December 14, 2016
Mortgage Broker v. Loan Officer
MagnifyMoney.com quoted me in Mortgage Broker vs. Loan Officer: The Best Way to Shop for a Mortgage (must scroll down). It opens,
When you need to take out a loan to buy a home, you generally have two options. You can work with a lender’s loan officer or hire a mortgage broker. Loan officers and mortgage brokers are not the same thing, although the terms are often used interchangeably.
Loan officers work for a bank or a lender and will only be able to show you mortgage options from that financial institution. In contrast, mortgage brokers are individuals or firms that are licensed by a state to act as middlemen between you and multiple banks or mortgage lenders. Because brokers aren’t beholden to a particular lender, they can shop around and try to find you a loan with terms that best fit your circumstances.
Why should you consider working with a mortgage broker?
One of the biggest benefits to working with a mortgage broker is that they take over the job of shopping for a loan. You might be able to do this on your own, and in some cases, you could find a better loan than the broker, but it can be a time-consuming and complicated process.
A broker can help collect and organize the documents you need to apply for a mortgage, such as your proof of employment and income, tax returns, a list of your assets and debts, and credit reports and scores. The broker can then use the information to look for loans, compare rates and terms, and apply for mortgages on your behalf.
Casey Fleming, a mortgage adviser and author of “The Loan Guide: How to Get the Best Possible Mortgage,” says one of the big benefits is that brokers are generally “on your side,” while a loan officer represents the lender’s interest. Brokers are also incentivized to find you a loan that meets your needs and see the deal through closing because they don’t get paid until you close on the home.
Additionally, brokers might have access to lenders that don’t work directly with consumers, meaning you wouldn’t be able to get a loan from the lender even if you tried. And in some cases, brokers can leverage their relationship with a lender to get it to waive fees you’d otherwise have to pay.
Are there risks involved with using a mortgage broker?
While working with a broker could be a good idea, there are potential drawbacks to consider. “Not all brokers are created equal,” says Fleming. “Many have only a few sources for loans, and may not be able to find the best pricing.” There are also some mortgage lenders that don’t work with brokers and will only offer loans directly to consumers (through one of the lender’s loan officers).
Using a mortgage broker can also be expensive. Although you may find the services are worth paying for, consider the costs of using a broker:
Mortgage broker fees
Mortgage brokers are often paid in one of two ways. You may be able to choose how you’d like to pay the broker, or opt for both payment methods.
Some mortgage brokers will charge you a commission based on the loan you take out, often about 1% of the loan. For example, that’s a $3,000 fee on a $300,000 mortgage loan. You’ll pay this fee as part of your closing costs when you close on the home.
Other brokers may offer you a fee-free mortgage. However, what likely happens in this case is that the mortgage broker arranges a loan with a higher interest rate, leaving room for the lender to give the broker a cut. This route could cost you more over the lifetime of the loan but might be the better option if you want to minimize costs now.
Where to find a good mortgage broker
“Word of mouth is very useful when it comes to finding a good [mortgage broker],” according to Professor David Reiss, a real estate law professor at the Brooklyn Law School in Brooklyn, N.Y. You could ask friends or family members who’ve recently bought a home if they used a mortgage broker, as well as your real estate agent if he or she can recommend a broker.
However, don’t settle for the first recommendation you receive. The Federal Trade Commission recommends interviewing several brokers and trying to find one who’ll be a good fit for your home search.
Ask about their experience with buyers like you in the area, the fees they charge, and how many lenders they work with. “You want to know whether the mortgage broker can find competitive mortgage products, is well organized so that loans close in a timely manner, and whether it keeps away from bait-and-switch tactics that can be so difficult to deal with when buying a home,” says Reiss.
December 14, 2016 | Permalink | No Comments
Wednesday’s Academic Roundup
- This paper, titled The Effects of the Fed’s Quantitative Easing Announcements on the US Mortgage Market: An Event-Study Analysis, uses regression based event-study analysis to examine the response of the 30-year mortgage rate to the Federal Reserve’s Quantitative Easing (QE) announcements in zero lower bond period. A total of 35 QE announcements from 2008 to 2015 are selected in reference to previous literature and my own discretion. Each announcement is then identified by a certain type and in a QE round.
- This paper, titled ‘I’ll Have What She’s Having’: Identifying Social Influence in Household Mortgage Decisions, find evidence that neighbors apply an important economic force on households’ mortgage choices. We use household mortgage data, precisely geolocated real estate data, and a recently developed research design to identify the existence of social influence effects in three important household mortgage choices.
- Prices and liquidity are closely related in residential real estate markets, both at local level and across neighbourhoods. This paper, titled The Informational Role of Housing Market Liquidity, provides empirical evidence for spatial correlation in housing market turnover, controlling for the role of migration flows.
December 14, 2016 | Permalink | No Comments
December 13, 2016
Retired With A Mortgage
U.S. News & World Report quoted me in Rethinking a Mortgage While Retired. It opens,
It’s one of the cardinal rules of retirement planning: pay off the mortgage before quitting work. Giving up your income while still supporting a big debt can mean chewing away at your retirement savings way too fast, and can leave you in a tight spot if something goes wrong.
