Tag Archives: bank

Mortgage Rates & Refis

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TheStreet.com quoted me in Mortgage Rates Expected to Rise and Push Down Refinancing Levels. It reads, in part,

Mortgage rates will continue their upward climb in 2017 as the economy demonstrates additional growth and inflation, but this will of course dampen the enthusiasm for homeowners who have sought to refinance their mortgages up until early this year.

The levels of refinancing will definitely “take a hit relative to 2016,” said Greg McBride, chief financial analyst for Bankrate, a New York-based financial content company.”

A survey conducted by RateWatch found that 56.57% of the 400 financial institutions polled said it is unlikely mortgage rates will fall and unlikely there will be an increase in refinancing in 2017. RateWatch, a Fort Atkinson, Wis.-based premier banking data and analytics service owned by TheStreet, Inc., surveyed the majority of banks, credit unions, and other financial institutions in the U.S. between December 16 and December 29, 2016 on how the Donald Trump presidency will affect the banking industry. The survey found that 35.71% said an increase in refinancing levels is very unlikely, while 6.29% said such an increase is somewhat likely, 1.14% said one would be likely and 0.29% said it would be very likely.

Mortgage rates, which are tied to the 10-year Treasury note, are predicted to fluctuate between 4% to 4.5% in 2017 “with a brief trip below 4% in the event of a market sell-off or economic stumble,” McBride said.

The 4% threshold is critical for homeowners, because when mortgage rates fall below this benchmark level, more consumers are in a position to refinance “profitably,” which is why 2016 experienced a “surge in activity,” McBride said.

When rates rise about the 4% level, the number of homeowners who opt to refinance declines dramatically and “refinancing levels will be notably lower in 2017,” he said.

The mortgages in the 3% range gave many homeowners the opportunity to refinance last year, some for the second time, as many consumers also chose to refinance their mortgages during the 2013 to 2015 period.

As the economy expands and workers are experiencing pay increases, the number of home sales should also rise in 2017.

“People who are working and receiving a pay increase will buy a house whether mortgage rates are 4% or 4.5%,” McBride said. “They may buy a different house, but they will still buy a house.”

Refinancing activity is likely to continue ramping up in January rather than later in the year as the “recent dip in rates allows procrastinators to act before rates continue their movement up,” said Jonathan Smoke, chief economist for Realtor.com, a Santa Clara, Calif.-based real estate company. “As interest rates resume their ascent and get closer to 4.5% on the 30-year mortgage, the number of households who can benefit from refinancing will diminish. That’s why we expect lenders to shift their focus to the purchase market this year.”

Economic growth resulted in interest rates rising before the election and in its aftermath. The rates rose because of the expectation from the financial markets of expanding fiscal policies leading to additional growth and inflationary pressures, Smoke said.

Mortgage rates will continue to rise in 2017 as a result of more people being employed, and this economic backdrop will favor the buyer’s market instead of the refinancing market. Current data from the Mortgage Bankers Association already demonstrates that refinancing activity has declined compared to 2016 due to higher interest rates, Smoke said.

“Rates have eased a bit since the start of the year as evidence of a substantial shift in inflation remains limited and the financial markets oversold bonds in December,” he added.

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Borrowers should be concerned with increased interest rate volatility in 2017, said David Reiss, a professor at the Brooklyn Law School. The Trump administration has been sending out mixed signals, which may lead bond investors and lenders to change their outlook more frequently than in the past.

“Borrowers should focus on locking in attractive interest rates quickly and working closely with their lender to ensure that the loan closes before the interest rate lock expires,” he said. “While there is no clear consensus on why rates went lower after the new year, Trump has not set forth a clear plan as to how he will achieve those goals and Congress has not signaled that it is fully on board with them. This leaves investors less confident that Trump will make good on those positions, particularly in the short-term.”

Mortgage Broker v. Loan Officer

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photo by https://401kcalculator.org

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.

