 Jack Guttentag
Founder, Upfront Mortgage Broker's Association
"The Associated Press recently ran a story about how the mortgage crisis
was leading the federal government and states to tighten licensing and other
requirements for operating as a mortgage broker. Will this have a material
effect in curbing the abuses that led to the crisis?"
No, because mortgage brokers played only an incidental role in the crisis.
Blaming the crisis on brokers makes as little sense as blaming it on greed.
Brokers have been with us for decades; greed has been with us forever; and
neither suddenly caused a financial crisis.
I hasten to add that I believe that mortgage brokers should be licensed and
required to pass a competency examination, for the same reason that plumbers and
morticians are. They all provide important services to the community, which has
a stake in their being performed effectively at reasonable cost. Licensing and
examination weed out some of the worst players, and encourage professionalism
and self-restraint by the rest. But it will barely touch the deep-seated ills of
the mortgage industry.
The main rap against mortgage brokers is that they led and encouraged
borrowers to take mortgages that were not suitable for them. This includes
option adjustable-rate mortgages (ARMs), which allowed very low payments in the
early years that did not cover the interest, and 2/28 ARMs offered to subprime
borrowers, which had relatively low rates and payments until the first rate
adjustment after two years. In both cases, borrowers were vulnerable to large
payment increases in the future, and in many cases these have led to default.
Not all brokers did this, by any means, but enough did to justify the charge.
Yet brokers were not alone in encouraging borrowers to select unsuitable
mortgages. Loan officers employed by lenders, who are cut from the same bolt of
cloth as mortgage brokers, did the same. Quite properly, the uniform licensing
and registration system called for by the Secure and Fair Enforcement for
Mortgage Licensing Act (SAFE Act), enacted last year, applies to "all loan
originators, including mortgage brokers and loan officers."
It will be good to have all loan originators licensed and certified, but
don't expect major changes in the way the system works. The primary motivation
of loan originators will remain what it was -- to close loans -- because that is
what their income depends on. There are some who will tell a client that
refinancing is not in their interest, thereby forgoing any income, but they are
few and they will continue to be few. Selfless behavior depends on character,
and character cannot be legislated.
If loan originators can't be depended on to protect naive borrowers from
making mistakes, who can? To sharpen this question, it is useful to focus on the
option ARM, which many borrowers were seduced into accepting during the years
2000-2007, and on which the default rate today is horrendous. How could this
have been prevented?
The obvious answer is that the borrowers should have educated themselves
before making the plunge. The information they needed was readily available, on
my Web site as well as others. But naive consumers are trusting and not aware of
their need to check out what they are told.
Some observers propose that complicated instruments like option ARMs should
be made illegal. That would have eliminated the problem, but at the cost of
eliminating a useful option to some borrowers. There should be a way of
discouraging people from making bad choices that does not restrict their right
to choose.
There is such a way -- it is called mandatory disclosure -- and it is a
responsibility of government. There could have been a required disclosure
specific to option ARMs that would have dissuaded most borrowers (who can read
and who were contemplating an option ARM based on a misconception about how they
worked) from going ahead.
Alas, the actual disclosure borrowers received on option ARMs was the same
one that all ARM borrowers received; it is voluminous, largely garbage, and of
little value to anyone.
Our system of mandatory disclosures, which should be a critical line of
defense against bad borrower decisions, has been a complete failure. Disclosures
are excessive, overwhelming borrowers with trivia while omitting what is
critical. Disclosures take forever to change and are never up to date.
Responsibility is divided between two agencies that do not coordinate their
disclosures. And the regulators adhere to the inane principle that disclosures
should be "balanced," meaning equal weight given to the pluses and minuses, as
if borrowers were not already bombarded with plusses by loan originators.
Yet these are system failures, and systems can be fixed. I will be writing
about how to fix it in the near future.
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com. Copyright 2009 Jack Guttentag
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| Loan Type |
Interest Rate |
APR |
| 5/1 ARM |
3.990% |
4.097% |
| 7/1 ARM |
4.375% |
4.485% |
| 15-yr Fixed |
4.375% |
4.569% |
| 30-yr Fixed |
4.625% |
4.745% |
Rates are current as of 4-5-09, and are based upon a conforming loan amount, 740+ credit, full documentation, and
a loan-to-value of 80% or less.
Click here for a custom rate quote
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 Christopher Cruise
Senior Loan Officer, Author, and Trainer,
GOTeHomeLoans
I have gotten a number of questions recently about our low rates. I certainly
don’t begrudge anyone for wondering how we can offer such low rates; after all,
mortgage brokers don’t exactly have a sterling reputation. If I consistently saw
rates being quoted that were lower than what I was seeing from other brokers and
lenders I, too, would wonder what kind of game was being played.
As Upfront Mortgage Brokers, we have an obligation not just to be transparent,
but to be forthcoming, so I wanted to take some time to talk about how we can
quote rates lower than anyone else - almost always about a quarter point lower
than what you see in the media and what our competitors are offering.
