When the news media boasts mortgage rates PLUMMET, it triggers a reaction. The phone rings and we become flooded with new applications. Great for us, but here is the real story!
The banking world has been turned upside down in the last 18 months. More rules more restrictions and more than half the operations departments have been let go or shut down across the nation so, something that used to take 3 to 4 days is now taking 3 to 4 weeks to get through underwriting. The process has become twice the work it used to be especially with many of the programs that have disappeared. No more second mortgages or lines of credit over 80% of the appraised value, the list goes on of the new crazy rules. But wait....there is more!!!!
Here are some of the reasons why: Fannie Mae and Freddie Mac are BROKE. If you did not know that by now you have been living in a cave. When companies like this are broke, they implement new policies to raise revenue. Some may call it better underwriting, I call it a drive by or just plain robbery, nothing more. When congress gets involved and dictates rules of why they think the mortgage world is in trouble or just plain broke, it leads to more problems.
Here are some examples, the obvious one first. We all know how important our credit report is as well as FICO scores. Well, if you score is under 720, you will get penalized a ¼ point in fee. This can be buried in the rate or just a flat fee. Now lets say this is a cash out refinance over 75% of your appraised value of your home, you guessed it, another hit to the rate or fee of 1/5 point. Say you want to wave your tax escrow and pay taxes on your own, yup that is a ¼ hit. We do the best we can to eat some of these fees or play the market and try to get better pricing on a rate to help the consumer. That is a service the client never even sees. So for what the client thought was an easy straight forward refinance and the client is going by what CNN reported that day rates are, you can imagine the surprise of the customer when they don’t get what they expected. In some cases this can equal a full .25% to .50% of an increase to your mortgage rate. You thought you were getting 4.875% and now you are 5.25% with all the hits. Not good, and your stuck, these are Fannie Mae rules, so they are just about with every lender out there. From the small bank to the large national investor.
These are the basic adjustments, as the credit scores, these adjustments get worse. Here are few more, have a 2, 3 of 4 family? That will cost you 1 point these days. What if you are buying a condo, it is a ¾ point adjustment, perhaps you are only putting down 5% on the purchase, that is a ¼ point. Tougher everyday and just one of the many more reasons clients need to approved before they look at a home. Other things to do is to be prepared, have you approval updated with each offer you make.
Buyer Beware: Have patience, I have been doing this since 1991 and I have never been at such a loss of what is going on or how frequent the rules change. If a rate or service seems to be to good be true, it probably is. Always ask for a Good Faith Estimate of Closing Costs upfront to see what the fees are going to be. If you cannot get one upfront…..move on to another lender, this takes us minutes to prepare and typically they are automated so they are not an extra work.
If you ever have any questions, please feel free to call or email me anytime. Even after all these years and the mortgage crisis, I still really enjoy what I do. I find myself biting my tongue a little more, but it is worth it.
Bill Nickerson
Vice President
Mortgage Network
bill@billnickerson.com
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