Unfortunate Inflation Update!
We have been expecting a very positive inflation number on May 10th for months now for a variety of reasons, as set out by Barry Habib numerous times. BUT, Habib and others are now expecting a less positive number primarily because oil prices spiked briefly in April. We will still see very positive inflation numbers (oil prices have since plummeted), but they will just be delayed, per Habib. More on this on Wednesday.
Bullsh*t Rate Quotes Proliferate!
As loan officers fight tooth and nail for business in a very low-volume environment, we are seeing desperation on the rate-quote front … again. We saw so much nonsense last week alone that I felt compelled to blog about it again.
1. High Rate In Exchange for No Fees.
A credit union loan officer quoted a rate that was 1/2% HIGHER than our rate and insisted his quote was better because he was waving or covering $1,500 of fees. BUT, if we quoted the borrower that same rate, we could have used the extra “commission” or “yield premium” to give that same borrower $12,000 of closing cost credits! So, no, his quote was not better… not even close.
Sidebar #1: Credit unions are great with portfolio loans, but not with Fannie Mae (conforming) and FHA loans. The above rate quote was for a Fannie Mae loan, and this is where Credit Unions often simply can’t compete.
Sidebar #2: Rumor has it that First Republic is going to start focusing only on “salable” Fannie Mae (conforming) loans now that Chase will no longer allow them to give away the farm for jumbo loans. And… it will be a very tough row for them to hoe because they are not used to competing in such a competitive market; as a bank, they have too much overhead and bureaucracy.
2. Discount Fees vs. Origination Fees.
We had another loan officer explain to his client that the $6,500 in origination fees he was charging were “discount points” necessary to lower her rate. But, unfortunately for that loan officer, we were able to offer the same rate with “no points” or “no discount fees.” This is a quick reminder that “discount fees,” “points,” and “origination fees” are effectively the same thing – they are simply fees that are usually expressed as a percentage of the loan amount.
3. Low Rate In Exchange for Higher Fees.
Another loan officer undercut our rate by 1/8%, but his fees were $1,800 higher. We could have easily matched that quote too, but we talked the borrower into taking our higher rate quote instead for two reasons: (1) it would have taken the borrower 50+ months to recoup the higher fees with the lower payment, and we think any “payback period” in excess of 48 months is too long, as so few borrowers keep their loans that long; and (2) we think it is very likely that that rates will plummet this year, allowing the borrower to refinance into a lower rate at no cost with JVM’s Rate Drop Free-fi®.
4. Quoting Without the Full Scenario.
This is something we see every week, particularly from undertrained call-center loan officers. They quote ridiculously low rates, before understanding the full scenario, in an effort to just reel borrowers into their webs. It is only after the borrowers are in the web that they share the unfortunate news that the borrower will actually get a higher rate because her FICO is too low, because she is buying a triplex, because she is buying an investment property, because she is buying a condo, etc.
5. Manipulating Annual Percentage Rates (APRs) and Closing Costs:
In this blog called 5 Misleading Closing Cost Tricks Big Banks Play, I illuminate a lot of closing cost tricks lenders play – often to manipulate APRs, which is amazingly easy to do! These tricks include understating prepaid interest (which makes APRs artificially low), property taxes, and hazard insurance. Lenders also sometimes understate 3rd party fees and eliminate “owner’s title insurance” altogether – which also reduced APRs.
There are other very misleading rate quote tricks, and I discuss them all in this blog: 5 Misleading Rate Quote Tricks – which I also recommend reading.
Borrowers need to compare “Loan Estimates” (LEs) with the help of someone who is skilled enough to spot all of the tricks (our team can give any borrower a second opinion on their LE). Borrowers also need to make sure they are working with highly reputable lenders because unscrupulous loan officers can and do still mislead borrowers no matter how skillfully an LE is scrutinized.
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