Earlier this month, the Community Home Lenders Association posted on their website a side-by-side comparison of consumer regulation required of non-bank mortgage lenders (like Priority Lending) versus banks. The details are chilling.
Every individual Loan Originator at a non-bank lender must:
•Complete SAFE Act Mortgage Competency Test
•Complete 20 hours SAFE Act pre-licensing courses
•Pass an independent criminal background check
•Do 8 hours/year of SAFE Act continuing education
Banks are completely EXEMPT from ALL of the above. Further, all non-bank mortgage lenders are subject to CFPB exams covering:
•Compliance with RESPA
•Other statutory requirements
All banks with under $10 Billion in assets are exempt – that’s 99% of all banks. These facts do not imply that all banks play fast and loose with borrowers and their dreams of buying a home. However, they do lay out a solid and persuasive argument to encourage buyers to go with a non-bank mortgage lender, without a doubt!
Shiny Objects Can Be Pretty . . . Expensive
Back in May, Trulia determined that new homes cost roughly 20% more than similar existing homes. Here are some other things to share with buyers:
Disadvantages to Buying a New Home
•More expensive than buying used
•Location probably isn’t ideal
•Despite being new, workmanship might be questionable
•Could be subject to costly HOAs, even if it’s a house
•Neighborhood dynamic is unknown
•Property values might be more volatile
•Construction nearby (eyesore and noisy)
•More cookie-cutter, less unique
Advantages to Buying an Existing Home
•Better, more central location
•Can buy in an established school district
•Can own in a more reputable and recognized neighborhood
•Old house might have new upgrades
•You can always renovate if need be
•Older houses tend to have more character, custom design
•Could actually be built better than a new home
Buckle up and get ready to have your mind blown! Okay, it’s not THAT mind blowing – some of you might even say, “well, duh” – but it’s still interesting.
The New York Federal Reserve’s economists recently published the results of a study: changes in down payment requirements have MORE influence over home buyers’ willingness to buy than changes in rates.
Surveying both buyers and renters, the Fed found that the effect of interest rates may be overrated when compared to even small changes in down payment requirements. The study found:
• Dropping the down payment from 20% to 5% increases the willingness to purchase, on average, by 15% among buyers and 40% among renters
• Decreasing the interest rate on a 30-year fixed-rate loan only raised the willingness to purchase by 5%, on average
As buyers straddle the fence between BUY RIGHT NOW with a higher interest rate and WAIT AN UNKNOWN PERIOD OF TIME to save 20% of the purchase price, here’s an example to give them a push. Take a look at the numbers for a house with the purchase price of $200,000 with a 30-year fixed mortgage:
$40,000 down payment
Total Loan Amt: $160,000
Interest Rate: 4%
Monthly Mortgage (P&I): $763.86
$10,000 down payment
Total Loan Amt: $190,000
Interest Rate: 4.375%
Monthly Mortgage (P&I): $948.64
No doubt $763.86 is better than $948.64 for a monthly payment – that’s not what’s at stake here. The difference between those two payments is $184.78. In order for a person to save the additional $30,000 to go from a 5% down payment to a 20% down payment at the rate of $184.78/month, it would take over 162 months – 13.5 years! – to get to that point, which is almost half the life of a 30-year mortgage.
For many perspective buyers, that additional $185 is significant. We have a number of strategies to help them make up that difference so you can get them into a home as soon as possible!
Fannie Mae, later this year, will be rolling out a new program called HomeReady to help lower- and moderate-income borrowers purchase homes. This will be integrated into their Desktop Underwriting program and will automatically flag potential borrowers for inclusion in the program by utilizing the DU findings. Here are some details:
• HomeReady will eliminate or cap certain loan level pricing adjustments (LLPAs) such as those associated with credit score, LTV, etc. – possibly translating to a low mortgage rate
• A non-borrower household member’s income can be considered when determining the borrower’s DTI ratio
• Will also allow income for non-occupant borrowers, such as parents of a borrower, to be used to supplement qualifying income
More details will be released soon – we’ll keep you updated. Stay tuned . . .
Gas: Unleaded, Diesel, or 3-Bedroom Colonial
According to a recent study from Florida Atlantic University and Longwood University, a strong indicator of home prices is what you pay at the pump. The study encompasses a 10-year span and reveals the following:
• For every $1 decrease in gas prices, the average selling price of a home CLIMBED by 2.4% (that’s about $4,000 more per sold property included in the study)
• Also, for that $1 per gallon decrease in gasoline price, the average time to sell a property falls by 25 days
• AND, that same $1 decrease was also shown to increase a seller’s chances of closing the sale by about 20 percent
The analysis of the results explained: When prices at the pump are lower, consumers have more disposable income, which equates to a larger pool of prospective home buyers. Food for thought: on the other side of the same coin, one might be able to pick up a relative bargain when gas prices are high.
