.  You come to me and say that you want 10 gallons of lemonade, and ask me how much it will cost.  I tell you it will cost $1 a gallon.  You want that lemonade, but you don’t want to pay for it right now, so you order the lemonade for delivery in 30 days.  I agree to this.  You have now locked the price of this lemonade, and I have set aside for you the 10 gallons you want.  This represents the secondary mortgage market, when your broker locks a loan with his investors.

Now you go and build your stand.  You engage salesmen to hawk your lemonade to the thirsty.  You hire ten guys and send them out.  They sell the lemonade for you.  They come back and say, “I can sell a gallon of lemonade for delivery 30 days from now.  How much will that cost me?”  You consult your accountant, and decide that you can sell that lemonade for $1.50 a gallon.  The salesman takes that information, and makes the sale to the public.  When he gets an order, he goes back to you and tells you to reserve a gallon of lemonade for delivery in 30 days.  This is a rate lock between the borrower and the broker.

What is immediately obvious is that there are two different locks here.  One is out in front, what most people call “locking their rate”, which is the second example.  When a borrower locks his rate, he believes that he is going to get the loan at the rate he locked.  What he rarely understands is that the rate has a time limit on it, and is subject to the honor of the loan officer he locked with.  A million things can make the closing take longer than the lock period.  Go over that time limit, and the rate changes.  A million things can prevent the loan officer from getting a borrower’s lock transmitted to the guy that owns the vat of money.  Fail to get that lock down with the investor, and the rate could get very expensive for the loan officer.

The other is the back-end lock, between the secondary market investor and the broker.  That contract is fairly inviolate, but has zero flexibility.  If your broker locks with an investor, the lock will be honored.  But there’s no way to extend it for nothing - the investor will demand to be paid for any extension.

So what does all this mean?  If you’re a borrower, keep these things in mind:

• Your loan is not locked until you are explicitly told it is.  Do not assume that your rate is locked just because you got a Good Faith Estimate.
• Your rate lock is not guaranteed.  Your broker may or may not honor the commitment he gave you.  Likely he will, but if he does not, you’re not going to have recourse.
• Once you lock, the clock is ticking.  You cannot afford to dawdle.  You need to take it upon yourself to provide everything you’re asked for as fast as you can.
• Your broker has certain flexibility.  If it’s definitely his fault the loan took too long, he can often be induced to pay for the extension.  Also, if rates drop while your loan is locked, he may be able to slide your rate down.  Mortgage shoppers should remember, however, that that rate lock has provided them protection against rate increases, and that rate protection has cost their broker something.  You might consider being loyal to a person that has stuck his neck out for you, even if someone else comes along that seems to have a better deal.

If you’re a broker or a loan officer, here are some things to remember:

• If a client tells you he wants to lock, do not make a commitment to him until you have one yourself.  It sounds easy to take one phone call and make another one right away, but you and I both know that what sounds easy often isn’t.  Never promise what you cannot be sure you can deliver.
• Do not roll the dice.  It is tempting to take a lock from a borrower, then roll the dice, holding off locking with your investor and betting that pricing will get better and you’ll make more money.  Don’t do this.  The stress of watching the market isn’t worth the few bucks you’ll occasionally make.  And if you blow it - you know what I mean here - you’re going to get killed in reputation and in dollars.  It’s not worth it.
• Stand by what you say.  If you tell a client his loan is locked, honor that lock, whatever it costs you.

Hope this sheds some light on one of the obscure-but-critical terms we use in the mortgage industry.  Next time, we’ll tackle the term “securitized mortgage derivatives”.  Wait.  On second thought…

On July 30, 2009 the new Housing and Economic Recovery Act (HERA) regulations will go into effect.

• They require all mortgage lenders and brokers to help prevent deceptive lending practices and protect customers by helping them become more informed.

• These new requirement could impact your closing dates.

The Four key elements you need to know :

1. If the homebuyer is financing the property, these new regulatory and investor guidelines will impact - and could even dictate the closing date
2. Upfront fees cannot be collected by the lender until the initial disclosures are received.  Fees are needed to order the credit report, appraisal and get the process underway.
3. The homebuyer must be provided with a copy of his or her appraisal a minimum of 3 days prior to closing
4. An increase of more than .125% in the APR from the initial disclosures requires the Truth in Lending to be revised and reissued to the homebuyer at least 3 business days before closing.

Last year, the Secure and Fair Enforcement (S.A.F.E.) Mortgage Licensing Act of 2008 was signed into law as part of the Housing and Economic Recovery Act. This law outlines procedures, requirements, education, testing, and standards for mortgage loan originators. 

Part of the law includes mandatory registration and state licensing of loan originators through the Nationwide Mortgage Licensing System in order to give consumers easy access to a loan originator’s employment history, and any disciplinary or enforcement actions taken against him or her.  This is great news for consumers, since a national registry will help stop fraud, giving regulators the ability to more efficiently track bad actors.