All About Mortgage Brokers

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photo by Day Donaldson

Bankrate.com quoted me in Mortgage Broker — Everything You Need To Know. It opens,

When you need a mortgage to buy or refinance a home, there are 3 main ways to go about applying — through a traditional brick-and-mortar bank, an online lender or a mortgage broker (either in-person or online).

Many people first think about shopping for a mortgage where they already have their checking and savings accounts, which is often a major bank or a local credit union. And applying online with a traditional bank or online-only lender has become more common.

But while borrowers are probably the least familiar with using a mortgage broker, it comes with many benefits.

Here’s everything you need to know about using a mortgage broker. 

Working with a mortgage broker

A mortgage broker connects a borrower with a lender. While that makes them middlemen, there are several reasons why you should consider working with a broker instead of going straight to a lender.

For starters, brokers can shop dozens of lenders to get you the best pricing, says Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage” and mortgage advisor with C2 Financial Corp. in San Jose, California.

Fleming says the price he charges for certain lenders or banks is very often better than the price a consumer could get by going directly to the same lender.

“When the lender outsources the loan origination and sales function to a broker, they offer to pay us what they would otherwise pay to cover their internal operations for the same function,” Fleming says.

“If we are willing to work for less than that—and that is usually the case—then the consumer’s price through a broker ends up being less than if they went directly to the lender,” he explains.

Further, “A broker is legally required to disclose his compensation in writing — a banker is not,”says Joe Parsons, senior loan officer with PFS Funding in Dublin, California, and author of the “Mortgage Insider blog.”

Variety is another benefit of brokers. It can help you find the right lender.

“Some may specialize in particular property types that others avoid. Some may have more flexibility with credit scores or down payment amounts than others,” says David Reiss, a law professor who specializes in real estate and consumer financial services at Brooklyn Law School in New York and the editor of REFinBlog.com.

In addition, brokers offer one-stop shopping, saving borrowers time and headaches.

“If you are turned down by a bank, you’re done — you have to walk away and begin again,” Fleming says. But “If you are turned down by one lender through a broker, the broker can take your file to another lender,” he adds. The borrower doesn’t need to do any extra work.

A broker’s expertise and relationships can also simplify the process of getting a loan.

Brokers have access to private lenders who can meet with you and assess whether or not you have the collateral, says Mike Arman, a retired longtime mortgage broker in Oak Hill, Florida.

Private lenders, which include nonbank mortgage companies and individuals, can make loans to borrowers in unconventional situations that banks can’t or won’t because of Dodd-Frank regulations or internal policy.

You may get a better price on a loan from a broker as well.

Under the Consumer Financial Protection Bureau’s Loan Originator Compensation rule, brokers (but not bank lenders) must charge the same percentage on every deal, so they can’t raise their margin “just because” like a bank can, Fleming explains.

“The intent was to prevent originators from steering borrowers to high-cost loans in order to increase their commission,” Fleming notes.

You should also know that working with a broker won’t make your loan more expensive.

“The lender pays us, just like a cruise line pays a travel agent,” Fleming says.

Working with a traditional bank lender

Banks issue less than half of mortgages these days, according to the industry publication Inside Mortgage Finance. But working with a broker isn’t necessarily a slam dunk.

“A broker may claim that he offers more choices than a banker because he works with many lenders,” Parsons says. “In reality, most lenders offer pricing on their loans that is very similar.” Although, he notes, a broker may have available some niche lenders for unusual circumstances.

Reiss says that even if you’re working with a mortgage broker, it can be worthwhile to check out lenders on your own since no broker can work with every lender — there are simply too many. He suggests starting with lenders you already have a relationship with, but also looking at ads and reaching out directly to big banks, small banks and credit unions in your community.

It’s important to know your range of options, he notes.

For the same reason, you might want to shop around with a few different brokers.