InSellerate, a lead-generation company, conducted a study that yielded some very interesting insights:
• 32% of consumers expect a company to respond to an online inquiry within 30 minutes
• 42% of consumers expect contact within one hour
• More than half of the companies studied (56.34%) did not respond to the online or email inquiry at all
Of those companies that did respond, the average response time exceeded 24 hours, and the primary response vehicle was email, which is a passive, relatively non-effective method of contact. The take-away thought from all of this is “no kidding”, of course, but it underscores the wisdom that a lead is only as good as the work you put into it.
Safety Over Sales
According to a USA Today article, realtors in Iowa are taking steps to ensure the safety of all agents. The initiative includes an optional seller contract that prohibits any agent from showing a property to someone they have not previously met and identified. Ideally, the agent should insist that the buyer meet them at the agent’s office where she/he can check ID. If that’s not possible, the agent is encouraged to meet in a public place like a coffee shop. The conventional wisdom behind this, of course, is meeting prospective buyers in public and checking their ID discourages would-be attackers and allows agents to spot red flags in a safe place.
Real estate brokerages and other firms all over the country have joined Open Door Partners (www.meetmeherefirst.com). This is a service in which participating companies open their facilities for agents – even from competing companies/brokerages – to meet with prospective buyers before going out to view a property. The site enables an agent to input an address and find participating companies within a specified radius. In those instances when such a company is not close, it will list a Starbucks location that is convenient.
Bark First, Delay the Bite
There are pending bills in both the Senate and the House to provide a hold-harmless period from the enforcement of TRID through the end of the year. The main argument is that a grace period is necessary to assure companies have sufficient time to test their systems to comply with TRID without the fear of any repercussions. Priority Lending has been ready since the early summer – we’re THAT good.
A recent New York Times article (“Attracting Young, Diverse Mortgage Bankers – Aug. 21, 2015) details the efforts of a company called Radius Financial Group to reach out to and cultivate younger candidates to become Loan Originators, among other things. Keith Polaski, COO and a founder of Radius, describes the mortgage banking demographic as “55-plus-year-old white guys and gals,” and states, “If we don’t do something about creating the next generation of mortgage bankers, we’re going to old ourselves right out of business.” It’s a logical connection that younger homebuyers are going to gravitate toward a younger demographic of both mortgage bankers and real estate agents.
Dave Stevens of the Mortgage Bankers Association echoes this sentiment and has approached realtors to establish training programs for younger professionals. The mentality behind this, of course, is to create a dynamic that presents a younger “face” to the up-and-coming homebuyers. And that’s where the training is crucial: while it’s nice to have the young “face”, it’s absolutely vital that knowledge and expertise are a part of the overall package.
With that said, the 40-plus-year old buyers should not be discarded – there are a lot more of them than those who are under 40 – but it’s clear that the market for the younger buyers is only going to grow. Business as usual is not going to attract these younger buyers – let’s be sure not to “old ourselves right out of business.”
Bi-Weekly Mortgage Payments Doubling Your Pain?
It’s a classic means of paying down your mortgage faster: take your monthly mortgage payment (PITI), cut it in half, and make that half payment every two weeks. By the end of the year, you will have made 26 of these payments for a total of 13 full payments. Nothing wrong with wanting to pay off your mortgage early!
Recently, however, a payment processing company called Paymap was fined $5 million by the CFPB for defrauding their customers. In addition to making completely unsupported claims of how much a consumer will save though this bi-weekly payment program, they were telling their customers that the mortgage payoff schedule was “every two weeks” – in reality, Paymap was withdrawing the payment amount every two weeks from their customers’ accounts, but they were waiting until the first of the next month to transfer the funds to the mortgage servicer. The payment schedule did not change.
Two recommendations to avoid such a debacle:
Pay an extra “twelfth” in your monthly mortgage payment. For example, if your mortgage is $1200, add another $100 to your payment for a total of $1300. At the end of the year, you will have made the equivalent of 13 monthly payments. No muss, no fuss.
Or, give your mortgage a “raise”. If you receive a raise of 5% at work, add 5% to your mortgage payment. By tacking on a “raise” of $50 to $75 each month, you’ll significantly reduce the number of years on a 30-year mortgage.