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Housing Crisis Redefines Broker-Banker Relationships

November 9th, 2009

Written by Christopher Frost

In his 17 years as a mortgage broker, Edward Kampf developed long-standing relationships with banks that would provide home loans to his customers.

But when the housing crisis hit, some lenders began turning their backs on brokers — the mortgage middlemen who originated the majority of loans during the boom.

When Kampf started having trouble finding financing for his customers, he converted his business to a mortgage banking operation, joining a growing number of mortgage professionals getting out of the brokerage business and into banking.

“It’s not that it’s a utopia, but you have more confidence in underwriting, longer lines of credit and peace of mind,” he said.

Over the next two years, mortgage bankers are going to gain a significantly larger share of the market, said Scott Norman, vice president of the Texas Mortgage Bankers Association.

He expects the 250-member association to grow another 10 percent over the next year as regulations governing brokers become tighter.

But even in his role representing bankers, Norman said taking brokers out of the equation does a disservice to the marketplace.

“They bring a good sense of competition,” he said. “There’s always going to be a mom and pop mortgage broker down the street who can provide you with excellent service with good rates and good fees. I don’t think that should go away.”

A mortgage broker is someone who matches a borrower with a lender.

The broker earns a commission on the transaction, but once the loan has closed, the broker’s involvement ends.

Alternatively, a mortgage banker typically provides its own funds and therefore assumes more risk.

The number of brokers multiplied during the housing boom when lenders were eager to loan to almost anyone.

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Their ranks began tapering off when the market cratered and they were painted as greedy and untrustworthy.

To distance themselves from brokers, some large financial institutions ended their wholesale lending divisions that funded loans brought in by third-party brokers.

They began to focus exclusively on retail customers.

Kampf said borrowers seeking second homes, construction loans and jumbo financing were considered high risk — even if they were doctors or lawyers with great credit and plenty of cash in the bank.

Brokers were getting fewer referrals from real estate agents, too.

“It’s easier to market yourself to Realtors as a banker versus broker because of the perception involved,” Kampf said. “From a marketing standpoint, it’s been a benefit.”

Kampf has set up a branch of the Frost Mortgage Lending Group, an Albuquerque, N.M.-based mortgage bank that has lines of credit with national wholesale lenders.

Faster service

“What’s benefited us is faster underwriting term times, faster closing term times, more lenders in which to chose and the confidence of knowing that the lender that approves the loan is actually going to fund the loan at closing,” he said.

Mortgage brokers are facing regulatory hurdles, too.

Come next spring, they’ll be required to be licensed with the state.

The process will include background checks and continuing education requirements.

The part-timers

“This is going to go a long way toward making the part-timers get out of the mortgage industry,” Norman said.

And in January, brokers will have to start disclosing their profits on loan transactions.

Stacy London, president of Houston Capital Mortgage and a member of the Finance Commission of Texas, compares it to a car dealer revealing on the invoice how much it stands to make.

“The reason why we’re seeing brokers become bankers is they’re very afraid of the new environment and this regulatory change,” she said. “We kind of feel like the target’s on our back.”

nancy.sarnoff@chron.com

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How To Sell Your Home For 40% More, 17% Faster This Spring

January 30th, 2009

Written by Christopher Frost

Super Bowl Weekend traditionally marks the start of the Spring Buying Season in real estate.  Anecdotally, real estate agents will tell you that buyer activity tends to tick higher at this time of the year.

Meanwhile, with mortgage rates still trolling near all-time lows and Congress debating a first-time homebuyer tax credit, 2009 may bring out even more buyers than we’ve seen in the past.

Just having your home on the market may not be enough to attract an offer, though — the home has to have appeal.  That brings us to home staging — the process by which a homeowner re-organizes and re-presents his home to appeal to as many potential buyers as possible.

