A friend of mine - Chris Griffith from Life in Bonita Springs - pointed this video out to me late yesterday. It’s a piece from 60 Minutes that goes into detail about the recent housing crisis and the titanic stupidity of the sub-prime mortgage situation that caused it all.
It really is an eye-opener.
As a country, if we didn’t learn our lesson from this recent love affair with greed, I can’t imagine what will happen the next time.
When was the last time your bank guaranteed that you would be approved for a loan or a mortgage? If you were denied, did they work with you to get you to where you need to be to be approved? Or did they just send you a letter in the mail? If this applies to you, then you should know that we will get you approved.
How can we say this? Well, here is how the program works. If when a borrower first applies for a home mortgage loan (refinance or purchase) and they are not approved (or bankable), we will begin our part of the program - The KMS Plan.
The KMS Plan: We will review the borrower’s credit in detail to determine the best method of improving their situation. We will also work out a budget for the monthly expenses to payoff debt, save for reserves, increase down payment funds, or a combination thereof. Each month for 12 months, we will follow up to make sure that the plan is being followed.
Now, if the KMS Plan is followed exactly as it is laid out to the borrower, we are guaranteeing that the borrower will be elligible for a mortgage loan after the 12 month. If for any reason the borrower has done exactly what the plan detailed and they are still not bankable, we will continue to work with the borrower until the loan is approved AND we will do it for free. That means that if the borrower upheld their part and we failed at ours after the 12 month, we will not charge a broker fee or yield spread premium when we do make it to closing.
If you or anyone you know is a candidate for this program, please call 352-308-7219 to get enrolled today or click here to complete the application.
The following is a Rate Lock Advisory issued by a la mode, inc and Mortgage Commentary. The views and opinions expressed are not that of Knightlines Mortgage Services, LLC. Please contact your mortgage professional before locking an interest rate.
Tuesday’s bond market has opened in negative territory due to early stock gains. The stock markets are off to a strong start with the Dow up 165 points and the Nasdaq up 30 points. The bond market is currently down 6/32, which will likely push this morning’s mortgage rates higher by approximately .125 - .250 of a discount point over yesterday’s morning rates.
There was no relevant economic news posted this morning. Stock traders are showing their optimism in the economy following another decline in oil prices. High fuel costs have been noted by many sources as a contributing factor to the slowing economy. As oil prices fall well off their recent highs, that concern seems to be easing. This leads to better expectations for economic activity and corporate earnings.
Today’s FOMC meeting will adjourn at 2:15 PM ET and is expected to bring no change to key interest rates. If that is indeed the result, I expect top see little reaction in the markets. However, the post-meeting statements seem to have more of an influence on the markets than the rate adjustments themselves, or a lack of one in many cases. Accordingly, we may still see some volatility in the markets and possibly mortgage pricing during afternoon hours even if the Fed leaves interest rates alone.
Look for an update to this report after the markets have an opportunity to react to the news.
The monies all gone, this mortgage we should not have had.
Forget this debt, as we forgot our payments,
Do not deliver us to the courts
Or send us into foreclosure.
We would sell, but the market is just not there.
For in the future, we will use Knightlines. This mortgage we would not have ’cause they do care.
Amen.
Do not let this be you saying this prayer because you wanted a house you could not afford. While some brokers and lenders only watch out for their well-being, we at Knightlines Mortgage Services, LLC watch out for yours. Putting your faith in us will not get you into heaven, but it will help you keep you in your home.
Just because you live in Eustis, Mount Dora, or Tavares, you are not immune to this mortgage financing fee that mortgage brokers and correspondent lenders almost always charge.
Yield Spread Premium (often referred to as YSP) is quite simply the opposite of buying down an interest rate. For example, if you want to buy down your interest, you can pay the bank/lender a point (1% of the loan amount) or more. Each point you pay is not a direct reduction of your rate by a percent. It is often 1 point buy down equals .25% reduction in interest rate. This differs from lender to lender. With YSP, you can increase your interest rate in exchange for the bank paying you points.
