Paying off your mortgage loan is a big achievement. Make sure you, your escrow officer, your attorney or whoever is handling the final payoff pays attention to the fees you are charged. Most lenders or servicing company’s which handle your payments are straightforward. Unfortunately, some stray from full transparency and collect fees which are in excess of what is actually owed. Keep in mind final fees vary from state to state.
In California, Senate Bill 2 took effect January 1, 2018. Called the Building Homes and Jobs Act anyone paying off their mortgage were assessed a $75 fee. While the fee may appear excessive, it was approved so that amount “Is what it is!!”
Paying off a mortgage normally consist of your lender receiving the final payment, preparing a “Reconveyance Deed” and filing it with the County Recorder where your property is located. Using Los Angeles county as an example the lender will charge a statement fee ranging from $25-$40, which includes preparing the Reconveyance document. They send the document to the Recorder who charges anywhere from $15-$25. The key is any fees charged must be for work actually completed. By the time you add SB2 your total fees to payoff your loan should NOT exceed $100.
It’s the SB2 fee that is raising concerns as some lenders have been known to manipulate communicating to borrowers the exact amount due. Some will add on a blanket amount over and above the State mandated $75. For some homeowners the amount could range from $150-$250 and more. Most homeowners do not know about SB2 and are forced to take “their lenders word” in getting an explanation of the charge. Lenders on the other hand have been known to use a very dubious answer such as, “Oh! it’s a State mandated fee.” The facts are simple, you can only be charged for actual work and for SB2 the fee is clear at $75.
“Most homeowner’s never question the fees their lender charges because as long as they are within reason, they just pay them. They don’t realize many of those fees are posted and you can only be charged on what the actual fee is.” anonymous Los Angeles County Registrar staff
Pay attention to your payoff statement and make sure you receive a FULL explanation on any fee you are not sure about.
Above photo – courtesy of Matthew Staver/Bloomberg via Getty Images
Home ownership is the key asset for most homeowners. To help fund the purchase of a home, FHA (Federal Housing Administration) has been a vital mortgage program to help define middle-class status.
The mortgage crisis of 2008 forced many leaders to shut down. However, it was the FHA program which became a safety zone for borrowers needing legitimate financing featuring low down payment. It also allows lenders who were on the fringe to use the program to help stabilize their business.
Recently FHA made some changes to the program. It has been the projected approximately 40,000-50,000 borrower per year will be affected and some in that population are in jeopardy in being able to ultimately qualify for a mortgage. Due to current mortgage data there has been an increase in borrowers opting for cash-out. Additionally, debt-to income levels have seen an increase and overall credit scores have declined.
“We have continued to endorse loans with more and more credit risk,” said FHA’s Chief Risk Officer Keith Becker. “We felt that it was appropriate to take some steps to mitigate the risks we’re seeing.”
Those factors are just three highlighted by FHA now requiring those who may be considered less creditworthy but still in the ballpark of qualifying for a mortgage will no longer be able to use automated underwriting. Instead, due to their marginal circumstance, their loan package must now be manually underwritten. For lenders going back to the traditional process will be costlier to them due to the time required to conduct the underwriting. Due to the manual process, lenders may not be as eager to approve the loan fearful in the event of default their decision could be challenged and result in buy-backs or other negative impacts, which could affect their business.
“it’s likely that many of the loans flagged for manual underwriting won’t end up passing muster.” Chief Risk Officer Keith Becker, FHA
So, while owning a home is still considering “the American Dream” the key to making it a reality is making sure your credit package is not part of the projected population. Of course, for some they very well may be willing to take a chance and go through the manual underwriting gauntlet as some will be successful.
The basic benefit of home ownership is shelter. Another critical benefit is it is an asset and valued based on normal market conditions.
Equity is the value of your property less encumbrances (loans, liens, etc.)
Lendable equity is the amount of EQUITY can borrow.
Most prudent lenders have limitations on what percentage you can borrow. Typically for the best rates/programs you can’t exceed 80%, however it is not uncommon to see programs where you can borrow ALL of your equity.
Many homeowners tap into their lendable equity to fund a variety of personal items. On some occasions the lender may restrict how you can use your lendable equity but for the most part it belongs to you to do as you choose.
Consumer mortgage rates have continued their decline and normally this would be great news for those financing the purchase of their home or refinancing their existing mortgage.
Low rates do not mean a thing if you can’t qualify!!!
Today Freddie Mac released its weekly rate survey. The benchmark thirty-year mortgage is now at 4.450%. The fifteen-year mortgage came in at 3.890%. The Freddie Mac rate survey is the industry standard which consumers and professionals used to gauge and monitor rate activity. The report data is compiled from a sample of Freddie Mac lenders across the nation.
