Posted by MW/VA on 8/26/13 8:34pm
Msg #482031

First really bad loan I've seen in a long time. The whole

thing is unsettling to me. Good people, good jobs, great house in upscale neighborhood, etc. High closing costs & a 5 3/4 interest rate. It is consolidating a first & heloc, but wth? Again, we don't know all the particulars, and I can only guess it's something like debt/income ratio.

Reply by rolomia on 8/27/13 2:38am
Msg #482052

Discussing loan terms with BO's can cost you a client!

Though I do hope that the BO's I meet with are getting good deals on the loans that they are signing for, it isn't our job to be an advocate for said BO's. Every single contract that I sign when I apply to work for a TC or SS has language in it that makes their following position very clear: If I'm hired by them, I'm not allowed to discuss the terms of the loans with the BO's that I meet with. If I do and it costs the LC/TC/SS a client, I can be held financially liable. I don't get paid enough to accept such liability.

While it is great that NSA's who frequent the NotRot forum have shown a consistent pattern of care and concern for the legal and financial rights of the BO's who we meet with, we must maintain client confidentiality at all times and also NEVER say or do anything that can jeopardize a client's business. If we do, we run the risk of being held accountable for any losses incurred by said clients as a result of our words/actions. JMHO

Reply by Pam/NM on 8/27/13 9:16am
Msg #482072

Marilynn didn't discuss terms; she shared

her observations from a signing. No one could identify the parties involved from her post. I believe she was just making a point.

Reply by MW/VA on 8/27/13 11:50am
Msg #482119

Exactly, Pam. I didn't make any indication to the b's that

I though it was a "bad loan".
Spare me the lectures, folks, because you are also basing your comments strictly on speculation. I just haven't seen a rate like that in years!!!!

Reply by JanetK_CA on 8/27/13 2:43am
Msg #482053

Was it a jumbo loan? Those usually have higher interest rates, then add recent increases and that might not be so out of line. Also, who knows what other factors there may be.

Reply by Bear900/CA on 8/27/13 11:37am
Msg #482116

This was a really good loan!

Several observations based strictly on information you provided.

1. These were middle class people who are generally more saavy then you have given them credit for.

2. They piad off a HELOC which means it was being used and they were living off of credit.

3. You quoted an interest rate that you feel is abnormal no doubt compared to other rates you have been seeing. You are not the customer and you are not in the loan business.

Calling this a "really bad loan" is extremely subjective and without knowledge when you might want to consider the borrowers were glad they could get the loan, or else they wouldn't have taken it.

You followed that "we" don't know all the particulars. Ahem. You may want to narrow that down.

Your terminology gives the assumption the customer is being taken advantage of similar to the subprime days. Here's why that can no longer happen and perhaps what actually did happen.

LO compensation is no longer based on how much "rebate" they can get out of a loan by raising interest rates. The CFPB has them locked into a "fixed compensation" if the fees are "lender paid" (most all refinances). What other industry has locked compensation? Notaries? tsk.

To someone in the business it's obvious why the rate is higher: there is more "lender rebate" required to close the loan. DTI ratios have become pretty much black and white depending on the loan product. One either qualifies with the ratios they have or they don't.

Here are factors that increase the rebate for the customer, that increases the rate, that this particular customer is fully aware of because they too know current rates (imagine that)!

Specifically the combination of LTV and FICO scores. A customer can get dinged or credited. Typicaly the former.

Paying off a HELOC was most likely considered a "cash out" loan since it was not used to purchase the home. That's a huge hit in fees to the customer.

Lack of impounds can be a "hit" or cost.

A lock longer then 30 days is a definite hit to the customer.

The loan program (as mentioned perhaps a jumbo?) that the customer had to fit into may have had a higher risk based rate.

Not all lenders have all loan programs. Usually big banks are more limited. Oddly, some lenders will charge a hit for certain states.

Other costs have gone up such as title and escrow, requiring more rebate in the loan. It's almost automatic now for title companies to add a notary fee. More cost to the customer.

If I were a betting man, I would put all my money on this couple being extremely happy that they got the loan, not so happy they had to take that rate, very happy they didn't have to come up with cash out of pocket because of rebate the rate provided. In the end, it is their personal financial assessment that makes this a really good loan for them, not the notary's.

One last thing, I can gurantee that the LO had to work very hard with the lender and the UW to make all this happen in behalf of the customer. In the end, rates are rates. LO's don't get paid for higher rates and they strive to be competative.