But paying off a mortgage years early is easier said than done, and the Center for Retirement Research at Boston College says way too many pre-retirees are too far behind schedule, largely because of borrowing before the housing bust and financial crisis.
On the other hand, some experts say carrying low-interest debt into retirement is not always such a bad thing, especially if it means leaving money in investments that perform well.
“In 2013, almost 40 percent of all households ages 55 and over had not paid off their mortgages, up from 32 percent in 2001,” the Center reports, citing a study using data from the Federal Reserve’s Survey of Consumer Finances in 2013. “These borrowers were also carrying a lot more housing debt by 2013.”
“I’ve been advising clients for over 20 years and on just an anecdotal level, I can tell you that more clients are retiring with mortgage balances than in years past,” says Margaret R. McDowell, founder of Arbor Wealth Management in Miramar Beach, Florida.
A.W. Pickel III, president of the Midwest division of AmCap Mortgage in Overland Park, Kansas, says many baby boomers traded up as their families grew, then took second mortgages to help fund college costs.
In the years before 2008, homeowners were encouraged to take out big loans when home values appeared to be soaring, the center says. They bought expensive homes or tapped home value through cash-out refinancing or home equity loans, it says.
When home prices collapsed, millions were left “underwater” – owing more than their homes were worth – and were unable to get out from under because they could not sell for enough to pay off their loan. McDowell believes many homeowners also concluded their home was not the rock-solid asset they’d thought, so they felt it unwise to pour more money into it by paying down the mortgage early.
So many just hung in there. By taking on too much debt, and monthly payments so large they could not afford extra payments to bring it down, they left themselves with too much debt too late in the game.
The center says “that 51.6 percent of working-age households were at risk of having a lower standard of living in retirement,” largely because of mortgage debt.
“In recent years, U.S. house prices have started to really improve, to the benefit of homeowners and retirees,” the center says. “But it’s difficult to predict whether the other factor that has reduced retirement preparedness – more older households with big housing debts – was a boom-time phenomenon or represents the new normal.”
But is the situation really as dire as it seems? David Reiss, a professor at Brooklyn Law School in New York City, thinks it may not be.
“According to the National Association of Realtors, the median sales price of an existing home increased from $197,100 in 2013 to $232,200 in October of 2016,” he says. “That is a roughly 15 percent price increase and about $40,000 of additional equity for the owner of the median home.”
Many homeowners who were underwater may not be any longer.
Also, he adds, it’s not necessary to be absolutely debt free at retirement so long as income is large enough to cover expenses and leave a cushion.
“Often, paying off a mortgage gets a retiree where he or she needs to be in terms of that balance, but it is not always necessary,” he says.
The key, he says, is to not be underwater. Once the remaining debt is smaller than the home value, the homeowner is better able to sell. One option is downsizing, selling the current home, then using cash from the sale or a new, smaller mortgage to buy a cheaper home. A less expensive home will also likely have lower property taxes and maintenance costs.
December 13, 2016 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- According to an announcement from the Department of Housing and Urban Development, the government is granting more than $132 million total to neighborhoods in Boston, Denver, St. Louis, Louisville, and Camden as part of HUD’s Choice Neighborhoods Initiative.
- Mark Lamster, a professor at the University of Texas at Arlington and a Loeb Fellow at the Harvard Graduate School of Design studying urban planning, wrote an open letter to Carson on how to solve the housing crisis in The Dallas Morning News.
- Freddie Mac is now rolling out a pilot program that matches nonprofits with socially conscious investors.
December 13, 2016 | Permalink | No Comments
December 12, 2016
Finding The Right Homeowners Insurance Policy
Zing! quoted me in Find the Right Homeowners Insurance with These Tips. It opens,
For many of us, a tremendous amount of research and work goes into buying a home. When my husband and I bought our first home two years ago, I was surprised to learn that everything I thought I knew, I didn’t really know – including how to choose homeowners insurance.
I hadn’t thought about homeowners insurance until my mortgage company called and told me they needed my policy information. Panic poured over me. What policy? What are my options? How much coverage do I need? Where do I start? I was overwhelmed with questions and at a loss for answers. I had a whole lot of research to do and with a mortgage already underway, not a lot of time to do it.
Homeowners insurance policies can be confusing and complicated, especially if you’re not familiar. While these tips may be too late for me to use, I hope they can help you when considering your home insurance options.
Talk with Your Local Insurance Agent
If there’s one thing I recommend when it comes to homeowners insurance, it would be to talk to someone who knows your area like the back of their hand.
“Local agents are familiar with the city and surrounding areas – this means they should have a general knowledge of the market values and other information that may play a role in determining your coverage needs,” says Sarah Haun of Advanced Insurance Designs, Inc., who has been selling and servicing homeowners’ policies for more than 15 years.
Insurance agents can also help in determining how much coverage you need and if it makes sense to bundle your various insurance policies together. Bundling car and home insurance saves my husband and me a couple hundred dollars a year, but that’s not the case for everyone, so be sure to ask.
