New Rules for Lenders
August 24, 2009
In the wake of all of the troublesome loans made over the past 5-6 years, the government has really begun to hogtie the lending industry — all in the name of protecting the consumer from being taken advantage of by unscrupulous practitioners.
The latest of a rapidly growing list of new regulations on the lending industry is the requirement for the lenders to re-do their “truth in lending” disclosure whenever any thing happens that would change the annual percentage rate (APR) that their clients would be charged on a loan by 1/8th of a percent (either up or down). The APR is determined not by just the mortgage rate but the combination of the rate and all of the fees that it will take to get this rate.
This may not sound too onerous at first blush but the more you think about it, the more complicated it gets.
Let’s just say that the borrower meets with the lender and they lock a loan of 6.5% with 1 point (a point is 1% or the loan amount). The lender produces a “truth in lending” statement that discloses the annual percentage rate. The borrower and the lender go through the transaction (either a re-fi or a home purchase) and when they get to the end the borrower decides that he would rather have a lower mortgage rate and pay for it with another point. This will probably change the APR by more than an 1/8 of a percentage point and the lender will have to produce a new “truth in lending” statement which carries with it a 3 day right of rescission (the borrower can back out of the loan within 3 days). Well let’s remember, at least in the case of a purchase, there is a seller on the other side of this transaction, waiting for the contractual closing date. Add to that the time it takes a lending institution to re-draw documents after being told that their customer (the borrower) has decided to change his rate. Well, you can begin to see the picture — right?
Now, I am not saying that this is a bad decision on the part of our regulatory agencies — it is just that either escrows are going to take a lot longer or borrowers are going to have to spend a lot more time doing their homework with regard to interest rates and loan scenarios before they make a decision.
As always, this is just our take on the situation. Read more about it here.
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Shopping for a loan?
May 29, 2009
The interest rate you receive can dramatically change your ability to qualify for a loan. Your FICO score, or credit history will affect the rate you will receive. Ever wonder how your FICO scores are weighted and structured? Well here you go;
35% by Payment History
30% by Balances Owed
15% by Length of Credit History
10% by New Credit
10% by Types of Credit in Use
And the overall calculated ranges;
720 – 850 Excellent, A-paper credit, the “good-guy” rates available
680 – 719 Good, not much of a compromise on rates
620 – 679 OK or Fair, clearly in range for FHA consideration
580 – 619 Low, bottom of the range for FHA consideration, “alternate credit” comes
heavily into play
500 – 579 Poor, truly nothing can be done without credit rehabilitation
If you are ready or think you are ready purchase a home, now is the time to talk with your lender. If you don’t already have someone you are working with, we have excellent people that can help you get your ducks in order. And in today’s market, more than ever, it is essential to know where you stand with regards to your Purchase Power.
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Interest Rates & Purchase Power
May 6, 2009
Many of us have been spoiled by recent interest rates and either weren’t old enough or don’t remember when double digit rates hung around for several years. See Mortgage Rate History Graph for an interesting view of how rates have changed over the years dating back to 1973. You will notice that 5% interest rates were no where to be found until 2003 and later. How long do you think this can last?
That leads to the question; How do changes in interest rates affect your purchasing power? Well let’s take a look; The summary below shows how just a ¼% rate difference can change your payment and overall loan amount.
Loan Amount $300,000 $300,000 Difference
Interest Rate 5% 5.25% 0.25%
Monthly Payment $1,610.46 $1,656.61 $46.15
Total Paid Over Life of Loan $579,765.60 $596,379.60 $16,614
Loan Amount $500,000 $500,000 Difference
Interest Rate 5.25% 5.50 % 0.25%
Monthly Payment $2,761.02 $2,838.95 $77.93
Total Paid Over Life of Loan $993,967.60 $1,022,022.00 $28,054.80
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