The registry was begun in January 2008 with a handful of states, and to date, 26 states are actively participating, tracking 66,469 individual originators and 11,459 mortgage brokers and lender companies.  An additional 20 states will register by the end of this year.  Three states — California, Pennsylvania and Massachusetts — have not yet passed bills but have legislation pending, and Minnesota is expected to address the issue in 2010.

The law defines a mortgage loan originator as someone who takes an application and negotiates the terms. What hasn’t been decided yet is whether that definition should include servicers and loan modification officers.

I for the life of me cannot understand why the Government or Consumers care about YSP (yield spread premium) or broker compensation!

The Challenge—-Can anyone name a product or service that the consumer buys based on the profit margin and not the cost to them?

Why Consumers get hung up on what the par price is or what the YSP or SRP just baffles me!

Knowing what the profit margin is, may help you negotiate better with a loan officer that is trying to take advantage of you.  I would bet most if not all good loan officers know what they charge and the rates and terms they offer will change not based on how much they can get from an unsuspecting borrower, but by how the market moves. A loan officer that is willing to negotiate is a loan officer you want to avoid!

Personally I would be wary of any lender or broker that tries to Spin the compensation positively or negatively in order to convince you to choose to work with them. Cost and service will vary between lenders….What you the consumer value most will vary so the lender/broker you choose will be different based on what you value most.

Yesterday I had a client in my office (I’ll call her Marie) to work on a purchase loan.  She was referred by her Realtor to a fellow across town that she had started working with.  She liked him.  He was friendly and efficient, gave her information, seemed to be on the ball.  Then, partway through the process, he assigned her file to one of his in-office agents, and that’s when the trouble began.

This new agent was unresponsive, didn’t return phone calls, always seemed distracted and forgot Marie’s relevant information several times.  She took phone calls during their meetings, was frequently interrupted, and generally gave the impression she didn’t care about the client.  This was really frustrating to Marie.  She went back to her office after one such session and mentioned her terrible experience to one of her co-workers.  He had a radical suggestion:

Go see someone else.

Marie had never thought of that.  “But they already pre-approved me,” she said.  “So?” her friend replied, “did you sign anything? Any sort of commitment with them?”  Marie had not. “Then go find someone you like,” he said, and she called me.  She likes me.  I like her.  Her deal is complicated, but not impossible.  I think we can get it done.

There are two lessons here, one for professionals and one for borrowers. For professionals it is, never assume that once you’re working with someone you can start treating them like crap and they’ll stick with you.  If you’re going to fob your loans off to one of your people, you might want to make sure they have the same client-service standards you do.  For the borrowers it is: right up to the close, it is NEVER too late to switch lenders.  Rates and fees are important, and you should research those thoroughly, but just as important is the relationship you have with the lender.  If you don’t like him, get a new one.  There’s no shortage of options out there.  You can shop.  You should shop.  Keep going until you find a guy you like that gives you what you need to feel comfortable about the transaction, and don’t do the deal until you find someone like that.

Yeah, thought that might get your attention.  Let me clarify the headline.

Of course it matters how much you pay for something, but it doesn’t matter by itself.  It only matters in the context of the entire deal.  Let me use an example to show you what I mean.

Suppose you were offered a piece of real estate, on which the cost was $5 million.  Sound like a lot?  Yeah, and if the property was 4 swampy acres in Mississippi, you’d be correct that that was a hefty price tag.  On the other hand, if the offered property was, say, 20 acres of lower Manhattan - did you know that the World Trade Center footprint was exactly one acre? - you might reconsider.  That would be a pretty good deal.  The price tag, in other words, has no meaning by itself, outside the context of what the price is attached to.

I had a client recently tell me that there was no way he was going to pay more than $4000 for closing costs on his loan of $390,000.  I asked him what the significance of that number was.  He said that $4k was just a huge price to pay for a refinance, and he didn’t want to pay any more.  So I asked him a question: if he were saving $1000/mo on his payment, would he be willing to pay more than $4000 for the deal?

Turned out, he was.  Fascinating.

We had a lengthy conversation then about the tradeoff between costs and benefits, and he finally understood that what mattered was not how much the loan cost, but how fast the refinance paid for itself.  If it paid for itself in 6 months, that was a screaming deal.  If it took 6 years, that was not.  For each borrower that calculus is different, which is why good loan officers make refinance deals in terms of repayment times, not just interest rates and costs.

When you go to refinance, don’t just ask for the Good Faith Estimate.  Ask for a cost-benefit analysis.  You’re going to be investing your equity (or your cash) in the deal, and as with any investment, it’s a good idea to know what the returns are going to be.  Refinances are great investments, most of the time.  You can see annual returns of 40-60%, or even more sometimes, guaranteed, tax-free.  Try that with a mutual fund.  But you should absolutely know what that return is before you make the investment.

So ask.