Prospective clients want to know how we do it. If we offer low rates, are we
making it up somewhere else? (Nope.) Are we going to engage in bait-and-switch
at closing? (Never.) Are the rates we offer available only to perfect borrowers?
(Nope, but you do have to have very good credit and low loan-to-value to qualify
for the low rates we advertise - about 90% of our clients do, by the way.)
First, let’s start with articles you see, like this one, stating that rates are
at around 5%, while the rates we are offering are 4.75%:
http://www.housingwire.com/2009/02/26/mortgage-rates-near-stagnant/
These surveys are often a week old. That’s one problem with them. The other
problem is that they are surveying retail lenders, who are going to respond with
their retail rate. But we don’t sell our loans at retail. We get our rates from
wholesalers and pass along those same rates, without marking them up. Sounds
like a recipe for financial disaster, right? I mean, how can a retailer stay in
business if they are getting products at wholesale and then selling them to the
consumer at wholesale? I mean, something’s gotta give, right?
Here’s the explanation:
The deal we make with you is that we will make our money in an upfront fashion.
We negotiate a flat fee with you. And once all parties have signed the deal, we
can’t, by contract, make a cent more than we agreed to make. That removes any
incentive we might have to mark up the rate. On the other hand, when other
mortgage brokers get a wholesale, or par, rate from a lender at, let’s say
4.75%, they then offer you a rate of 5% or 5.25% or whatever they can convince
you to take. The less sophisticated you are, the higher rate you will pay. (This
is capitalism in its purest form – some get hurt.)
When mortgage brokers sell a rate to a borrower that is “above par,” they are
rewarded by the lender in the form of a rebate, also called a Yield Spread
Premium (also called a “kickback” by some, especially consumer activists). The
lender gets a loan that is above par; when it sells that loan into the par-based
secondary market it gets a premium price. It then shares the proceeds of that
premium price with the mortgage broker. This isn’t illegal (although many
legislators and regulators and consumer activists believe it should be) but it
does lead to abuses.
Under the Upfront Mortgage Broker model, we charge you a fair, upfront, flat fee
for our services. And we then give you the wholesale rate. There is no reason
for us to sell you a higher rate because, under the terms of our contract with
you, we can’t keep any of the Yield Spread Premium. There is simply no financial
incentive for us to mark up the rate. The only reason we would keep the YSP is
if you chose not to pay us upfront but decided to pay a higher interest rate so
as to reduce the amount of money you would need to bring to the closing table;
in that case, we would be paid our fee out of the YSP.
So, yes, the rate we quote you really is the wholesale rate. Also, unlike most
other mortgage brokers, we don’t make additional money by charging you junk fees
like doc prep and admin. And we don’t quote low rates to get you to call and
then and only then tell you that it will cost you a discount point or two to get
that rate. We quote zero-point, par, wholesale rates. We don’t play games.
As an additional check on our rates, you can check The Mortgage Professor’s
website www.MTGProfessor.com – you will see national wholesale rates on his
site, updated at least once a day. Generally, our rates are about .125% or .250%
below those rates.
I hope this has helped.
Christopher Cruise is a Senior Loan Officer with GOTeHomeLoans, as well as author of various mortgage manuals.
He currently serves on the Board for the National Association of Responsible Loan Officers.
Copyright 2009 Christopher Cruise
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 Dian Hymer
Realtor, Author
Now would seem like a rotten time to sell. The economy is in recession and
many housing markets around the country have suffered serious downturns.
However, if you're a seller who will also be a buyer in a market where prices
have declined, it could be a good time to both sell your current home and buy a
new one. You sell for less than you would have in 2004, but you also pay less
than you would have then.
To be successful selling in this market, your home needs to be in good
condition. Most buyers are bidding on a home they can move into without having
to do a lot of work. Also, your home must be priced for the market.
If you've been transferred and need to relocate, there are a couple of
options. One is to sell your current home and buy in the new location. Some
employers offer relocation assistance that covers many of the selling and moving
expenses.
Another option is to rent your current home to a tenant and rent another one
in the new location. There are benefits to renting in a new area before buying.
It gives you an opportunity to learn about the neighborhoods before committing
to a long-term investment.
Transferees who think they could return to their current location within a
year or two might be better off renting their current home. However, renting
your home can have its drawbacks. Tenants usually won't care for your home the
way you would.
Set aside a fund for making improvements after the tenant leaves. Also,
retain a gardener to care for the landscaping and make sure you have a property
manager or handyman locally who can take care of problems when they arise.
HOUSE HUNTING TIP: Buyers are at an advantage in many marketplaces today.
Generally, prices are lower than they were several years ago. And, interest
rates are low. At the middle of February 2009, 30-year fixed-rate conforming
mortgages were available in the 5 percent range.