Creative Credit Union Mortgages

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Credit Union

DepositAccounts.com quoted me in Types of Institutions in the U.S. Banking System – Credit Unions. It reads, in part,

What You Need to Know About Credit Unions

For more than 100 years, credit unions have been providing financial services to their members. Forget about what you thought you knew about credit unions. Long gone are the days when credit unions were seemingly only a “bank” for government employees. Today some 100 million Americans are member-owners of 6,900 credit unions and credit unions have more than $1 trillion in assets.

The Credit Union National Association (CUNA) defines a credit union as a non-for-profit, member-owned financial cooperative, democratically managed by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.

Simply put — credits unions are about their members, not profits.

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How are credit unions different from banks?

“They are structured very differently. Credit unions don’t issue stock or pay dividends to outside shareholders, so they are not beholden to outside third party interests,” says Steve Rick, chief economist of CUNA Mutual Group, an insurer and maker of financial productions within credit unions.

Each person who holds an account is a member, and each member has one vote, “rather than the voices of only the powerful few stockholders heard at for-profit banks. And all earnings go straight back to members in the form of favorable interest rates and lower fees that other for-profit institutions can’t beat,” he adds.

Banks are governed by paid shareholders and voting rights depend on the number of shares owned. Earnings go to outside bond and stockholders in the form of dividends.

As cooperatives, credit unions are part of a broader cooperative community that shares philosophies around benefiting their member owners. One of the core missions of the credit union system is to educate its members on financial issues to ensure their financial health.

“It’s worth noting that credit unions can offer creative types of mortgages that should be explored by first-time and experienced homebuyers alike. The PenFed Credit Union, along with some other credit unions, has a 5/5 ARM that adjusts every five years. A product like this combines aspects of a fixed rate mortgage (fewer, but not the fewest) surprises about payment sizes, with aspects of an ARM (lower, but not the lowest) interest rates,” says David Reiss, a Brooklyn Law School professor specializing in real estate.

Monday’s Adjudication Roundup

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Wall Street Naughty List

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Damian Gadal

Law360 quoted me in Checks Needed For Naughty List To Improve Wall Street’s Rep. It reads, in part, 

Wall Street banks may back a push to create a central registry of employees who misbehave in a bid to improve internal culture at the country’s biggest banks, but worries about the accuracy of any potential list and other due process concerns have given some observers pause.

Federal Reserve Bank of New York President William F. Dudley has been advocating for the creation of such a central registry that can be used by banks when recruiting new talent as a way to make sure that serial rulebreakers are kept out of the biggest banks. And a readout of a meeting on bank culture with Wall Street bigwigs in November appear to show that the banks are getting behind the idea.

While creating such a central registry could go a long way toward preventing bad actors from engaging in future frauds and improving the internal workings of banks, there are risks that people could be wrongly included on the list and shut out from jobs, or that individuals could be made scapegoats for larger, institutional failures at the big banks.

In order to prevent that from happening, any formal registry of wrongdoers set up by the banks must have strict rules for when a person is added and how they can appeal their placement on the list, said Ellen Zimiles, a managing director at Navigant Consulting.

*     *     *

Still, despite her concerns, Zimiles said that having a registry of bad actors could increase the amount of individual accountability for Wall Street’s misdeeds, something that has been lacking.

But some say it does not go far enough.

The Dodd-Frank Act mandated new compensation rules, and more than five years after the law’s passage, they have still not been completed. Without compensation reforms, including clawbacks for violations, a central registry will not be enough to truly reform Wall Street’s internal culture, said David Reiss, a Brooklyn Law School professor.

“Together, perhaps the registry and clawbacks could have a positive effect on firm behavior if they are implemented thoughtfully and are designed to work together,” he said.

And even with the addition of compensation reforms to the central registry forming a “belt and suspenders” approach to reform bank culture, the fiercest of Wall Street critics say that changes will not come unless bankers are brought before courts for alleged violations and sent to jail if found guilty.

“And, of course, along with the belt and suspenders, there should be prison bars as well,” Bart Naylor of Public Citizen said.

That’s something that critics say was missing after the financial crisis.

The registry, however, could be a start to bringing about much-needed accountability, they said.