Yesterday’s blog – Mortgage Concepts Every Agent Should Know – was so popular that I thought I’d share additional important concepts today.
I. Three Mortgage Banking Channels (Mortgage Bank Vs. Commercial Bank)
There are three primary channels through which borrowers can obtain mortgage loans: (1) commercial banks and credit unions; (2) mortgage banks; and (3) mortgage brokers. Commercial banks like Chase and Wells Fargo hold deposits, offer checking accounts, make commercial loans (and do all traditional “banking” activities) as well as offer mortgage loans. They also hold loans in their portfolios.
Mortgage banks (like JVM Lending) ONLY underwrite and fund mortgage loans. They do not perform any commercial banking activities and they never hold loans in a portfolio.
Brokers only originate and package loans for submission to other lenders that underwrite those loans. JVM used to be in the broker channel, but we left it in 2015 for more products, more appraisal control, and operational control (speed).
Here is a longer blog in which I explain all of this in more detail: Mortgage Banks Vs. Commercial Banks – What’s The Difference?
II. Condo Vs. Townhouse Vs. PUD
Lenders view townhouses and planned unit developments (PUDs) the same way that they view single-family residences. The rates are the same, and there is NO HOA review. As a reminder, townhouse/PUD owners OWN the land under their unit. Condo owners do not own the land under their unit.
Condos are much more heavily scrutinized than townhomes/PUDs, and the HOAs must be “warrantable” (meet all Fannie/Freddie guidelines) to be eligible for Fannie Mae and Freddie Mac financing. Condos have higher rates when buyers put down less than 25%, and much higher rates in most cases if they are non-warrantable and ineligible for Fannie/Freddie financing.
Here is a blog with much detail: Condo vs. Townhome vs. PUD. Here is another blog that explains what lenders look for in condos: We’re Seeing More Non-Warrantable Condos Than Ever Before: 14 Condo Considerations.
III. What Influences Interest Rates? (It’s Not the Fed)
While comments by the Fed do move rates in the short run, the Fed itself has far less influence over rates than most people realize. It is the bond market that has the most influence on mortgage rates, by far.
Bond investors demand higher or lower yields (that in turn influence interest rates) based on a variety of factors – but the two major factors are: (1) economic growth expectations; and (2) inflation expectations. Stronger growth and/or hotter inflation expectations push rates higher. Hence, good economic news (falling unemployment, strong GDP growth, increased retail sales, etc.) will push rates up.
Here is a blog with more details: What Moves Interest Rates
IV. It Costs A Lender $8,000 to $12,000 To Close A Mortgage Loan
This is extremely important to understand because regulatory compliance has driven up the cost of mortgage loans so much, because borrowers often wonder why mortgage lenders can’t just lower their rate, and because it is a reminder of just how much work it takes to close a mortgage loan.
Those cost estimates are based on surveys by the Mortgage Bankers Association, so they are accurate. The costs include compensation (loan officers, processors, back-office staff, funders, closers, etc.), software (for loan processing, online loan applications, CRMs, and more), and third-party information (employment verifications, credit reports, etc.).
This is why mortgage lenders make a lot less money than most people think.
V. Many Factors Significantly Influence An Individual’s Mortgage Rate
This is another reminder that there are numerous factors that influence an individual borrower’s mortgage rate. Major factors include (1) credit scores; (2) loan-to-value ratios; (3) first-time-buyer status; (4) property type (condos and 2-4 units often have higher rates); and (5) property usage (investment properties have much higher rates, and 2nd homes often have higher rates as well).
This blog explains the factors in more detail: 15 Factors That Impact Your Mortgage Rate.
