Bellmore NY real estate listings and homes for sale, home buying, home selling information – Your Home Appraisal

My New Blog

Direct Lenders vs. Mortgage Brokers - Which Way Do I Go?

February 17th, 2009 10:20 AM

Q: I have a friend who thinks that mortgage brokers charge more fees than a bank would. I have to think banks are making money when they fund a mortgage just the same as a mortgage broker. What is the difference in the way mortgage brokers and banks make.

Whether you pay more in fees going through a bank or a broker depends on which bank or broker you happen to go through.

Let's assume that we are talking about a plain vanilla loan, e.g., the kind given to someone who can document their income, has 2 years on the job, has a 680 credit score or better and who is putting down a 20% down payment. So long as this loan did not exceed the maximum loan amounts set by the government-sponsored entities, i.e., Fannie Mae and Freddie Mac, we would refer to this type of loan as a "conventional/conforming" loan. Such a loan is also referred to as an "A" paper loan.

These loans get sold in groups to either Fannie Mae or Freddie Mac. These organizations, in turn, securitize these pools of loans, using them as collateral for the bonds they issue. The interest on the loans is used to pay interest to the investors who buy the bonds. All of these bonds pay a uniform rate of interest and have a uniform face value. However, when investors buy and sell these bonds, their prices fluctuate in accordance with the effective rate of interest these investors expect to earn on their investments.

Now, getting closer to the answer to your question, let's say that on a given day, investors expect a return of 5.5% on their investment. The price they will pay for a bond giving them that investment return will be priced accordingly. If a bond is offered in the marketplace that pays a higher return than 5.5%, investors will pay more for it. In investment circles, they say that the investor will pay a "premium." Of course, the amount of the premium depends on the amount by which the interest rate of the bond (and the interest rate of the mortgage loans that generate the money) exceeds the market's expectations. So, if the market expects to earn 5.5% on its bonds, and a mortgage bank sells a pool of loans that generates 7% interest, they get paid more for their loans than the amount of money they lent.

Because the mortgage market is very competitive, and as illustrated above, they all get their money from the same place, i.e. Wall Street investors, the rates offered by the likes of Bank of America, Washington Mutual, JP Morgan Chase, etc. are pretty much the same at any given time. It may be somewhat of an oversimplification to say so, but the only reasons that Chase, for example, might have a slightly higher or lower rate or cost structure for its mortgages than Bank of America is because of overhead and profit expectations.

Now, when we bring brokers into the mix, the picture changes a little, but only slightly; basically, though, it is dependent on the interest rate paid by the borrower, as illustrated above. Here's how it works: lenders often have retail and wholesale lending channels. The retail channel, for example would be your local "Acme Bank" branch office. At the same time, Acme Bank might have a subsidiary called Acme Wholesale Mortgage, which enters into relationships with mortgage brokers, who in turn, offer Acme Wholesale Mortgage's loans (and those of other wholesale lenders) to the public. For Acme Bank, the difference is that it costs them much less money to make a loan through their wholesale channel than through their retail channel.

Let's go back to the example of how banks "mark up" the rate of money they borrow on Wall Street through the issuance of bonds to make loans. Let's say Acme Bank has to charge a rate of 7% to one of its retail customers to cover its overhead and make a profit. Because of its lower cost structure, on the other hand Acme Wholesale Mortgage only has to charge 6.25% to cover its overhead and make the same profit. So, they go to the brokers with whom they have relationships and tell them, "if you bring us a loan today for which the borrower is charged a 6.25% rate of interest, we won't pay you a commission. However, to the extent that the borrower pays more than 6.25%, we will give you a certain percentage of the loan amount." In industry parlance, this is called "yield spread premium." The broker could decide to offer its borrowers loans through Acme Wholesale at a rate of 7%, just like Acme Bank, it could charge more, or it could charge less. It all depends on the circumstances.

I've worked at for both brokers and direct lenders. There have been days where, as a broker, I could offer a more competitive rate and fee structure through a bank's wholesale mortgage channel than that very same bank offered through its own retail channel. There have been other days when I could not. The bottom line is that as far as rates and fees are concerned, you have to shop around and do your homework.