Home staging is part-science, part-art, and part-psychology.  Homebuyers tend to judge homes within the first 8 seconds of seeing them so making a quality first impression can mean the difference between getting multiple bids, and just getting a lot of foot traffic.

The 4-minute video gives some quick-and-easy tips, including:

• Create more light in the home
• Clean up the closets and thin them out
• Remove the clutter from every room in the house

Even though home inventories are falling, supplies are still higher than in previous years.  Home sellers wanting to stand out in a crowd may want to consider staging their homes to help them sell more quickly.

Staged homes sell for as much as 17% more money and as much as 40% faster than non-staged ones.

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Did We Just See The First 2 Signs Of A Housing Recovery?

January 27th, 2009

Written by Christopher Frost

Don’t let the plunging median sales price fool you — December’s Existing Home Sales data has home sellers smiling.

Just one month after falling below the 5-million unit trend line, sales volume roared back by 300,000 homes in December, surprising housing analysts and making a case that this spring’s Buying Season could be a competitive one.

Falling home prices helped fuel home sales.  Nationally, the median sales price — the point at which half of all homes sold for more and half sold for less — was $175,400, down $32,000 from last year.

However, the most important part of December’s Existing Home Sales report isn’t making headlines.

At December’s sales pace, it would now take 9.3 months to exhaust the existing home supply.  Last month it was 11.2 months.  This means that buyers are competing to purchase fewer homes which, in turn, puts upward pressure on home prices.

This is Supply and Demand at its most basic definition.

Economists have long said that the keystone of housing’s recovery will be rebalancing in home supply.  Coupled with the all-time low in housing starts, December’s Existing Home Sales data signals future strength.

(Image courtesy: The New York Times)

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Mortgage Markets In Review : January 26, 2009

January 26th, 2009

Written by Christopher Frost

Mortgage markets deteriorated last week on the heels of weak economic data and uninspiring corporate earnings.

Mortgage rates rose for the second week in a row.  They’re now measurably higher than the low point set 3 weeks ago.

For mortgage rate shoppers, though, last week’s most important stories weren’t necessarily last week’s most reported stories; the most obvious of which was soon-to-be Treasury Secretary Tim Geithner’s assertion that China may be manipulating its currency.

This assertion poses risks to mortgage rates because China is one of the largest buyers of U.S. mortgage-backed bonds.  Its ongoing bond buys helps keep mortgage rates down.  But an angry China is less likely to buy U.S.-backed debt and that would pressure mortgage rates hgiher.  Said China of the Geithner remarks, we’re angry.

Other mortgage rate-altering stories included:

• Corporate weakness at GE, Microsoft, and nearly every U.S. bank
• Concerns that political in-fighting could derail a stimulus plan
• Mounting job losses in nearly every economic sector

In addition, just to show how backwards markets are right now, in “ordinary” times, economic weakness often leads mortgage rates lower.  In this market, however, it’s having the opposite effect.  Whenever the economy looks sour, mortgage rates seem to rise.

Americans in want of a mortgage have been at the mercy of Wall Street’s fickle sentiment lately.  It’s a nerve-racking place to be.

This week, markets hope to be calmed.  There’s a handful of news releases including Existing Home Sales, New Home Sales and consumer confidence surveys that will help paint a clearer picture of the economy, but the Federal Reserve’s 2-day meeting should steal the spotlight.  The Federal Reserve is expected to hold the Fed Funds Rate at its current range of 0.000-0.250 percent.

However, the Fed Funds Rate is somewhat of an afterthought this week.  Markets are more concerned with what the Fed will be doing to loosen bank lending nationwide.

Markets will evaluate the Fed’s response and if they deem the stimulus to be too large (or too small), mortgage rates should rise.  If the Fed’s moves are “just right”, look for rates to fall.

The Federal Open Market Committee adjourns at 2:15 P.M. Wednesday.

(Image courtesy: The Wall Street Journal Online)

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Could Mortgage Rates Have Already Bottomed Out?

