Fraud, Rate Trends and Jumbo Conforming Loans.

I have too many things I wanted to mention before the week is us, so here are 3 topics for your Utah Mortgage Education as you go into the weekend.

First, the Mortgage Bankers Association released their annual fraud rankings yesterday. Once again Utah is found right near the top. This year we are number 5, with only Florida, Nevada, Michigan and California ahead of the Beehive State. Back in October I posted a 4 part article on Loan Fraud in Utah. I posted an article that I had recently written regarding loan fraud, its many faces, how to avoid it, and how to fix the problem facing Utah. You can read my postings here: http://utahloanexpert.blogspot.com/2007/10/utah-loan-fraud-part-1.html

Or you can simply email me at jayhart@cottonwoodmtg.com and I will send you the entire report.

Second, I recently read a report that included a survey of Mortgage Professionals from across the country. Loan Officers were asked to predict the where interest rates will go over the next 90 days. Of those surveyed 82.7% believed that interest rates will either remain unchanged or will decrease in the next 3 months, with 51% saying that rates will decline only slightly.

As for me, I think I agree. I don’t anticipate any major drops in rates, but I do think we will see some movement. There has been downward pressure on rates this entire week as stocks have struggled. I wouldn’t be shocked to see incremental drops over the next 2-3 weeks followed by a leveling out for a period. But then again, every time I read a prediction it turns out to be wrong.

And finally, earlier this week I mentioned that Fannie Mae and Freddie Mac had increased the Jumbo Loan Limits in parts of Utah, allowing for previously held Jumbo Loans to be refinanced at the conforming interest rates. Well, more information has come out which makes it not quick as big a boon for home owners as anticipated. Here are some guidelines for the new loan limits:

1. No Cash Out. Rate and Term Changes only.
2. 90% Loan to Value limit for Fixed Rate and 80% Loan to Value for ARM’s for Purchases, 75% Loan to Value limit for refinances.
3. 660 FICO requirements for purchases.
4. Absolutely no late mortgage payments in the past 12 months.
5. No Stated Income loans.
6. No Construction-to-Permanent Financing available.
   

Make sense? If you are looking for a loan between $417,000 and $729,000 and you wonder if these restrictions apply to you, you can call me at 801-256-0904 or email me at jayhart@cottonwoodmtg.com and we can break it down.

Have a great weekend.

Utah Mortgage Rates and Fees

Yesterday I was asked two questions which I think are worth a brief discussion:

Question: Why is the interest rate I am being quoted higher than the interest rate that I see on cnnmoney.com and other financial websites?

Answer: It is important to understand that most financial websites publish a national average interest rate. Lending institutions set interest rates on a regional or statewide basis. Because of the high level of foreclosures in Utah we tend to receive interest rates that are slightly higher than many states from other parts of the country.

Another reason that the interest rate you are quoted by a loan officer is typically slightly higher than that which you may find on various financial websites is because those sites will usually publish what we call the “par” rate. As I have previously discussed, Lenders pay a Brokerage for loans. This amount is tied somewhat to the interest rate you receive. The industry standard is to offer an interest rate with a back-end payment of around 1%. This amount is then used to offset the amount of closing costs that you are assessed. The “par” rate has no back-end payment to the Brokerage. While it may seem like better to have the lower rate, remember that by having the “par” rate you can expect to pay more in closing costs.

Question: Why do we pay closing costs?

Answer: The simple answer is that loans cost money. Closing costs are assessed on every loan. Even the so called “no-cost” mortgages still have closing costs; they are simply paid by the bank. A Loan Officer is typically paid betweem1% and 1.5% of the loan amount. The Brokerage has a fee, as does the Underwriter, the Appraiser, the Credit Reporting Agencies, the Title Insurance Agencies, etc. All of these entities and individuals render services which enable you to receive a loan.

I never really understand people that expect to be offered money for free. I have frequently reminded those who attend my home buying seminars that just as you would not expect your doctor or your attorney to provide a service free of charge it is unrealistic to expect your financial professionals to provide a free service. The reality is that it takes time and effort to secure your loan. I have also told people that if they would like to call each individual who works for their loan and ask them individually if they will waive their fees then I will not charge them, but how realistic is that?

Luckily for most home buyers, as the lending industry faces turmoil it is becoming more common for Loan Officers and Lenders to be more flexible with some fees in hopes of attracting more business. Personally, while I do offer incentives to members of my Inner Circle and those referred by previous clients, I am quick to remind potential clients that you are paying for a service, I can slash my fees, but then I will be forced to lower the quality of my service to free up time to find more “discount” clients.

New Jumbo Mortgage Limits for Utah

Well, it just got a whole lot easier for Utah Home Buyers to borrow large amounts of money. Fannie Mae and Freddie Mac, the 2 governmental agencies chartered to purchase and oversee mortgage lending increased the loan limits for conforming mortgages. On the heels of similar increases from the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac have now made it easier to purchase larger homes for lower interest rates.

What is A Jumbo Loan:

A traditional mortgage in the United States, in order to have the best possible interest rates, must conform to certain standards and guidelines. These Conforming Loans are subject to a limit that is determined by local median prices. While the conforming limits have increased slightly over the years, the increases have not matched appreciation in most areas. In Utah, however, we have been doing alright. The Conforming limit in most of the state has been $417,000. In other words, as long as you borrow less than $417,000 you can get the best interest rates. Any loan above the conforming limit is considered a Jumbo Mortgage. The problem with Jumbo loans is that the interest rate is typically quite a bit higher than a conforming loan.

The Good News:

In Salt Lake, Tooele, Summit and Wasatch counties the Conforming loan limits have increased, making it easier for individuals with higher end homes to qualify for less expensive mortgage rates. Bellow is listed the new limits for the State of Utah:

• Salt Lake County: $729,750
• Tooele County: $729,750
• Summit County: $729,750
• Wasatch County: 431,250
• The Rest of the State: $417,000
  

What That Means:

By increasing the conforming limits it is now easier for home owners to access equity for debt consolidation, remodeling and investing. More significantly, home owners with larger loans can lower monthly payments, thereby increasing their personal cash flow allowing for the acceleration of debt settlement or debt avoidance. For example someone with a $500,000 mortgage is now looking at an interest rate around 6.25%, whereas before that same borrower was facing an interest rate around 7.5%, which can represent a payment difference of around $400 per month.

As always, if you have specific questions about how this might affect you, shoot me an email, I will be happy to discuss your own situation and ensure that you are taking full advantage of what is available. Jayhart@cottonwoodmtg.com