Posted by ROBERT NAPPI, CSA-R on February 17th, 2009 10:20 AMPost a Comment (0)

Subscribe to this blog

Home Prices Continue 5-Month Decline According to New Report

March 26th, 2008 1:04 AM

The Standard & Poor's S&P/Case-Shiller Home Price Indices (HPI) for January which were released on Tuesday are reporting further bad news on the home value front.

The HPI which tracks, in two different indices, 10 and 20 metropolitan statistical areas (MSAs) across the United States, reported that the prices of existing family homes nationally continued to decline into the new year. 16 of the 20 MSAs in the larger survey reported record declines, ten of them reaching double digits.

Both the 10-City and the 20-City Composite Indices are now reporting annual declines in excess of 10 percent. The 10-City had a record annual decline of 11.4 percent; the 20-City reported a decline of 10.7 percent.

Las Vegas and Miami - boom cities only months ago - share honors for being the weakest cities price-wise in January. Both showed price declines year-over-year of 19.3 percent with Phoenix not far behind at 18.2 percent. Other MSAs with double-digit declines include Detroit (15.1 percent), Los Angeles (16.5 percent), Minneapolis (10 percent), San Diego (16.7 percent), San Francisco, (13.2 percent,) Tampa (15 percent), and Washington (10.9 percent).

David M. Blitzer, Chairman of the Index Committee at Standard & Poor's commented about the survey results; "Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007. Home prices continue to fall, decelerate and reach record lows across the nation. No markets seem to be completely immune from the housing crisis, with 19 of the 20 metro areas reporting annual declines in January and the remaining - Charlotte North Carolina - eking out a benign 1.8 percent growth rate. Looking deeper into the data, you can see that 16 of the metro areas are also reporting record low annual growth rates. The monthly data show that every one of the MSAs has now declined every month since September 2007, marking five consecutive months. On top of that, the declines have increased through time, in general, as 13 of the 20 MSAs reported their single largest monthly decline in January."

Taking the long view of the HPI data, however, homeowners in many MSAs should still be counting their blessings. The indices use the year 2000 as a base, assigning that year the number 100. Therefore a current score of 150 would indicate a 50 percent price appreciation in the last eight years. The score for the 10 City Composite is 196.06 and the 20-City 180.65. Some of the worst hit cities by current performance still show remarkable appreciation since 2000; for example, Miami (225.40), Los Angeles (224.21) and Las Vegas (186.05).

Posted by ROBERT NAPPI, CSA-R on March 26th, 2008 1:04 AMPost a Comment (0)

Subscribe to this blog

Appraisal Reform Accord Reached By NY Attorney General and GSEs

March 4th, 2008 11:05 PM

New York Attorney General Andrew M. Cuomo announced an agreement on Monday between his office and Freddie Mac and Fannie Mae under which the two largest purchasers of home loans will buy home mortgages only from those lenders that meet new standards that it is hoped will ensure independent and reliable appraisals.

The agreement which also includes the Office of Federal Housing Enterprise Oversight (OFHEO) will create an independent organization to implement and monitor the new appraisal standards.

Fannie Mae and Freddie Mac, which purchase roughly 60 percent of all home loans originated in the United States, have agreed to the following:

Establishment of the "New Home Valuation Protection Code," which creates requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence, among other reforms. Under the new code mortgage brokers will be prohibited from selecting appraisers and lenders will be prohibited from using "in-house" staff appraisers to conduct initial appraisals or from using appraisal management companies that they own or control.
Beginning January 1, 2009, Fannie Mae and Freddie Mac will require that lenders represent and warrant that appraisals related to mortgage loans originated on or after January 1, 2009 conform to the new code or they will not be purchased.
The new "institute" which will be funded with $24 million from Fannie and Freddie will field complaints from appraisers who believe that their independence has been compromised and will protect those appraisers from retaliation. The institute will also establish a nationwide consumer hotline to manage complaints about appraisal fraud or violations of the new code. The institute will be funded with $24 million from Fannie Mae and Freddie Mac and will be required to report to OFHEO and the Attorney General's office on a regular basis.