Why is this good? Lenders originally created the concept of YSP for borrowers that want to finance closing costs into their loan by taking the higher interest rate. Let’s say you have a mortgage for $100,000. Your closing costs are about $4000 (this includes pre-pays, lender fees, title fees, government fee, etc). You only have $3000 towards your closing costs. Your par rate (no buy down or YSP) is 6.0%. To come up with the extra $1000 needed to close, you can request a higher interest in exchange for the YSP to be credited to your closing costs. To obtain the 1% YSP (or $1000), the lender may increase your rate to 6.5%. So it will cost you .5% in interest to raise 1% of the loan amount in cash.
Why is this bad? Lenders have gone from mentality of helping borrowers with YSP to rewarding brokers and correspondent lenders with YSP for charging a higher interest rate. Until recently, this fee was never disclosed until the day of closing on the HUD-1 Settlement of Costs. Borrowers would see this fee, but were calmed over with the simple explanation of “Do not worry about this fee. The lender pays this fee, not you as the borrower.” Well, as I just got done explaining the way this fee works, the borrower does pay this fee. They pay it each month with the higher mortgage payment resulting from the higher interest rate.
A broker or correspondent lender can make extra money off of a borrower without them ever having knowledge of it through YSP, unless the are paying close attention to certain documents that are now being required be disclosed. Even though they are disclosed, if you do not know what you are looking at or where to look, you may agree to paying this fee.
So where do you look? The first place to look is on the Good Faith Estimate (GFE). There is a place clearly defined on all GFE where Yield Spread Premium is listed. This is labeled as a fee paid outside of closing and again is explained as the lender pays this fee not the borrower. Not true. Then, you can look at the broker fee agreement. It has to be listed here as it is a fee being paid to the broker or correspondent lender. Finally and the more difficult way of finding this fee is the the Truth In Lending (TIL). I will cover how to read a TIL in a future blog. But for a quick explanation of how to tell if you are paying too much for your loan, the higher the APR is from your actual interest rate, the more you are paying for you loan.
Now, you may have figured something out while reading this post, do not worry if you haven’t because I am going to cover it right now. NO CLOSING COSTS Loans… that is right. There are closing costs. You are just paying them through the YSP created by the higher rate. Next time you see a NO CLOSING COSTS Loan, look at their interest rate and compare it to a loan that is charging closing costs. You will see that the interest rate is higher. Nothing is ever truly free.
When should you use YSP over paying closing costs up front? General rule is if you are planning on refinancing or selling within 3 years. Let’s say the broker fee is 2% (or $2000 on a $100,000 loan amount). Now you can pay the $2000 up front (or on a refinance wrap it into the new mortgage) or take a higher rate. Let’s say that higher rate is .75% higher. That equals to $750 more in interest per year in mortgage payments. That is $750 more in possible tax deductions. Over 3 years, that equals $2250. Yes, it is $250 more than the original amount, but you got the extra deductions to offset that extra amount. Beyond 3 years, pay up front.
If your broker or correspondent lender does not disclose the YSP or give you an option using YSP in lieu of paying the fees upfront, then beware. You have now been educated on this hidden fee and its features. With knowledge comes power. With power, you can now protect yourself and make sure that you get the best deal for yourself.
And one last word of advice, once your rate is locked, ask for a copy of the rate lock. This will show exactly how much YSP is being made. If the broker or correspondent lender was claiming to now charge a YSP, this will prove or disprove it. And YSP is required by law to be disclosed immediately after the final amount is determined, but no less than 3 days prior to closing. Remember, you still have the option of not signing the mortgage even if you find out at time of closing.
If you have any questions or have a Good Faith Estimate that you want reviewed, please call 352-308-7219 or fax the GFE to 888-807-4123.
That’s right! 100% Financing still exists in Lake County, Florida. Despite all the obituaries about these mortgage programs, there is still one program that remains alive and well. This is all thanks to Lake County being USDA Grade A land… and I mean that literally.
The USDA 100% mortgage loans offer many benefits to potential home owners. The biggest being no down payment. Also, at the top of the list is the fact that there is no extra costs in your monthly payment in terms of mortgage insurance. Eh, what the heck? Here is a list of all the benefits a USDA loan has to offer:
No Down Payment.
