Originally I considered publishing a stream of consciousness essay to be entitled Portnoy's Real Estate Complaints, comparing defects in homes to sexual dysfunctions. But apparently this would violate both copyright law and common decency. So I am relegated to discussing mortgage financing.
On January 22, 2002, one major California lender was quoting the following WHOLESALE fixed interest rates and loan fees (points) for jumbo loans [$300,701-$650,000], thirty year fixed:
| Rate |
15 day lock |
30 day lock |
45 day lock |
| 6.875 |
0.500 |
0.625 |
0.750 |
| 7.000 |
-0.000 |
-0.125 |
0.250 |
| 7.125 |
-0.500 |
-0.375 |
-0.250 |
| 7.250 |
-0.875 |
-0.750 |
-0.625 |
| 7.375 |
-1.250 |
-1.125 |
-1.000 |
| 7.500 |
-1.750 |
-1.625 |
-1.500 |
| 7.625 |
-2.125 |
-2.000 |
-1.875 |
Seven interest rate options over three rate-lock periods. This one lender quotes 21 options, daily! Which do YOU think is the best rate, today?
And, why would you consider a thirty year fixed loan product, THE most expensive loan product - on day one? I'm not saying you should not consider it, I'm only asking why YOU think you should consider it.
Suppose we were preparing our purchase strategy and you asked whether I could get you one of those
zero-point loans that are so heavily advertised. "Absolutely," I responded. "I can get it for you at 7.625% as long as we lock in within the next 15 days.!" Would I be a hero, champion of the uninformed?
In order to answer that question you should understand that loan origination fees can be paid to your mortgage
broker by the lender, by you, or by both you and the lender. Loan fees marked with a (-) sign indicate the loan fee being paid to your mortgage broker by the lender. So if I presented your loan package at 7.625% with a 15 day lock the lender would reward me with 2.125 points. In today's competitive market I consider this a bit high. Not illegal, just high. But how would you know the difference? You never got to see the wholesale rate sheet. As far as you are concerned I got you a zero point loan. The most plausible reason I have been given for not publishing wholesale rate sheets is that they do not provide consumers with an APR [annual percentage rate] as required by Re Z for the advertising of any mortgage rate.
So forget the question: "What is your best rate today?" Incidentally, why do you want to know TODAY'S
rate, when you aren't locking in any rate for weeks? Just to get you in the door a savvy broker could quote you an unavailable rate/fee (low quote) today, knowing that you are weeks away from locking - at which time you will be told that fees for the rate you want have gone up. Instead, ask the broker: "How much will you charge me, over wholesale, on that date in the future when I am ready to lock?"
I also recommend not trying to find THE BEST LENDER. If one lender could ALWAYS deliver the least expensive loan on every loan product, all others might as well close their doors. The best you can expect is to work with a mortgage broker who can access those lenders who are most competitive in providing the type of loan that will suit your needs. I discuss niche lending in my essay, Return to Go.
Mortgage brokers sometimes compare themselves to travel agents. You pay no more than if you had gone directly to the airline/lender. And, they shop the airlines/lenders for you.
Every year mortgage brokers originate a greater percentage of mortgages as retail lenders cut their overhead (salaries, pensions, computers, rent) and leave loan origination to licensed, independent contractors called mortgage brokers. I suspect that some banks would close their retail department immediately - if only their competitors would do likewise. In addition some mortgage bankers have no retail outlet, dealing exclusively through brokers.
If you prefer to work directly with a lender then you will have a lot of calls to make. To cut down on the number of these calls remember that in general banks are more competitive than Savings & Loans in the fixed rate market; while the latter are more competitive and innovative in the adjustable rate market. Also, some credit unions might provide competitive pricing.
Leo
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