Richard Maize: How To Find An Honest Mortgage Broker
Los Angeles --- May 22 ....When to refinance? And how to find an honest real estate mortgage broker? Those questions were easier to answer before the recent 2011 laws become in affect.
The old answer to when to refinance is when the current rate was better than the rate you have on your existing mortgage without necessarily taking into account the costs to refinance because in some cases, the mortgage broker will absorb them using their discount points (rebate) to pay all out of pocket costs and still improve your rate and he (or she) will still make commission. Well, that certainly seems like a “win win”.
However, even back then, if the borrower wanted to pay for the costs and perhaps one percent origination fee, a much lower rate would have been available. Not a common practice, as the fee driven rates were often enjoyed without the connected fees if one has patience and have a sharp mortgage broker working for you. Also, the fees are not tax deductable unless it is a purchase money transaction (they are usually amortized over the course of the loan for tax purposes).
That was yesterday. How about today?
Today’s answer is not that much different; the calculation is just different.
In most cases, the broker cannot make enough on each loan to cover the costs. So, you have to look at the difference between the rates today verse the rate you currently have. You have to also have an idea as a minimum how much longer you plan on staying in your existing home. If you plan on staying in your home for at least 3 years and rate differential is ½% or more, go for it. Even with the one point and costs (usually figured at about ½%) in three years, you break even. Longer than 3 years, you save money. With 0 points with same interest rate differential, has a break even period of about 1 year.
In most cases, the broker cannot make enough on each loan to cover the costs. So, you have to look at the difference between the rates today verse the rate you currently have. You have to also have an idea as a minimum how much longer you plan on staying in your existing home. If you plan on staying in your home for at least 3 years and rate differential is ½% or more, go for it. Even with the one point and costs (usually figured at about ½%) in three years, you break even. Longer than 3 years, you save money. With 0 points with same interest rate differential, has a break even period of about 1 year.
Who is the right mortgage broker?
An honest one who doesn't charge bogus fees i.e. - email / Internet access, doc prep, document review and funding.
Should I simply go to my bank for the best rate?
A mortgage broker "buys" loans from a variety of mortgage lenders at a wholesale cost, and sells the loan to another mortgage banker, receiving a commission on the sale.
A banker, gets a loan from your local bank. A banker usually, but not always, has their own money to lend out and makes a profit by collecting loan fees and the interest the customer pays on the loan, called servicing fees. However, most banks package up loans in packets of $1,000,000 dollars or more and sells them to the secondary market, making a commission on the sale. Why? What are interest rates right now, 7 or 8%? The stock market and mututal funds are averaging 15% returns or more. Why have millions of dollars tied up in low return investments?
An honest one who doesn't charge bogus fees i.e. - email / Internet access, doc prep, document review and funding.
A mortgage broker "buys" loans from a variety of mortgage lenders at a wholesale cost, and sells the loan to another mortgage banker, receiving a commission on the sale.
A banker, gets a loan from your local bank. A banker usually, but not always, has their own money to lend out and makes a profit by collecting loan fees and the interest the customer pays on the loan, called servicing fees. However, most banks package up loans in packets of $1,000,000 dollars or more and sells them to the secondary market, making a commission on the sale. Why? What are interest rates right now, 7 or 8%? The stock market and mututal funds are averaging 15% returns or more. Why have millions of dollars tied up in low return investments?
The right answer is not whether to go directly with a lender or broker.
One advantage for going to lender is that a broker typically will have a vast variety of lenders who on occasion will have a special program to attract borrowers. A broker can shop for you for the best rate. Also, in rare occasion, there are still modified “e-z qualifying loans” at some remote lenders. Having said all that, one should call the big time brokers in the area and ask for the absolute best rate with 0 points and 1 point. Simply compare with your bank. That is a good starting point.
If you are satisfied after shopping for that rate, one or the other is what you would be happy with have them lock in your rate (not to be confused with “don’t forget the lyrics”). Once you get your rate locked, hustle and get all the paperwork you need to them right away so that you don’t lose your lock.
No matter who you go to, right out of the gate, make sure once you show them your paperwork and financial information, have them run it by the underwriter to confirm your qualification. They will have an 80% idea (subject to the appraised value of the house of course). The underwriter can easily look at your credit score and calculate your average income for the last couple of years.
We are now required to have certain pieces of information before we can issue a true good faith estimate, because there are zero-tolerance on changes on some parts of it. We cannot issue a GFE without a credit pull. We need a full application prior giving a GFE these days.
Because of the change to a Good Faith Estimate as of Jan 1, 2010, it is most likely you will no longer see doc prep, email, etc. Those specific fees are typically title companies fees which are out of the control of whomever provided you with this estimate you are speaking of. But again, because of the new regulation changes, most title companies no longer charge for this or that. Instead they have one that includes everything. And I'm not sure how your state works but in Oregon, all title companies must charge the same with very little tolerance.
You will probably find that you will no longer be given a Good Faith Estimate without an application because what is not listed on it is paid for by the person who gave the estimate in the first place. And how are we to know your specific situation without seeing the whole picture? Is your goal for an estimate to get a general idea or to have something in writing to hold the mortgage company to? There is always a solution and I'm sure your goal is to see who you feel would best fit your needs. I would suggest going over costs verbally to achieve this goal. Also test the knowledge of your loan officer so you feel good in working with someone who knows the guidelines just as well as the agencies putting them out.