If the appraised value comes in higher than the contract sales price, you can wrap closing costs into your loan.
No Reserves. This means you do not need to have lots of money in savings, as some banks require.
No Minimum FICO Score. You must at least look creditworthy.
Available For First Time Buyers and Non-First Time Buyers.
Substitute Schooling/Education for Job History.
Unrestricted Gifts. Gift money is not sourced or seasoned when used for closing costs.
And yes, just like any loan, you have to qualify for it. So, how do you qualify? Well, the biggest hurdle is already overcome. You live in Lake County. According to USDA Rural Development, you are already in an eligible area. The next obstacle standing in your way is income. If you make too much money, you best be looking somewhere else. For sake of giving a chart and directions on how to use it, visit this site. With its fast and easy calculator, it will tell you whether or not you are eligible (or just call us). (And if you live outside of Lake County, you can use the same site to see if your property is eligible.) Last, but not least, you debt-to-income ratios must be within guidelines. We will be more than happy to calculate this figure for you when you call us for you new home loan.
To qualify for this loan, call 352-308-7219 and ask for your USDA Grade A Home Loan.
The problem that consumers face is “which mortgage is the best?” The answer to this is: the best mortgage program is that program that best suits the individual’s needs. But how does one know which is the best, if one is not up on all the different types of mortgages?
Well, let’s break mortgages down to their very basic levels: rate and term. Rate is the interest rate that one pays to bank. Rate is determined by risk. Term is the length of time that a loan is paid back. Term is also the length of time that the rate remains fixed (We will call this the rate term). The longer the rate term; the great the risk; the higher the rate.
Now, let’s assume that all mortgages are FRMs and paid back over a 30 year term. Why? Most everyone understands the concept of a 30 year FRM: the rate is fixed for 30 years and paid back over 30 years. So, what this means is the 6 month, 1 year, 3 year, 5 year, 7 year, and 10 years ARMs are now all FRMs and paid back over 30 years. The rate is fixed for that period of time which is mentioned.
Going back to our basics of the longer the term the higher the rate, the 6 month FRM has a lower rate than the 10 year FRM. So, why would one take one of these shorter terms versus a longer term? The answer is simple: they have a general idea as to their future (they plan to move, add on, build a pool, refinance to take cash out, etc). The reward for planning ahead: a lower interest rate.
Even if a person is uncertain of where they will be in the future, if they use statistics, they can get a lower rate. Statistics show that the average homeowner refinances every 3-5 years and sells around 7 years. Let’s say someone wants to be conservative on the 7 year figure, they can go for a 10 year FRM. They still will have a lower rate than that of the 30 year FRM. But, there are those still that do not even want to consider the risk of what happens after that 10th year of the FRM. For them, the 30 year FRM is best.
Now that I opened the can of worms on “what happens after the rate term expires,” I will make a couple quick, simple answers. Assuming one misjudged their future expectations of their mortgage, they have a couple options.
Refinance and base the new mortgage on the new expectations
Refinance and jump start the expectations
Ride out the adjustments.
Ride out the adjustments? Yes, after the rate term has lapsed, the rate may/will adjust. Every lender has different ways of capping what your rate can change, but they all have the same calculation on determining what the rate will be: Margin + Index. Margin is a fixed amount. It is the amount the bank charges to put it simply. Index is an adjusting rate that is determined by market factors. Enough said on this.
When does one let it ride? Simple answer: rates have dropped. Think back a couple years when rates were at record lows. One could have been in a 3 year FRM that was about to adjust. Instead of refinancing, one could have seen a drastic drop in their rate just by letting their rate ride. Even with a fixed margin, rates dropped low enough for those individuals to enjoy a lower rate without the need to refinance.
So what is the best mortgage for you? The best mortgage is the FRM that has the rate term equal to your future goals timeline and the amount of risk you are willing to take. Now, there are variations to these FRM programs, so please call Knightlines Mortgage Services, LLC today at 352-308-7219 to talk to one of our licensed mortgage professionals.
Sub-Prime Mortgage Stupidity and the Current Housing Problem