January 22nd, 2009

Written by Christopher Frost

After improving through 11 straight weeks, mortgage rates finally ticked higher last week.  This, according to Freddie Mac’s weekly mortgage rate survey.  The Freddie Mac survey showed that mandatory mortgage fees rose last week, too.

Unfortunately, the bad news for rate shoppers doesn’t stop there.

Because Freddie Mac’s rate survey is conducted on Tuesday but its reports aren’t released until Thursday, the published data doesn’t even account for the previous 48 hours of activity in which rates and fees have risen further.

Versus last week, 30-year fixed, conforming mortgage rates are up 0.16% on average nationwide.  On a $200,000 home loan, this equates to a roughly $20 extra per month, or $7,055 over the life of a 30-year loan.

The Era of Low Rates may not be over, but it may be time to get off the fence.

(Image courtesy: Freddie Mac)

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Mortgage Markets In Review : January 20, 2008

January 20th, 2009

Written by Christopher Frost

After a strong start Monday and Tuesday, mortgage markets suffered alongside stock markets in the latter half of last week, leaving mortgage rates higher on the week overall.

Market losses were especially steep Friday and mortgage rates headed into the long weekend on a strong uptick.

Regardless, the reasons that mortgage rates rose last week are ancient history, in most respects.

Today, the new presidential administration begins and economic expectations reset.  Mortgage bond traders are now looking at Capitol Hill and wondering what the pending stimulus package will look like, and how many dollars will it include.

This is an important time for home buyers and rate shoppers, too, because stimulus is generally believed to be harmful to mortgage markets.  This is for two reasons:

1. Stimulus draws money to the stock market from the bond market, pressuring bond prices down and, therefore, mortgage rates up.
2. Stimulus requires the “printing of money” which devalues the U.S. Dollar and everything denominated in it.  This includes mortgage bonds and rates respond by rising.

In other words, as the scope of the stimulus package increases, it becomes more likely that mortgage rates will rise in 2009.

Aside from Beltway Politics and commentary, there isn’t much to impact mortgage markets this week.  We’ll see the latest earnings from a handful of financial firms and tech bellwethers including Google, Microsoft and IBM.  And, on Thursday, we’ll be treated to some housing data from December.

But, with expectations set so terribly low for everything economic, markets will likely shrug off any data that doesn’t scream that the recession is over.  Instead, be on alert to lock a rate.  In a changing political environment, mortgage rates can move quickly and it’s best to be prepared.

The rate you’re quoted in the morning won’t likely be available by the afternoon.

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Mortgage Rates Are Falling But Loans Require More “Points”

January 16th, 2009

Written by Christopher Frost

Another week, another screaming headline about mortgage rates falling to an all-time low.

Freddie Mac published its weekly mortgage rate survey Thursday and found that the “average” mortgage rate is now 4.96 percent, the lowest since the survey started in 1971.

But, if we look beyond the headline, we find that there’s another part of the story worth watching.  Mortgage rates are falling but the number of points required to lock those rates is not.

Lenders now require an average payment of 0.7 points to get the 4.96 percent rate from the headlines.  That’s up from 0.6 percent last week and 0.4 percent a year ago.

A “point” is a fee equal to 1 percent of the loan size.

Therefore, to get access to a 4.96 percent interest rate on a $200,000 home loan, today’s lender would require an extra $200 versus last week and $600 versus last year.  Today’s mortgage borrower would be subject to a $1,400 closing cost in addition to the “typical” closing costs accompanying a purchase or refinance.

This is a period of historically low rates — there’s no doubt about that.  However, the cost of getting access to low rates is increasing.  The press doesn’t always tell that part of the story and it’s one more reason to look deeper than the headlines.

(Image courtesy: The Wall Street Journal)

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How The Right Amount Of Economic Weakness Can Help A Home Buyer

January 15th, 2009

Written by Christopher Frost

After a weak holiday shopping season, annual retail sales declined in 2008.