Haun also suggests working with an independent agent. “Independent agents have the ability to quote several different carriers, to find you the best coverage at the best value,” says Haun. “This may be a good option if you want to get several quotes without making several phone calls or filling out several online quote forms.”
My agent is an independent agent and I highly recommend using one. If ever I have a question about my policy, I call him directly. It also benefits me in the fact that he’s always looking for ways to save us money each year, and if he sees an opportunity, he shares it with us.
Shop for Home Insurance like You Would a New Car
“It pays to shop around,” says David Reiss, Professor of Law at Brooklyn Law School. “You want to shop around to get the best price, but you also want to get a sense of how each company you are considering treats claims when they are made,” he says. “Do they have a reputation for being difficult to work with and a reputation for not paying legitimate claims? You want to take that into account when you are making your decision.”
If you decide to go it alone, Haun suggests to get three estimates and compare.
What’s Covered and What’s Not
You wouldn’t get halfway through a good book and stop reading it, so don’t just give your policy a once over. Experts recommend you read through your policy in full detail to know what is and what is not covered.
According to Haun, insurance coverage may include damage from
- Wind
- Hail
- Fire
- Smoke
- Lightning
- Weight of snow/ice
- Bursting of pipes
- Theft
“Damage from normal wear and tear would not be covered,” adds Reiss. “If an old boiler gives out, that’s on you.”
December 12, 2016 | Permalink | No Comments
December 9, 2016
Trump and The Housing Market
President-Elect Trump
TheStreet.com quoted me in 5 Ways the Trump Administration Could Impact the 2017 U.S. Housing Market. It opens,
Yes, President-elect Donald Trump may have chosen Ben Carson to lead the Department of Housing and Urban Development, but as the U.S. housing market revs its engines as 2016 draws to a close, an army of homeowners, real estate professionals and economists are focused on cheering on a potentially rosy market in 2017.
And with good reason.
According to the S&P CoreLogic Case-Shiller Indices released on November 29, U.S. housing prices rose, on average, by 5.5% from September, 2015 to September, 2016. Some U.S. regions showed double-digit growth for the time period – Seattle, saw an 11.0% year-over-year price increase, followed by Portland, Ore. with 10.9% and Denver with an 8.7% increase, according to the index.
The data point to further growth next year, experts say.
“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance,” notes David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices. “While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms — Miami, Tampa, Phoenix and Las Vegas — remain well below their all-time highs. Other housing indicators are also giving positive signals: sales of existing and new homes are rising and housing starts at an annual rate of 1.3 million units are at a post-recession peak.”
But there are question marks heading into the new year for the housing market. The surprise election of Donald Trump as president has industry professionals openly wondering how a new Washington regime will impact the real estate sector, one way or another.
For instance, Dave Norris, chief revenue officer of loanDepot, a retail mortgage lender located in Orange County, Calif., says dismantling the Consumer Financial Protection Bureau, encouraging higher interest rates, and broadening consumer credit are potential scenario shifters for the housing market in the early stages of a Trump presidency.
Other experts contacted by TheStreet agree with Norris and say change is coming to the housing market, and it may be more radical than expected. To illustrate that point, here are five key takeaways from market experts on how a Trump presidency will shape the 2017 U.S. real estate sector.
Expect higher interest rates – The new administration will likely lead to higher interest rates, which will compress home and investment property values, says Allen Shayanfekr, chief executive officer of Sharestates, an online crowd-funding platform for real estate financing. “Specifically, loans are calculated through debt service coverage ratios and a borrower’s ability to make their payments,” Shayanfekr says. “Higher interest rates mean larger monthly payments and in turn, lower loan amount qualifications. If lenders tighten up, it will restrict the buyer market, causing either a plateau in market values or possibility a decrease depending on the margin of increased rates.”
Housing reform will also impact home purchase costs – Trump’s effect on interest rates will likely depress housing prices in some ways, says David Reiss, professor of law at Brooklyn Law School. “That’s because the higher the monthly cost of a mortgage, the lower the price that the seller can get,” he notes. Reiss cites housing reform as a good example. “Housing finance reform will increase interest rates,” he says. “Republicans have made it very clear that they want to reduce the role of the federal government in the housing market in order to reduce the likelihood that taxpayers will be on the hook for another bailout. If they succeed, this will likely raise interest rates because the federal government’s involvement in the mortgage market tends to push interest rates down.”
December 9, 2016 | Permalink | No Comments
Friday’s Government Reports Roundup
- Fannie Mae and Freddie Mac successfully made changes to their mortgage back securities claims the Federal Housing Finance Agency. Furthermore, the agency iterates that this first step is imperative to the long term plan “of a common securitization platform and a single security.”
- President elect, Donal Trump, has a new plan regarding taxes in the U.S. This plan, if passed, will likely affect homeowners and they types of deductions they may claim on their income tax.
- The U.S. Deprtment of Housing and Urban Development (HUD) created an efficient tool to help show members of local communities how HUD is investing in their neighborhood. This new resource is called the Community Assessment Reporting Tool (CART).
December 9, 2016 | Permalink | No Comments
