No-fee mortgage. Are you kidding me?
"No fees. No worry. No, really," (yeah right!) Relax, you've just found the best mortgage deal." Translation: Get your back to the wall, you're about to get Sc_ _ _ _ _ ! ! !
If these kinds of misleading ads were true, in the truest sense, all of the Mortgage Brokers in the country could and would be out of business shortly.
Do you honestly think any bank would really pay every mortgage closing cost? In my "Never-to-be-Humble" opinion, the vast majority of banks pride themselves in figuring out how they can squeeze out every last penny in a fee of some sort. Now, keeping that in mind, do you REALLY think they are going to do a mortgage loan for you without exacting a price which will more than make up for those ever loving fees they are not going to charge you. Where do they recoup their additional profit? In a HIGHER RATE! (Is that a surprise?) It doesn't have to be much. Does the deception work? Read on . . .
With the nation's housing markets in the dumpster, the Bank of America says its home-loan applications are up 40 percent from a year ago, and all of their bank branches and telemarketing facilities are doing a land office business. "The response has been tremendous," Terry Francisco, BofA spokesperson said. "We think it's a very breakthrough product." According to Francisco, the BofA deal has: "No appraisal fee, no title-insurance charges, unless the borrowers choose to purchase a policy for themselves as well as for the lender" (is there a Real Estate PROFESSIONAL out there who would recommend purchasing property without title insurance?). "No administrative, application, underwriting or other lending charges." "No requirement to buy private mortgage insurance, usually required when a buyer's down payment amounts to less than 20 percent of the purchase price. A guarantee that the mortgage will close within 25 days (unless the borrowers request a longer closing period). The "No Fees Deal" does include a "walk-away" penalty of only $250 if the customer has been approved for a home loan but later chooses another lender. How many Brokers could or would get away with this kind of a fee? The BofA "No Fee Deal" still collects for escrows for taxes, insurance, state and/or county revenue stamps,
While "No Fee Deals" do save up front costs, the price of paying with future value dollars, and the total of those costs because of the higher interest rates charged usually don't make any monetary sense. According to www.Bankrate.com, the market rate on the 23rd of May was 6.3% average with a low of 5.8%. Bank of America's 30-year, fixed-rate, "no fee" mortgage loan for customers with good credit on that date was going for 6.8 percent, a half percent premium!
A $250,000 mortgage, would have cost a borrower $30,000 more over the life of the loan with BofAs "No Fee Deal" when compared with a loan based on the 6.3 percent market average.
What BofA is doing is the same thing as Ditech.com, E-Loan, Countrywide and others have been doing for some time; they are just the latest on the band wagon. There is no such thing as a free lunch; and the old adage "if it sounds too good to be true, it is", has never had a better personification than in the "No-Fee" mortgage.
Caveat Emptor (Buyer Beware) should be the watchword for anyone looking at a No-Fee mortgage. Check it out, but check out a good Mortgage Broker before you go the closing table. If you expect to be in a house for only a few years, you still might want to consider loans that fold many of the up-front fees into a rate. Any good Mortgage Broker can do this for you and be honest about it. Just remember, no one works for nothing, and with the "No Fee Mortgage", the second half of "Pay me now or Pay me later" is the operative part of the phraise.
David l. Skibowski
Branch Manager. 1st Metropolitan Mortgage,
President, The Skibowski Company LC
Is It Half Full or Half Empty?
All depends how the Media spins it.
Two articles from Wednesday April 25, based on the "latest report by the Mortgage Bankers Association.
Headline from CNN Money:
"Mortgage apps fall for fifth week"
"Mortgage applications continued their recent decline last week, falling for the fifth straight week, according to the latest report by the Mortgage Bankers Association.
The industry group's seasonally adjusted index of mortgage applications dropped 2.5 percent to 630.6 in the week ended April 13, from 649.5 one week earlier. . ."
Headline from Reuters:
"Mortgage applications rise but home sales tepid"
"The Mortgage Bankers Association on Wednesday said its mortgage applications index climbed by a seasonally adjusted 3.6 percent in the week ended April 20 to 653.3, its highest level since the week ended March 23 when it hit 671.0.
Mortgage applications rose last week after five straight weekly declines, but March home sales were weak and tighter lending standards suggest more of these loan requests will be turned down, economists say. . ."
My Analysis:
Are we actually as bad off as the mainstream media keeps telling us we are? Certainly there are areas of the country where housing inflated beyond prudent values, but for much, if not most of the country overvaluation is not the case.
We all know that bad news sells, and I think that is 50% of the story. I think the other 50% is essentially the reticence of the media to say anything good about the economy. It really makes no difference wether you are a fan of the Bush administration (who has certainly made more than its share of mistakes), or not. It is impossible to deny the fact that the DOW is at an all time high, and employment is also at an all time high. (The "half full" form would be that unemployment was at an all time low),
The Media has the populous all up in arms over ARMS(adjustable rate mortgages) and the Subprime sector of the market; trumpeting the bad news, or making the good sound bad. How about a couple of "Did-ya-Knows" about the mortgage markets Did-ya-Know that the FHA delinquency rate is slightly higher than the Sub Prime delinquency rate? Do you realize that the total Sub Prime delinquent (>90 days of Foreclosed) mortgages are less than 2% of the total mortgages outstanding? Losses in the Sub Prime market will be borne by the investors who have chosen to be in that market, while losses in the FHA secured arena will be reimbursed to the lenders from Taxpayer’s dollars.