It marks the first annual Retail Sales decline since the government started tracking the data 40 years ago.

It also gives credence to the notion that the U.S. economy is suffering through a deeper recession that previously thought.  A pullback in spending — especially during the shopping-heavy month of December — highlights the cautious nature of today’s American shoppers.

And in a strange sort of way, all of this may end up being good news for spring home buyers.

Because Retail Sales are reflective of consumer spending, a dramatic pullback helps to keep the economy in slow gear, countering the inflationary impact of government stimulus and direct intervention.  Inflation, you’ll remember, causes mortgage rates to rise.  Its absence, therefore, helps to keep mortgage rates low.

In addition, it’s earnings season on Wall Street and weak corporate guidance has spurred a 6-day decline in the Dow Jones Industrial Average.  As dollars leave the stock market, investors are parking them in the safer world of bonds.  This includes mortgage bonds, of course, which further pressures rates lower.

As we’re seeing, economic weakness — to a point — can be the friend of a person in need of a new home loan.  For active home buyers or people entering the market this spring, therefore, the timing may be just right.

(Image courtesy: The Wall Street Journal Online)

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When Is A 5.000 Percent Mortgage Rate Really 3.600 Percent?

January 14th, 2009

Written by Christopher Frost

An oft-touted benefit of homeownership is its tax benefits.  However, like most IRS-related items, understanding how the benefits work is not always clear.

In general, homeowners are entitled to two home-related tax deductions — one for annual mortgage interest paid, and one for real estate tax bills paid.

Not everyone is eligible, though.  Some of the exclusionary traits include total amount borrowed, and whether or not the home is a primary or secondary residence.

The official IRS publication is filled with notes and explanations but, in general, you can calculate your approximate mortgage interest tax deduction using the following math:

1. Sum your annual mortgage interest and real estate taxes paid
2. Find your tax rate on the IRS tax bracket schedule
3. Multiple your tax rate by the sum from Step 1

This is grossly simplified, but fairly accurate.

As an example, a homeowner paying a combined $20,000 in 2008 mortgage interest and real estate taxes, and who is in the 28% tax bracket, may be due $5,600 in tax credits.

The availability of mortgage interest tax deductions is one reason why loan officers make reference to “after-tax mortgage rates”.  An after-tax mortgage rate is effective interest rate, post-tax code, and can be calculated using the formula below:

(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 – Marginal Tax Rate)

The same homeowner with a 5.000% mortgage rate, therefore, has an after-tax mortgage rate of 3.600%.

Because not every homeowner is eligible for home-related deductions, and because not every homeowner should claim them, talk with your personal accountant before making any tax-related decisions.

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Half The Story : The National Housing Inventory Fell In December

January 13th, 2009

Written by Christopher Frost

Home prices are largely based on Supply and Demand.

• If demand outweighs supply, home prices rise
• If supply outweighs demand, home prices fall

It’s good news for home sellers, therefore, that “used” homes for sale fell 6 percent nationally last month.  Less supply often means higher prices.

Of the 29 metropolitan areas tracked in real estate brokerage firm ZipRealty’s survey, only Philadelphia showed an increase.

But the survey isn’t perfect.  For example, it doesn’t track the demand side of the equation — buyer activity.

Anecdotally, November and December are slower for buyer foot traffic than, say, March and April.  December’s drop in supply, therefore, may reflect the expectation of reduced buyer interest.

In addition, the ZipRealty survey ignores the supply of newly-built homes, and of foreclosed properties.  In some cities, that can amount to a quarter of the market supply or more.

And lastly, the survey addresses the nation and not the nation’s neighborhoods.  This is an important distinction because real estate is not a nationwide market, nor is it even a citywide market.  Real estate is highly local and responsive on a neighborhood-level.

National surveys rarely capture that point.

(Image courtesy: The Wall Street Journal Online)

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