Dawn Tittsworth

Hello All

Hello All,

My lender just sent me this!

"What's your rate?"

If I had a dollar for every time I've been asked that question, I'd retire! While that is never the right question to ask when searching for an appropriate mortgage package, in this market it is an open invitation for your clients to be "taken to the cleaners" by those "not so honest" lenders that are still "out there" in big numbers!!

Everywhere you turn you are hearing the drumbeat of "4.5% mortgage rates" or even lower. While it's true that 4.5% money is available, what most of the ad's and "proclamations" don't divulge is how many points one must pay to actually acquire that low rate!

If you have been in the business for any length of time, you were used to getting rate quotes for 0 points. This was pretty much the standard for most people, as they did not want to pay points to get a better rate. Well those days are over for at least the near future!

Here's why:

In order to get 0 points, a lender must receive enough money in "premium pricing" to allow them to provide the loan for no cost, other than the normal fees. When this happens, you get a 0pt loan. Now for an "end lender" to give back enough for this to happen, they needed to hold the loan for a good period of time assure they would reclaim what they paid the originating lender upfront. With rates not fluctuating wildly, there was a pretty good bet they'd get their money back.

Now, put those same "end lenders" in the current environment and they see the possibility of wild swings in rates with no predictability and they are saying "we're not paying anyone money to originate a loan that might be refinanced in a few months!"

So you have a situation where the lenders are just not providing money with 0pts for anything near the level of rates we would see in a "normal" market.

So if you want 0pts you have to pay around .625% or more in rate, higher than a 1pt loan, which will make the 0pt loan unattractive and reduce the risk to the "end lender". (End lender being the bank that will "service" the loan.

Now, let's throw in another, BIG factor---CREDIT SCORE!

Once upon a time, if you had 640 credit you would get the same rate as someone with 780. That all changed in the Fall of 2007. Now we have RISKED BASED PRICING, which means the lower your score the more your costs.

Take for instance a borrower with a middle score of 650, with 10% down. IF this borrower can get an approval for a Conventional loan, they will pay as much as 3.25 pts "risk premium" to acquire any rate they may choose. Even borrowers with scores as high as 740 can be penalized by some lenders, depending upon the downpayment!

In one of the odd "twist" in this pricing structure, there are times where putting more money down will result in a higher "risk premium" being charged. This is due to the reduced level of mortgage insurance that is required. Loans with less than 10% down have a higher level of mortgage insurance and are thus viewed as less risky by the end lender. A borrower with 20% down and a lower credit score can pay more than a borrower with the same score and 5% down, all due to the absence of mortgage insurance.

While there are times that you may see exceptions to these "new rules", the vast majority of conventional loans now available in this country will follow along these lines.

FHA loans do not have as many "risk based" tiers as Conventional, but many end lenders have recently begun to increase those that do apply.

Add to these factors the issue of "lock term" and you have even more potential cost.

For the past several years, 30 day closings became the norm. Now, with increased scrutiny of all documentation and appraisals, and the increasing prevalence of foreclosures and short sales, it can take longer to get to closing.

The costs of 45 or 60 day locks can add an additional .25pt to .75pts, depending upon the lender.

So, to accurately quote a rate to your clients, a Mortgage "Professional" will ask many questions BEFORE quoting a rate to a client. Please make your clients aware that the following information is required to assess a client's level of risk for the purpose of pricing:

1. Credit score--unless I know the "middle score" of the 3 repositories used, I cannot know for sure what to quote. I can take their word for it, but I don't know for sure until I see it myself.

2. Loan Amount- Lower loan amounts, and sometimes higher than $300,000 will trigger small adjustments to the price as well.

3. Lock Term--How long is needed? If you have a foreclosure or short sale, you better allow 60 days.

4. LTV- How much is being used for downpayment? As indicated above, this can make a big difference.

5. Type of property- Some lenders are now charging as much as .75pts extra for condo's---more risk.

6. How many units? More than 2 will cost an extra 1.00 pt.

So, as you can see--"What's your rate" should be replaced by "I'd like to see what options you can provide for someone with my qualifications!"

This market is very complex and full of challenges, with more coming everyday. The current interest rate environment is one of the best in 50 years, but it is, at the same time, the most complicated. Educating your clients about the "nuances" of the marketplace can make all the difference in how smooth the whole process goes--and how many referrals they can generate!

Hello all,

Lets talk about the $7,500 tax credit for 1st time home buyers from the government

To sum it up:

The home you purchase must be at least $75,000

Home must be purchased between April 9, 2008 and July 1, 2009

Income requirment : Single person can not make more than $75,000 per year

Couples can not make more than $150,000 per year

You will have to pay the government back within 15 years or when you sell the home

The credit is interest-free

Of couse there are several in's and out's but this is it in a nut shell!!