Jumbo financing is pricier. However, a 30-year fixed-rate mortgage was
available for around 6 percent with some lenders in mid-February. Five-year
fixed-rate jumbo mortgages cost less. At some point interest rates will go up,
particularly if inflation takes hold following the recession. If you buy using
short-term fixed-rate financing, look for a good time to refinance before
interest rates go up.
It's not a good time to buy if you think you might be transferred or if your
marriage is on the rocks. Buying a new house usually won't solve marital
problems unless you're living in a house that's much too small to provide
suitable living space.
The unknown factor that keeps many buyers on the sidelines is that prices
could drop further before they stabilize or turnaround. So, the house or condo
you buy today could be worth less in six months. But, it could be worth more in
a few years. However, if you had to sell between now and then, you'd take a
loss.
It's impossible to time the market. You'll either buy before or after the
market bottoms out. Some people get lucky and buy at the bottom. But, you'll
know that only through hindsight. If you buy after the market hits bottom,
you'll be faced with more competition from other buyers and probably pay more.
Don't buy unless you know you won't have to move again soon. This includes
making sure you buy a home that will accommodate your needs for years to come.
Home buying always involves compromises. It's better to buy a home that's too
big than one that's too small.
THE CLOSING: Buy for the long term.
Dian Hymer a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books. Copyright 2009 Dian Hymer
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 Paul Bianchina
Contractor, Author
If you're exploring the different options for new or replacement fencing, one material to be sure to have on your list of possibilities is vinyl. Vinyl fencing manufacturers have made great strides in recent years, offering a tremendous array of sizes, styles and options to choose from. The overall quality is up; the prices have come down; and competition among the growing number of manufacturers makes it a good time to consider vinyl for your next fence project.
Vinyl fencing is manufactured from polyvinyl chloride (PVC), blended with
other chemical additives that add strength and protection from ultraviolet
(UV) rays. Unlike wood, vinyl fencing is completely weather-resistant and
virtually impervious to rot, insects or other environmental damage. Another
advantage to vinyl is that the color of the fence is created by the color of
the vinyl itself -- it is completely through the vinyl, as opposed to a
surface layer like paint that can chip, peel or wear off.
Vinyl fencing still is more expensive than wood, but the lower
maintenance expense typically makes the lifecycle cost considerably lower.
Vinyl also compares very favorably to aluminum -- vinyl has similar
durability properties with a lower initial cost -- and is typically
considerably cheaper than wrought iron. However, you have to want the look
of a painted fence, since vinyl fencing materials are currently available
only in white, tan and gray.
When shopping for vinyl fencing materials, remember that not all fences
are created equal, and you typically get what you pay for. Carefully compare
the manufacturer's specifications for the thickness of the vinyl, and look
at how the components are constructed and structurally reinforced. Also,
compare the length of the manufacturer's warranties, as well as how complete
they are and what they cover.
STYLES AND OPTIONS
In a sure indicator of the rapidly growing popularity of vinyl fencing,
there are an amazing number of styles and options now on the market to
choose from. From traditional pickets to horse fencing to privacy
enclosures, you will probably find a material available to match just about
any style of fencing your imagination can conjure up. Some examples include:
- Rail: This is the style that pretty much launched the vinyl
fencing industry. Rail fences consist of upright posts that are either
square or round, with two, three or four horizontal rails between them.
A variation of this style is the cross-buck, which has a horizontal top
and bottom rail and two angled rails between them in an X configuration.
Standard rails are rectangular in section, matching standard 2x6 lumber,
but there are also round rails available that offer the look of a welded
iron fence and provide additional protection for horses and other
animals that may rub against the rails.
- Picket: Picture any variation of Tom Sawyer's famous fence,
and you've got it. You can get picket fences in a variety of heights,
and with pickets that are square, rectangular, round or octagonal, or
that duplicate Victorian lathe-turned spindles. The tops of the pickets
may be straight-cut, pointed, dog-eared, or rounded on top, or you may
choose to cap them with any of a variety of caps from fleur de leis to
balls.
- Privacy: Privacy fences are typically 5 or 6 feet in height,
and consist of solid panels that mimic the look of individual fence
boards. Here again, there are dozens of board configurations that
include traditional board fencing, good-neighbor styles, interlocking
tongue and groove, and board-on-board styles.
- Combinations: If you're looking to match a particular fence
style or trying to create a unique one of your own, you can combine many
types of vinyl fencing. For example, you can top a privacy panel with
lattice, or combine two different sizes or styles of pickets.
Installation of any type of vinyl fencing is pretty straightforward and
requires only basic carpentry skills, but proper alignment of the posts is
critical. Full installation instructions are provided from the manufacturer,
so follow them carefully. Also, remember that there are building codes that
apply to fences in certain applications, which may include such things as
impact resistance and weight ratings -- be sure and discuss this with your
fencing dealer and your local building department, and verify that the
material you're using is correct for your particular application.
Remodeling and repair questions? E-mail Paul at paul2887@ykwc.net.
Copyright 2009 Inman News
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