Verifying income hampered
The dip in mortgage rates has resulted in a spike in mortgage applications. The trick for lenders processing those applications is being able to have the loans fund in light of the Government shutdown.
Some applicants who are tied to the shutdown have voluntarily pulled their applications and some have seen lenders pull their applications because it is hard to verify income that does not exist.
IRS affected by shutdown
Another effect is not being able to verify income using the standard 4506T process. The 4506T is a process initiated by lenders in wake of the 2008 financial crisis. It is an internal revenue form that most borrowers execute as part of the documents when making an application. It is used to match the income as reported on your federal income tax reporting. Unfortunately, due to the shutdown the IRS cannot verify income as reported.
The drop-in rates have helped to spur what was stalled real estate activity. While the shutdown is one metric affecting the economy, experts are pointing to the imposed tariffs and basic international uncertainty as further softening that may erode consumer confidence.
In the meantime, those whose income can be verified are more aggressive in taking advantage of the rate dip before the window closes.
COVER PHOTO. Traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on October 10, 2018 in New York. - Wall Street stocks plunged Wednesday, with major indices losing more than three percent in a selloff prompted by the sudden jump in US interest rates. At the closing bell, the Dow Jones Industrial Average had lost 3.1 percent or 830 points to finish at 25,613.35, in the biggest fall since February. (Photo by Bryan R. Smith / AFP) (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)
Mortgage rates jumped to 4.90% which is a number not seen in nearly seven years based on Freddie Mac’s weekly rate survey. Although an increase was expected the jump of nineteen basis points caught some by surprise. As strong as the economy is purchasing a home continues to be an illusive transaction for many. The rise in rates buffeted by the increase in home prices have left many reconsidering their plans as evidenced by the drop in mortgage applications.
Remember that tax break earlier in the year?
Last December president Trump and the GOP controlled congress touted the tax cut as a “cure-all” and justification of their leadership prowess. Indeed, a good chunk of working people did receive benefits from the tax cut and a few were lucky enough to get bonuses. The average cut was about $1,600.
For those who were positioning to buy a home or refinance their existing mortgage the recent mortgage rate hike has wiped out that savings.
**based on average mortgage of $239,000
Most understand rates and economic metrics are cyclical. In other words when you have an improved economy, you will also see a rise in consumer goods. Also, recently the Feds increased the discount rate. This was done as a preventative measure to thwart inflation. Normally political leaders stay out of the Fed’s business but Donald Trump has continued to intimate their move has contributed to rate increases claiming they will result in a negative impact.
“I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy,” President Donald Trump
Another pressure-point for the economy is the recent drop in the DOW Jones and financial markets. Business leaders, especially those in the real estate sector attribute the decline to the uncertainty of the Trump imposed tariffs and other measures. They feel recent gains may be wiped out.
“These tariffs will translate into higher costs for consumers and U.S. businesses that use these products, including home builders,” Randy Noel, chairman of the National Association of Home Builders
(cover photo by Mindy Schauer/Digital First Media/Orange County Register via Getty Images)
Reverse mortgages, technically known as Home Equity Conversion Mortgages (HECM) have tougher underwriting guidelines effective October 1st.
The announcement was made by the Federal Housing Administration (HUD) which is part of the United States Housing and Urban Development (HUD) agency. HUD insures the mortgages which are originated by lenders at the consumer level, thus allowing borrowers a tool to utilize the equity in their homes to obtain a loan.
The move essentially means in addition to the initial appraisal used to determine property valuation, a second independent appraisal will now be required. The borrower’s loan will be based on the lower of the two appraisals. In a gesture to appease the borrower’s chagrin of the new requirement, the cost of the second appraisal is allowed to be financed as part of the closing costs. In making the move HUD announced it needed extra protection for the collateral being used to obtain the loan, as it battles with a shrinking insurance pool.
House rich, cash poor
HECM’s have picked up in popularity since the early 2000’s. As people have lived longer lives, it was a statistical reality that many seniors were dealing with a precarious situation. For a variety of reasons their cash reserves were being depleted and the result was a negative impact to their day-to-day living. It was also noted many in that population who were homeowners were sitting on large equity positions. Unfortunately, underwriting guidelines made it prohibitive for them to obtain standard mortgage loans.
HECM’s solved that solution, at least for those who were at least 55 years of age and had sufficient equity. Instead of a regular loan where you make monthly payments, the loan actually provides the borrower income based on the equity position. Paying off the debt was not required until the borrower deceased or it was somehow refinanced.
