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.
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.
above photo Mel Watt, director of the Federal Housing Finance Agency (FHFA), from left, Jerome Powell, chairman of the U.S. Federal Reserve, Steven Mnuchin, U.S. Treasury secretary, and Jay Clayton, chairman of the Securities and Exchange Commission (SEC), listen during a Financial Stability Oversight Council (FSOC) meeting at the U.S. Treasury in Washington, D.C., U.S., on Tuesday, Oct. 16, 2018. Powell said at the meeting he is worried about a spillover from hard Brexit, but stocks and Treasuries showed little reaction. Photographer: Andrew Harrer/Bloomberg via Getty Images
Today, the Federal Housing Finance Agency (FHFA) announced conforming loan limits would increase from $453,100 to $484,350. For higher cost areas (see map below) the new limit will be $726,525. FHFA was created as the umbrella agency for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
They purchase home loans from a network of lenders across the nation. The lenders originate the loans from consumers who are seeking to finance their home purchase or to refinance their existing mortgage. The lenders also work with mortgage brokers, credit unions and other organizations who have direct contact with consumers.
Once the loans are funded, they are packaged and sent to respective investors (i.e., Fannie Mae and Freddie Mac) and sold as securities, which are backed or collateralized from the property.
Nationally the average loan amount is $229,000. The new guidelines take effect for mortgages that originate starting January 1, 2019. The increase will help those who see home prices continue to rise.
Conforming loans are those where the loan amount is $484,350 OR LESS. Any loan amount in excess of that loan is defined as a “Non-Conforming” loan. For borrowers the impact is typically ½ point or 50 basis points on the interest rate.
As an example based on current limits
The bottom line difference could be approximately $190 each month. So, while the monthly payment is crucial, the move also provides those with higher loan amounts an additional $31,250 to deal higher prices, while being able to obtain more affordable interest rates.
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
Today mortgage information provider CoreLogic released its “Annual Fraud Report” documenting a rise in consumer mortgage fraud. The report highlights that recently convicted former Trump campaign manager isn’t the only one who submitted false applications to secure mortgage loans. As in the case of Manafort, mortgage fraud is a federal offense and the penalties can be stiff, including incarceration.
Even though the economy has improved, the rise in home prices and corresponding amount of income needed to qualify for a loan has increased. Although it is a risk management issue the numbers note approximately 1 in 109 applications have some type of fraud. The report reflects the fraud index has increased for the past seven quarters.
Two fraud issues that are top of mind for risk managers right now are false credit disputes and income misrepresentation.
Above caption. Federal Reserve Chairman Jerome Powell Holds A News Conference Following Federal Open Market Committee Meeting
WASHINGTON, DC - SEPTEMBER 26: Federal Reserve Board Chairman Jerome Powell speaks during a news conference on September 26, 2018 in Washington, DC. The US Federal Reserve raised the short-term interest rates by a quarter percentage point on Wednesday, the third increase of the year, and signaled two more hikes were coming in 2018 and four in 2019. (Photo by Mark Wilson/Getty Images)
[Washington, DC] In a move that was forecast several weeks ago, this afternoon Jerome Powell, chairman of the Federal Reserve raised the discount rate to 2.250%. This move occurred to the chagrin of his boss and the person who appointed him Donald Trump, as since June of this year he has been quite vocal that Powell should not raise rates.
The Feds are non-partisan and to effectively operate are independent of political interference. As customary, president’s and those in leadership refrain from making comments about monetary policy. That is most, except Trump who once again has demonstrated his lack of understanding regarding political protocol.
“I’m not thrilled,” Trump said in an interview last month
Powell has stood firm and justified the move to control a positive economy. The discount rate is the cost commercial banks pay for funds. Their impact does not immediately affect consumers but they typically result in higher borrower costs.
You can’t have it both ways
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent. Jerome Powell, Fed Chairman
Ever since the financial meltdown of 2008, systemic changes were adopted to strengthen the economy. In Trump’s case, even though it is very tough for him to admit he inherited an economy that had all the signs of positive growth, as a practical measure it must be properly managed. As the economy moves forward, it is the Fed’s who are in control of monetary policy and to manage interest rates so that inflation of other negative factors are mitigated.
The nine member panel of the Federal Reserve Open Market Committee voted unanimously to support the increase.
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.
Creating some relief for those obtaining a new mortgage, rates slid down 10 basis points in week over week reporting. This morning job numbers also posted impressive gains, despite Donald Trump breaking a long-standing policy of intimating the news prior to the official release with one of his early morning tweets. The issue is the Bureau of Labor Statistics is to be the first voice in officially releasing the numbers, which normally is around 8:30AM . Period!
In Trump fashion while he did not specifically break protocol, his mere mention was enough to cause consternation for those who treasure integrity from our institutions.
These two metrics and other positive signs bode well for those in political control and could be enough to keep them in the driver’s seat. The unknown is will they be enough to fend off the impending blue wave from the November election that could result in Democrats gaining control of one or both seats of Congress?
Those in control insist the majority of voters are only concerned about kitchen-table issues and pay little attention to the other dilemmas Trump and the ruling party are attempting to deal with. They are banking on as long as impressive economic numbers are achieved, any other issues are secondary and will keep them in control.
Of course, Congressperson Maxine Waters (D-California) who has been a thorn in the side of Trump and his supporters sent out a warning while appearing on a national news program earlier this year in March.
“for if some reason, Robert Mueller does not get him, Stormy will.”