The debate of whether FHA or conventional is best for you is really going to depend on your specific scenario. If it ends up being FHA, I would act fast as the FHA fees (e.g. up front MIP) increases April 5, 2010 as well as seller contributions toward closings costs decrease significantly. If your credit score is 700 right now (remember credit scores change each month), conventional may be difficult as pmi (private mortgage insurance companies) have minimum score requirements aside from the actual home loan program. You may find that you qualify for the program but not for pmi. There is also USDA, a zero down home program which has no pmi and allows for lower credit scores. There are income and area restrictions to this program but most do qualify.
Everybody has an origination fee. And everyone has a different way of presenting rates and fees. This is because everyone is different. For example, you may want to see the best interest rate with normal closing costs. Maybe you wish to have a low or no fee loan option. In this case you would be presented with a higher interest rate in exchange for less closing costs. And there are some whom wish to pay extra to buy down their interest rate.
The last thing you want, is to have all the paperwork turned in and wait 4 weeks and then your agent calling you and letting you know that you don’t qualify.
We are now required to have certain pieces of information before we can issue a true good faith estimate, because there are zero-tolerance on changes on some parts of it. We cannot issue a GFE without a credit pull. We need a full application prior giving a GFE these days.
Because of the change to a Good Faith Estimate as of Jan 1, 2010, it is most likely you will no longer see doc prep, email, etc. Those specific fees are typically title companies fees which are out of the control of whomever provided you with this estimate you are speaking of. But again, because of the new regulation changes, most title companies no longer charge for this or that. Instead they have one that includes everything. And I'm not sure how your state works but in Oregon, all title companies must charge the same with very little tolerance.
You will probably find that you will no longer be given a Good Faith Estimate without an application because what is not listed on it is paid for by the person who gave the estimate in the first place. And how are we to know your specific situation without seeing the whole picture? Is your goal for an estimate to get a general idea or to have something in writing to hold the mortgage company to? There is always a solution and I'm sure your goal is to see who you feel would best fit your needs. I would suggest going over costs verbally to achieve this goal. Also test the knowledge of your loan officer so you feel good in working with someone who knows the guidelines just as well as the agencies putting them out.
The debate of whether FHA or conventional is best for you is really going to depend on your specific scenario. If it ends up being FHA, I would act fast as the FHA fees (e.g. up front MIP) increases April 5, 2010 as well as seller contributions toward closings costs decrease significantly. If your credit score is 700 right now (remember credit scores change each month), conventional may be difficult as pmi (private mortgage insurance companies) have minimum score requirements aside from the actual home loan program. You may find that you qualify for the program but not for pmi. There is also USDA, a zero down home program which has no pmi and allows for lower credit scores. There are income and area restrictions to this program but most do qualify.
Everybody has an origination fee. And everyone has a different way of presenting rates and fees. This is because everyone is different. For example, you may want to see the best interest rate with normal closing costs. Maybe you wish to have a low or no fee loan option. In this case you would be presented with a higher interest rate in exchange for less closing costs. And there are some whom wish to pay extra to buy down their interest rate.
My further suggestion is to go to the local bankers association . In California, you can look up the California Association of Mortgage Brokers ("CAMB"). They can also direct you.
As far as institutions such as Bank of America, Wells Fargo, Citigroup, JPMorgan Chase Bank, Wachovia, Golden West Financial Corporation and all other major banks, they are scrutinizing you and your property's qualifications (as they should).
Unless there is a major exception, the banks need to make sure that you are qualified by way of your income tax returns and you have enough equity in your home that fits their underwriting criteria.
Unless there is a major exception, the banks need to make sure that you are qualified by way of your income tax returns and you have enough equity in your home that fits their underwriting criteria.
The question is, what happens if you originally got qualified without proving income? Or, if your income went down in this economic times? Or, the property dropped in value while the lender's loan to value criteria is more stringent? AND you have to refinance as your loan is either due or your rate is much higher than what is offered?
In responding to the new mortgage laws that US bank regulators recently unveiled to overhaul the market for securities backed by mortgages and other assets, one must remember that the proposed rules wouldn't apply to the vast majority of loans made today.
For example, loans backed by Fannie Mae (FNMA), Freddie Mac (FMCC) and the Federal Housing Administration, which currently back about 90% of new loans, are exempt as long as the companies remain under federal control, a state they have been in since September 2008.
In responding to the new mortgage laws that US bank regulators recently unveiled to overhaul the market for securities backed by mortgages and other assets, one must remember that the proposed rules wouldn't apply to the vast majority of loans made today.
For example, loans backed by Fannie Mae (FNMA), Freddie Mac (FMCC) and the Federal Housing Administration, which currently back about 90% of new loans, are exempt as long as the companies remain under federal control, a state they have been in since September 2008.
The last thing you want, is to have all the paperwork turned in and wait 4 weeks and then your agent calling you and letting you know that you don’t qualify.
You are back to square one with possibly higher rates to deal with which is even more difficult to qualify.
Richard Maize, a respected leader in the mortgage banking real estate industry, and a mentor to young entrepreneurs, has generously supported organizations and causes including the American Cancer Society, Vista Del Mar Child and Family Services, Hurricane Katrina, Los Angeles Police Foundation, USO, Haiti earthquake relief efforts, Israel Flying Aid, Maccabiah Jewish Olympic Games and the Cedars Sinai Board of Governors.
Richard Maize and his wife, Rochelle Maize, are longtime benefactors of many other non-profit organizations and Richard Maize has been recognized for his efforts on behalf of more than a dozen charitable groups and community projects.
The Rochelle and Richard Maize Foundation supports an extraordinary number of foundations, organizations, and non-profit groups.