It is too bad that there are people who wanted to have a home and were sold a mortgage which they could not afford. It is too bad some bad apples, i.e. lenders and loan officers took advantage of people some of those people who wanted a home and oversold them without concern wether or not the borrowers could make the payments in the long term.
But turn that thought around and I wonder how many more families today own their own home because of the availability of Sub Prime mortgages than owned their own homes in 1999? The good part of the story is the 86% of people who now own their home and are making the payments. who were helped by Mortgage Advisors who really helped them achieve the American Dream via Sub Prime Mortgages .
Dave Skibowski, Branch Manager, 1st Metropolitan Mortgage Co., Traverse City, Michigan
How many times have you said to someone "Have a Great Day" as a closing to your conversation or meeting, etc.? In my never-to-be-bumble opinion, have a great day is not a good thing to say. It’s like saying, "You go and wait for something to happen, and I hope it is something good." How much better it is to say, "Now, You go out and do whatever is necessary to move your life or your career along the track which will help you achieve your goals in life." That’ s too many words, so let’s shorten it to, "MAKE YOUR DAY GREAT!" This command (for that is what it really is) is written with Caps and an exclamation point, because that is the way it should be delivered.
Most people in this world are content to coast along, waiting for something good to happen to them. They don’t like their job, they would like a better/bigger house or apartment, they would like to make more money, but what do they do about it? They wait to "Have a great Day" entirely based on how someone or something else will affect them. They may buy a lottery ticket so they can jump to the top, but there is only a 75million to one chance that will ever happen. How much better it is to set your goal, and then "MAKE" something happen to advance you another step along the road toward that goal. Can you make it happen every day? Probably not at first, but the more you try, the more often you will be successful. Success breeds success. The more successful you are, the more successful people will flock to you. The more you help your friends to be successful, the more successful you will be.
Don’t wish for something to make your day great; You MAKE YOUR DAY GREAT!
Dave Skibowski, Branch Manager,
1st Metropolitan Mortgage Traverse City, Michigan
So, Who's to Blame
I read an interesting article on Bankrate.com by Elizabeth Razzi, a freelance personal financial reporter and author of “The Fearless Home Seller,” it was entitled “Mortgage Ignorance Rampant.” It headlined polling results that showed 34% of homeowners don’t know what type of mortgage they have, Adjustable Rate or Fixed Rate! I really don’t find this surprising, as it is my belief that many of the people who jumped into the mortgage business as Loan Originators in the past five or six years did so without having any real background which would qualify them for the job. They were warm bodies who could answer the phone, follow the script, and SELL the person with whom they were speaking a mortgage loan. And preferably, a mortgage loan with a couple of points up front (Origination Fee) and two or three on the backside (Yield Spread). To keep the rate on the proposed loan palatable, the mortgage form offered was an adjustable rate loan. Everyone was scrambling for the lowest rate, and what you got was an Adjustable Rate Mortgage or Option Arm. Wham, Bam, Thank you Mam; next caller please!
I have personally been the business of finding people money for over twenty-five years. Most of it on the commercial side of the business, but also many years doing Residential loans. For years I have called myself a Mortgage Advisor because most clients with whom I met, knew nothing about mortgages, except the fact they had to get a mortgage to get the money to buy a house. Even those who were refinancing their home had very little mortgage knowledge. And, it was interesting to note that even though my clients may have been quite sophisticated in other financial matters, their mortgage savvy was nil. While I was doing working with mortgage programs everyday, the average person only goes through the mortgage process a few times in a lifetime, and in order for me to be comfortable advising them on what kind of financing they should use, I needed to educate them on what the various kinds of mortgages were and what went into their qualification for a mortgage. To help the make the right decision they needed to know what the positives and negatives were for each kind of product and how the different programs fit with their needs and desires. Could I do this over the telephone? Yes, but it was much easier if I met with the clients where we could sit around a table and draw pictures of the plans, because pictures make the learning easier and the understanding greater.
Who is to blame for the Subprime fiasco? Is it the lenders who created the new mortgage programs which allowed so many more people to qualify for home ownership? There is possibly some responsibility there. Customers were screaming for loans; there was a mortgaging frenzy, and where there is that amount of clamor for a product, there are bound to be profiteers. But, in my opinion, the profiteering was much more on the side of the people who originated the loans. the ones who had no compassion for their clients or compunction to get them into the right mortgage, rather only to sell them the one which made the most money. So much for who profited, the question is who’s to blame?
Today we see the politicians holding hearings. They are up in arms over the Subprime foreclosures, which they should be. They are looking for someone to blame, and they are pointing their fingers at the lenders. When you point your finger at someone, there are three pointing back at you. I know we have all heard that, and in this case the three fingers point at the culprits. There are many states in this country where there are no controls, no required education, no modicum of experience necessary to become a Loan Officer or Loan Originator. All lawyers, financial planners, stockbrokers, bankers insurance agents, etc. must be licensed. The individuals who guide clients through the largest financial transaction they will probably ever make in their lives are unlicenced, most times untrained, and I’m sorry to say, often only in it for the buck. There will always be people who will take advantage of a situation. Training and Licencing will not eliminate the problem, but Training and Licencing will go a long way toward minimizing it.
Next time, “What a Mortgage Advisor should know”
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