The new guideline is not expected to thwart the popularity of the program. But, it is one critical guideline that HUD feels will help sustain the viability of the program.
Real estate is a key component of the U.S. economy. Aside from providing basic shelter, it is a commodity that consumers desire to purchase and a mortgage is used to finance the transaction. Yet, it was the environment in 2008 where an industry as we knew it offered slim prospects of recovery.
Fast forward to 2018, recovery is obvious. home prices continue to climb to record levels leaving many to wonder if they will ever be able to afford a home, let alone experience the “American dream?” At the same time if must not be discounted that millions, for various reasons lost homes. For them, then and now home-ownership represents the biggest transaction they will complete in their lifetime. Likewise, it represents the biggest financial asset.
For some 2008 seemed like a lifetime ago. No doubt it was a scary time especially for those who were part of the economic meltdown. Cash was tight, employment or the ability to earn a living was in great jeopardy, homes which were treasured started disappearing in record numbers – like never seen before. Many were lured into the notion property appreciation was constant and even though they may have bet on risky mortgage products, they felt confident they would be able to refinance out of any calamity. Political leaders labeled the period as one not seen since the great depression of the 1930’s.
The crisis erupted in 2008, however signs were simmering that something might be amiss as early as 2005. Interestingly it was a common refrain for the very political leaders and even industry leaders to target the culprit as subprime lending. The problem with that assessment is it is incorrect, at least from a practical definition.
Prior to subprime coming into the mortgage vernacular in the mid 1990’s, most mortgages were considered prime. You had to fully qualify, including for some with what appeared to be exhaustive documentation. . Your credit was not required to be perfect as long as any blemishes could be documented and explained.
Sub is a suffix and means “less than” or “below.” Unfortunately, some would have you believe it meant bad credit, inferior housing or something that was substandard. No doubt many who obtained mortgages were in that population but there was a good percentage who in fact had good credit as well as good property.
A more reasonable understanding is defining subprime as synonymous with alternative. In other words, subprime mortgages merely meant the borrower could not qualify for a prime mortgage. As stated, there were millions of borrowers whose credit was above average and the alternative mortgages became a solid vehicle for them to obtain affordable mortgages. Why was an alternative mortgage necessary? For some, they could not fully document their income via traditional methods. However, they had just as much money in their bank accounts as normal borrowers and their credit was just as solid. Lenders recognized this challenge thus alternative mortgages were born and the market took off.
As lenders created alternative mortgages they became part of the overall subprime population. However, it did not have the negative connotation subprime became labeled. That is why blaming the crisis on those on the fringes with credit issues appears an easy explanation but that short-changes the reality of the subprime market.
There were many reasons which led to the crisis that erupted in 2008. Experts have suggested factors germinated as early as 2006 and the signs of a downfall was apparent. The only problem was many were in denial and for a good chuck of that population it was simply too late to recover.
“I’ve been in this business a long-time and have trained real estate professionals all over Southern California. I’m telling you, the market is about to crash! The late Jerry Timpone, 2006
In 2008 the average home price in Southern California was $429,000. However, it must be noted that due to the crisis millions of homes were being snapped up for far less (via foreclosure and other issues which left many homeowners fleeing their properties).
Compared to today’s average home price of over $600,000, even $429,000 seems like a steal! 2008 was a turbulent time and compared today, it is a thing of the past. During that ten-year period many who held onto their homes have been able to secure a more fixed payment mortgage, thus the surprises of a fluctuating mortgage which was popular during the early to mid-2000’s has been mitigated.
Companies/Business were imploding as we Cities
As indicated real estate, specifically the mortgage sector is important to our economy. As the implosion of businesses picked up steam, the residual effect found cities and communities in great peril. They too were dealt blow after blow as neighborhoods became decimated, thus reducing taxes cities need to operate.
While economic challenges are not the main concern as it was in 2008, today the primary concern is having enough income and down payment to snag a property. Of course, even those who may be in a qualifying position are contemplating the definition of a “fixer-upper” or considering moving outside of the metropolitan area, which years ago would have been unthinkable.
So, average prices come and go. Economic conditions are constant but looking back ten years is important to recognize the cyclical nature of real estate and realizing that most things are relative. The take-away is if $429,000 was a jolt, and $600,000 redefines sticker-shock, it is a good bet prices will go higher before they go lower.
As for mortgages and looking back ten years, it is a simple equation; people will always have the need for shelter and a good many will be lucky enough to become homeowners. Mortgage lenders will always look to satisfy those borrowers who are seeking affordable financing because assuming everyone has at least twenty percent as down payment and stellar credit would depress the market to a point that is not reasonable. The trick, like any consumer purchase is to properly assess your situation so that you are not forced into a mortgage or a predicament which has the remnants of the 2008 meltdown.