"Today's agreement with Fannie Mae and Freddie Mac begins to set right what had gone so horribly wrong in the mortgage industry - rampant appraisal fraud," said Cuomo. "The integrity of our mortgage system depends on independent appraisals. Again and again our industry-wide investigation found that banks were putting pressure on appraisers to drive up the value of loans just to make a quick buck. We believe the new standards, and the new independent monitor agreed to today, can begin to erase this problem from the industry."

"Accurate, independent appraisals are very important to ensuring the safety and soundness of Fannie Mae and Freddie Mac and the mortgage market," said OFHEO Director James Lockhart. "OFHEO is committed to working closely with fellow regulators, the Attorney General, Fannie Mae, Freddie Mac, appraisers, lenders and other market participants to assure that the roll-out of the new code builds upon best practices, recognizes constructive comments to identify further refinements, and avoids unintended consequences."

Posted by ROBERT NAPPI, CSA-R on March 4th, 2008 11:05 PMPost a Comment (0)

Subscribe to this blog

Average Cost of a 750 SQ.FT. Home Addition?

February 11th, 2008 11:21 AM

As per Realtor Magazine Online the cost is approximately $71,000.

Of projects that saw national cost recovery rates of more than 80 percent in 2007, only one — a minor kitchen remodel, with 83 percent of cost recovered — was a strictly interior job. The others were an upscale siding replacement using fiber cement materials (88.1 percent), a wood deck addition (85.4 percent), midrange vinyl siding replacement (83.2 percent), and upscale vinyl and midrange wood window replacements (81 percent and 81.2 percent, respectively).

On most projects, the value of remodeling trended down in 2007 compared with 2006. No project exceeded an 88 percent return. The likely culprits for the year-to-year drop: rising remodeling costs and slowing home appreciation brought on by the lackluster housing market in many areas.

Posted by ROBERT NAPPI, CSA-R on February 11th, 2008 11:21 AMPost a Comment (0)

Subscribe to this blog

Home prices in 10 major metropolitan areas fell a record 8.4 percent in the year through November.

January 29th, 2008 12:19 PM

NEW YORK (Reuters) - Home prices in 10 major metropolitan areas fell a record 8.4 percent in the year through November, suggesting the housing slump is worsening, according to a Standard & Poor index released on Tuesday.

The decline in the S&P/Case-Shiller Home Price Index topped the 6.7 percent annual drop for October and was deeper than predicted by economists at Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. The consensus was for a 7.1 percent fall, Goldman economists said.

Home prices across big cities have now declined for 11 consecutive months and show little sign of bottoming, said economists, including Robert Shiller, a founder of the index and chief economist at MacroMarkets LLC. The decline in the index accelerated to 2.2 percent in November over October, from 1.4 percent in the previous month, S&P said.

It "confirms our outlook that the housing shock is by no means over," said Michelle Meyer, an economist at Lehman Brothers in New York. "Home prices are falling in response to weak demand, which is a function of buyer sentiment and tight credit conditions."

Falling U.S. home prices in the past year have fueled rising delinquencies and foreclosures, with homeowners unable to get out of costly loans. Banks and investors, throttled by losses in risky mortgages, have sharply curtailed financing for all but the most credit-worthy borrowers.

A broader but newer index of 20 cities recorded an annual decline of 7.7 percent in November, S&P said. Miami and San Diego led with annual declines of 15.1 percent and 13.4 percent respectively.

"While the sharpest decline in home prices has decidedly been in the once-hot regions such as Miami and San Diego, the weakness is spreading throughout the nation," Meyer said in a research note.

Other double-digit year-over-year declines were in Las Vegas, Detroit, Phoenix, Tampa and Los Angeles.

(Reporting by Al Yoon; Editing by Dan Grebler)

Posted by ROBERT NAPPI, CSA-R on January 29th, 2008 12:19 PMPost a Comment (0)

Subscribe to this blog