Mortgage, Real Estate, and Credit Blog

Over the years there have been small periods where mortgage rates fall below the 5% threshold on 30 year fixed programs. They generally last only hours or days at a time. People hear about them and inquire too late and they disappear.

December of 2008 we had a spurt that lasted maybe a day. Then in February of 2009 another serious swing that was around for a little under a week.

I chose to publish this article because rates have been below 5% on many programs for over 2 weeks now. I have been contacting all of my past clients letting them know the good news. Some have been able to drop their rates over 1% or even 2%. Others have seen very slight increases in payment to go from a 30 year term to a 15 year.

Now is a good time to inquire about refinancing! The stock market is losing so that shifts some of the demand over to mortgage bonds. When mortgage bonds do good rates can go down.

In a memo released 5/11/2010 USDA said it would issue conditional commitments once funds were exhausted subject to receipt of funding from the government. They also stated that on new loans the funding fee would increase from 2.0% to 3.5% on new loans and 2.25% on refinances (USDA to USDA is the only program for refinancing).

Today they issued a memo that revoked the memo released yesterday. The will NOT be issuing conditional commitments.

I was very excited about the memo released yesterday.  almost wrote an article right away. I decided to wait and see if the secondary market opened the doors back up to the program which was suspended by most banks a few months ago.

The reason for this is the bill has not passed for more funding of the program. They are not sure if it will pass.

The Senate put an amendment to Senate Bill 3217  to vote today that would end mortgage kickbacks called Yield Spread Premiums and Liar Loans. They voted 63 to 36 on the amendment. Mortgage Brokers have had the finger pointed at them for causing the majority of the mortgage meltdown.

Yield Spread Premium is the act of giving a borrower a higher interest rate in exchange for compensation from a lender. This premium could vary on each type of loan. One loan may pay more than another. An example of this is a borrower qualifies for 5.00% and the broker sells them 5.50% in exchange for a percentage of the loan amount paid back to them. These premiums usually range from .01 to 5% of the borrowers loan amount. This payment of premiums also caused brokers to steer borrowers into higher risk loans so they could make more compensation.

Liar Loans were loans in which a borrower could simply state their income or assets and qualify for a loan. Sometimes a broker could fraud a lender by stating an amount for the borrower so they would qualify for the loan or home they wanted. These loans had a very high rate of default. It places both the lender and the borrower into a bad position. Several lenders have already stopped issuing these loans. Some states have already banned these loans like Ohio.

The next step is to approve the bill it is attached to. I will continue to follow this bill and let you know what happens.

Now onto my opinion. I have been a broker and I am now a banker. Many will say banks do the same thing. When they sell the servicing of a loan they are paid a Servicing Release Premium. In many cases this premium is higher based on how high the interest rate is or what program you use. It is about the same thing but the truth is it is in fact NOT.

Brokers who close these loans were not held liable for making bad loans like a Banker is. The bank they closed the loan through was. In most cases the compensation a Banker would receive has to be paid back in the event of default or if fraud was detected. Since the Bankers are employees of the Bank they are held liable up to and including termination and subject to being banned from the financial industry.

Since a Broker was not an employee it was much harder to pin them down or make them pay. The silly part is the Banks who back passage of a bill like this still allow Brokers to close loans through them. They allow all of these practices. However, recently they have began having Brokers sign contracts that hold them liable. In most cases the financial position of the Broker often made it impossible to pay. To be honest the banks allowing Brokers to issue loans through them makes no sense. However, if this bill passes and the broker survives it will make the comparison of a Banker to a Broker Apples to Oranges. Brokers will be forced to charge more up front fees to stay in existence.

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