Cj

What are the differences between these mortgage professionals and why is it important?  We will try to shed some light on their roles and how they affect you, the borrower.  Let’s start by looking at how loan officers and mortgage brokers differ from lenders.

Mortgage Brokers

Mortgage brokers can be thought of as independent consultants who match you with a lender.  They find new customers, counsel them on appropriate loans, shop for lenders, and process the loan.  The processing includes gathering data including credit checks, appraisals, and employment verification.   Once the loan is processed, it is sent it to a lender who funds the loan.  Brokers have ties to multiple banks so they can shop across many lending sources for lower rates.   They usually make their money by marking up rates they get from lenders, adding fees to the loan, or a combination of the two.

Loan Officers

Loan officers are typically employed by lenders or mortgage brokers.  They find new clients, counsel borrowers on how to choose the best mortgage, and fill out loan applications.  They typically make their money through commissions on the loans.  Loan officers can also be mortgage brokers if they also process and broker loans.  Loan officers are sometimes called mortgage consultants, mortgage loan originators, home loan consultants, and mortgage planners.

Lenders

Lenders are the ones who front the money to fund your loan.  Lenders have various names based on how they acquire their clients and what they do with your loan after it is funded.

•    Retail vs. Wholesale Lenders (how customers are acquired)
o    Retail lenders reach out directly to consumers.  For example, Wells Fargo has loan officers in local branches that perform all loan origination functions.
o    Wholesale lenders fund mortgages acquired through brokers outside of their company.  The brokers process loans and then sell them to wholesale lenders to fund.
o    Many banks, such as Wells Fargo, have both retail and wholesale channels.

•    Mortgage Bankers vs. Portfolio Lenders (what happens to your loan)
o    Mortgage bankers fund loans but typically turn around and sell them in the secondary market to secondary lenders such as Fannie Mae and Freddie Mac.   This is very common.  Mortgage bankers borrower money from banks to fund the loans and then repay the money when the loans are sold.   Most large lenders such as Wells Fargo Mortgage are mortgage banks.
o    Portfolio lenders include many community banks, credit unions, and savings & loans companies.  Portfolio lenders use money from their customers’ bank deposits to fund loans so they can hold onto the loans and keep them in their portfolios.

Correspondent lenders

Correspondent lenders are a mix between brokers and lenders.  They technically fund loans with their own borrowed money but typically lock in rates with wholesale lenders at the same time.  This mitigates their risk since they can quickly turn around and sell the loan.  Learn more about correspondent lenders.

What type of mortgage professional is best?
The type of professional does not matter as long as you get the rate, fees, and loan you were promised.  You should be more concerned about finding the lowest rate and fees, as well as working with someone you trust.

Where can you find the best rates?
It depends.  The lender with the lowest rate could change daily.  Using a broker may help you find the lowest rate and fees since they can search multiple lenders (similar to how Expedia searches multiple airlines).  However, the lowest rate may be at a bank not connected to the broker or may only be found at a given bank’s website (in the travel analogy, this would be like Southwest or NWA who always have their best rates on their own sites).

To search across thousands of loan officers, mortgage brokers, mortgage banks, savings and loan companies, and credit unions, you can use Zillow Mortgage Marketplace.  This service allows you to compare quotes and fees side-by-side, across a broad range of lenders, so you find the best value.  I recommend starting your search there since it is free and anonymous, and then consulting your local bank or mortgage broker to see if they can compete with the rates on Zillow Mortgage Marketplace.

Choosing the right lender for you can sometimes be overwhelming.  How do you find the right one?

It can be overwhelming browsing the yellow pages, online and referrals from others.  Getting a mortgage is probably the largest investment that you will ever make and one that shouldn’t be taken lightly.  Here are some tips to get you started that will hopefully help.

1. Research - research your options ( family, friends, online resources) Check their websites, google them, check their ratings ( Zillow, testimonials, and other real estate referral sites) that can show you their work ethic.
2. Ask questions - Ask how they communicate? (email, text, phone) What are their working hours and availability? What is their experience with your situation? ( FHA, VA, shortsales, purchases, refinances, etc) What are their underwriting turn times?  I have actually listened to a loan officers voicemail that said they do not return voicemails in less than 48 hours.
3. Do you have a good rapport with them? - Do they rush you in taking your loan application?  Do they take the time to get to know your situation or do they just want your social security number and date of birth to pull credit?

There are thousands of mortgage companies and lenders out there promising you the world and trying to offer you the best deal out there to earn your business.  Rate isn’t everything in choosing a lender but it might be the starting point.  Make sure that you know what you are getting into so that 3 weeks later you still haven’t closed your loan and wondering where things went wrong.

Times are tough for alot of lenders and make sure that you as a borrower know who you are using on the other side of the transaction.

Mortgage rates are great and prices on housing is low and affordable!  It is a great time to purchase and refinance and hopefully this will help in finding the right loan officer and lender for you!