Single Family Residences a 10-year look-back
Single Family Residences
Single Family Residences
Single Family Residences
Condominiums / Co-Ops
Condominiums / Co-Ops
Condominiums / Co-Ops
Condominiums / Co-Ops
* 2018 Median price is for May 2018
N/A – Data not available from source
Note: Movement in regional sales prices should not be interpreted as measuring changes in the cost of a standard home. Prices are influenced by changes in costs and variations in the characteristics and size of homes actually sold.
The housing crisis was an important historic event. Fred Thomas, III tags himself as a “student” of the mortgage industry and speaks with credibility having been employed at Countrywide Home Loans, IndyMac Bank and Bank of America. He is currently working on a book which takes a look at the rise and fall as well as the importance they played and the development of the industry.
As expected this week’s mortgage numbers saw a slight increase of two basis points to come in at 4.54% The increase is predicated on economic data which continues to show improvement. Another key factor to support the notion that rates will continue to climb is the latest jobs report which saw new jobs at 201,000.
While rates have risen, the biggest dilemma for those who desire a new mortgage is finding homes that are within their affordability range. As an example, in a year over year comparison rates have increased nearly seventy-five basis points or three-quarters of a percent. So, while it is great the economy is moving forward, consumers must deal with the reality that cost of goods and services also increase.
The result is affordability remains a solid metric but the key with mortgage rates is timing and being in a position to qualify and take advantage of mortgage rates based on your budget.
Average Mortgage Amount – One Year Analysis
While the mortgage of choice remains a 30-year fixed rate based on its amortization to provide more affordable payment, the average mortgage term is approximately seven years (based on data that consumer needs of refinancing).
As mentioned rates have risen, likewise the economy has also strengthened. For most consumers it’s a dollars and cents evaluation, so in their mind the rise is rates is of concern or something that impacts their buying power. As an example, nationwide the difference of $130 each month translates into $1,560 annually or $10,920 based on a seven-year term. Specifically for those in California the numbers are $155 monthly or $1,860 annually which is $13,020 based on the seven-year term.
The question remains; can your budget handle the increase? does the touted tax-cut provide enough money back into your budget to mitigate the increase?
A snapshot of this week’s mortgage rates (popular programs)
Mortgage rates inched up this week to land at 4.520%. The one basis point rise in week over week reporting is not the biggest news. The rate represents the benchmark thirty-year conventional mortgage.
Low rates do not mean a thing if you can’t find an affordable home!
For most homebuyers or even those wishing to take advantage of low rates, the trick is having the credit to quality and having the down payment (or sufficient equity). Recently, another element has been added to the equation of securing a home; finding an affordable property. For many the reality of an “average home price” results in sticker shock. Some parts of the country have the price well over $500,000, and that is for first-timers!
The result of would be buyers remaining on the sidelines is a reduction of mortgage applications. If the pace continues, expect lenders to trim staffing so their operations are “right-sized.”
Rates are cyclical and while many in the public policy arena tout a positive economic environment, for homebuyers that news triggers higher interest rates as well as higher home prices.
Here is a snapshot of this week’s rates:
August 30, 2018
Fees & Points
Freddie Mac is an institutional investor and provider of mortgage funds to local lenders who work with consumers but sell the mortgages to them. Each week they publish the mortgage market rate survey which is data obtained from a sample of their pool of lenders.
An increase of six basis points is normal within week over week reporting. However, it is the trend which has many borrowers showing signs of concern. The benchmark thirty-year mortgage crept to the highest point of 2018 and now sit as 4.610%. The news was reported yesterday as Freddie Mac released its primary market survey which tracks mortgage rate movement.
A seller’s market
Adding consternation to those in the market to purchase a home is the fact the current market is defined as a “seller’s market.” That translates into fewer properties on the market, thus buyers have been forced to make competitive offers and the result is higher sales prices.
Those in the market to purchase a new home or refinance their existing mortgage usually take a very cautious position when contemplating a transaction. The economy has been on a nine-year recovery and each month there has been improvement. Unemployment is at record lows. Some have received bonuses or extra money in their paychecks. All of this may sound good on a political front, however the increase in rates represents higher cost and puts first time buyers in jeopardy as there is added pressure on them to qualify for a loan.
Rates have increased approximately fifty basis points from a year over year comparison
Here is a snapshot of rates for popular programs:
May 17, 2018
Fees & Points
** each week Freddie Mac publishes the rate survey. It is retrieved from a sampling from its lenders who sell mortgages to them. The report is an industry standard and used to gauge consumer mortgage rate movement.