If you have a loan in hand to close be grateful, especially with business the way it is.

Best!

Reply by MW/VA on 8/27/13 11:51am
Msg #482120

Ok, when's the last time you saw a 5 3/4 rate on a

primary residence?

Reply by Bear900/CA on 8/27/13 11:56am
Msg #482121

Re: Ok, when's the last time you saw a 5 3/4 rate on a

Unfortunately, as a loan broker I expect to see more in the near future.

Reply by JanetK_CA on 8/27/13 1:37pm
Msg #482162

Re: Ok, when's the last time you saw a 5 3/4 rate on a

This month. Jumbo loan, subordinating a HELOC with who knows what other factors involved. I certainly don't know and didn't ask. But they did indicate that it had taken them a very long time to get to the point where they could close. I think Bear900/CA's post is right on point. There's generally much more involved in getting to the table than what meets the eye and we should be careful to not jump to conclusions.

Reply by Bear900/CA on 8/27/13 3:23pm
Msg #482211

These days, any loan that closes is a good loan.

I'm saying that broadly of course. We must remember that today's home loans are not at market price and lower rates reflect that. They are subsidized by the Feds purchasing MBS.

Feds have kept bank rates are at zero and they get interest for not making loans. We are climbing a very steep hill with no way down but falling and breaking our necks.

When the Feds stop purchasing MBS, the bond market bubble will burst and interest rates will skyrocket as they adjust to the real market and hyperinflation. I have posted this before.

Oh, the good old days when we had 5-3/4 rates!

It really wasn't that long ago when we saw 7, 8 and 9% rates on stated loans.

A week and a half ago I had a 4-5/8 refi that provided sufficient rebate to cover all closing costs. By the end of last week there was very little if any rebate for that same rate and the fees had to be tacked onto the pricipal balance or upgrade the interest rate significantly.

Last week was the highest increase in rates in that short a time (just a few days) in the history of mortgage rates.

I would like to say "it's just a day in the life of", but it is truly scary.

Reply by rolomia on 8/27/13 3:47pm
Msg #482215

Wow! Awesome post, Bear900/CA. I am impressed.

But, the knowledge you have and your experience are obviously so far above and beyond my understanding, I'm not qualified to speak to int. rates, loans, etc. I am curious, though: can so-called locked int. rates be raised during the borrower's repayment process if the economy tanks? In other words, is there language in the terms of most loan contracts that enable banks/lenders to raise/increase a locked rate if their rates increase? And, can lenders get locked rates the same as borrowers? If that does happen, what recourse, if any, do the borrowers have? Thanks!

Reply by Bear900/CA on 8/27/13 7:57pm
Msg #482282

Thank you and Good questions!

I wil be brief, sort of. These are big questions!

<<can so-called locked int. rates be raised during the borrower's repayment process if the economy tanks?>>

A "lock" is a term used to lock-in the rate before a loan is closed to protect the customer from rate increases during the loan processing time. Picking a time to lock is crucial to obtain the most rebate for a set rate. The biggest bang for the customer's buck.

It can apply to a fixed rate loan (loan that has a fixed or set rate for the duration of the loan term, i.e. 30 years at 5%, or an adjustable rate loan or ARM (loan that usually starts with a lower interest rate and gradually increases). An example would be a start rate of 3.75% with a cap of 12% over ten years. ARM's are generally easier to qualify for but have great risk.

<<In other words, is there language in the terms of most loan contracts that enable banks/lenders to raise/increase a locked rate if their rates increase? >>

Banks don't typically "own" loans. They borrow money to fund loans then sell the loans. If there is an 'adjustment feature' in a mortgage loan (ARM) it will travel to the new owner of the loan.

A borrower's 'fixed rate' loan cannot be increased or decreased unless refinanced.

ARM products (adjustable rate mortgages) are locked into an indexed rate, such as Libor.

The ARM contract determines (simplified):

1) the initial indexed rate (start rate)
2) the amount of margin that will be set between the Libor index and the newly adjusted rate
3) the loan adjustment periods,
4) the 'cap' on the interest rate for the loan duration.

The borrower's rate may go up or down determined by the index going up or down. Think of the Dow-Jones index. Similar.

<<And, can lenders get locked rates the same as borrowers? If that does happen, what recourse, if any, do the borrowers have? Thanks!>>

Lenders are able to hedge their rates for a short time to protect the loans locked in their loan pipeline. It costs them to do this and why they will charge for a lock extension if they allow one.