Is this a good mortgage deal? Update
- Thread starter GatorDave
- Start date
chango
2,500+ Posts
This isn't a swap meet. Its the biggest financial transaction of most people's lives. Its funny that you question the motive of neutural observers but have complete faith in a guy that was ready to make between 3-4% commission off of you. So yeah, he had plenty of room to "negotiate".
You started this thread asking "Is this guy screwing me" and the answer was a HUGE "yes". I really hope rates don't go up between now and the 28th because you'll be in for the biggest shock of your life when you find out he never locked your rate in. Not trying to be negative ---I've just seen this exact scenario play out hundreds of times over the years and the broker who tried to screw the customer is somehow never the bad guy . .
You started this thread asking "Is this guy screwing me" and the answer was a HUGE "yes". I really hope rates don't go up between now and the 28th because you'll be in for the biggest shock of your life when you find out he never locked your rate in. Not trying to be negative ---I've just seen this exact scenario play out hundreds of times over the years and the broker who tried to screw the customer is somehow never the bad guy . .
madscientist
1,000+ Posts
bernard is absolutely correct. rates are published by banks in ranges - X rate pays Y$. the higher the rate, the higher the yield spread paid out. on the other side, rates can cost money if they are low enough. which is what discount points are supposed to be for, although some LOs use them as another form of origination fees that look more innocent.
by the way for anyone reading, brokers are required to put the yield spread premium on the HUD-1 settlement statement that you sign at closing, but banks are not. but since this mortgage mess started, most brokers are out of business and mostly banks remain, so you would never know for sure how much money they made off of the rate they sold you unless you know someone that receives these rates and could give you a ballpark figure.
also rates are fluid in many ways. they can be updated at any time, they are not the same for all borrowers. borrowers with higher FICO scores may get a .25% reduction in rate, higher loan amounts often get a rate discount of .125 or .25 (say greater than 250K but less than jumbo), certain states may have a discount or hit, etc. so if you and your neighbor get the same rate and fees on the same loan amount on the same day from the same person, but his FICO score is 680 and yours is 780, then he may have gotten a better deal than you did.
you absolutely have to shop around several places if you want the best deal. now, there's something to be said about dealing with someone you trust even if it means paying an extra .125 in rate or an extra $500 in closing costs, but thats personal preference.
the loan originator's job is to decide how much money he or she can get from you, then give you a rate and origination fee that equals that much money.
with credit like yours, most LOs will see that its an easy deal that will close quickly with minimal effort and will be willing to do it cheaper than other loans, if you make them.
BTW, as a former loan processor, i got out of the business because i was tired of loan officers making promises that they could not possibly keep in order to secure a loan, hoping that the borrower would not want to start the process over once started. Things from rate to closing costs to how quick they can close, to required documentation. its a shady business in general.
i know someone (not a loan i worked on) who cleared around $2000 per month as a school teacher who was approved for a $2100 per month house payment by a loan officer who took advantage of her and her credit by doing a stated income loan and severely padding her income. she thought it was ok because she didn't think they would approve her for a loan that she couldn't afford, despite our explanations to her. she closed on the loan and was a first payment default. never made a payment. foreclosure. but the loan officer got his commission which is all he cared about. and the loan application states that signing is acknowledging that everything is accurate, so he could possibly claim ignorance and be off the hook. This type of thing was common the past several years and that's why things are happening now the way they are. making it worse was that these sub prime companies were so profitable off of these ******** loans that companies like merrill lynch, goldman sachs, and others like them began buying them or starting their own, thinking mortgage money was a safe investment.
the next wave of foreclosures will be the Alt-A side where high credit borrowers were getting high LTV investment properties on stated or no doc loans - meaning people with great credit but not much liquid assets could purchase many rental properties with little down, but with so little equity it would quickly turn into a negative cash flow situation unless they keep all of the properties filled with tenants that pay on time and the homes have no repair issues.
i'm rambling so i'll stop here by saying don't put your money in mortgage companies yet, its gonna get worse when companies like homecomings (owned by gmac) and aurora (owned by lehman brothers) start getting hit hard.
by the way for anyone reading, brokers are required to put the yield spread premium on the HUD-1 settlement statement that you sign at closing, but banks are not. but since this mortgage mess started, most brokers are out of business and mostly banks remain, so you would never know for sure how much money they made off of the rate they sold you unless you know someone that receives these rates and could give you a ballpark figure.
also rates are fluid in many ways. they can be updated at any time, they are not the same for all borrowers. borrowers with higher FICO scores may get a .25% reduction in rate, higher loan amounts often get a rate discount of .125 or .25 (say greater than 250K but less than jumbo), certain states may have a discount or hit, etc. so if you and your neighbor get the same rate and fees on the same loan amount on the same day from the same person, but his FICO score is 680 and yours is 780, then he may have gotten a better deal than you did.
you absolutely have to shop around several places if you want the best deal. now, there's something to be said about dealing with someone you trust even if it means paying an extra .125 in rate or an extra $500 in closing costs, but thats personal preference.
the loan originator's job is to decide how much money he or she can get from you, then give you a rate and origination fee that equals that much money.
with credit like yours, most LOs will see that its an easy deal that will close quickly with minimal effort and will be willing to do it cheaper than other loans, if you make them.
BTW, as a former loan processor, i got out of the business because i was tired of loan officers making promises that they could not possibly keep in order to secure a loan, hoping that the borrower would not want to start the process over once started. Things from rate to closing costs to how quick they can close, to required documentation. its a shady business in general.
i know someone (not a loan i worked on) who cleared around $2000 per month as a school teacher who was approved for a $2100 per month house payment by a loan officer who took advantage of her and her credit by doing a stated income loan and severely padding her income. she thought it was ok because she didn't think they would approve her for a loan that she couldn't afford, despite our explanations to her. she closed on the loan and was a first payment default. never made a payment. foreclosure. but the loan officer got his commission which is all he cared about. and the loan application states that signing is acknowledging that everything is accurate, so he could possibly claim ignorance and be off the hook. This type of thing was common the past several years and that's why things are happening now the way they are. making it worse was that these sub prime companies were so profitable off of these ******** loans that companies like merrill lynch, goldman sachs, and others like them began buying them or starting their own, thinking mortgage money was a safe investment.
the next wave of foreclosures will be the Alt-A side where high credit borrowers were getting high LTV investment properties on stated or no doc loans - meaning people with great credit but not much liquid assets could purchase many rental properties with little down, but with so little equity it would quickly turn into a negative cash flow situation unless they keep all of the properties filled with tenants that pay on time and the homes have no repair issues.
i'm rambling so i'll stop here by saying don't put your money in mortgage companies yet, its gonna get worse when companies like homecomings (owned by gmac) and aurora (owned by lehman brothers) start getting hit hard.
I agree with much of what madscientist said.
As an broker, I lose many deals a year because I refuse to BS people with closing costs. There are items required to close loans and the people that provide them charge for their services.
Had someone tell me a couple weeks back they were being charged $1300 in fees while also getting a par rate.
I told him I did not think that was possible and that if he could get that to take it but to be careful.
Everyone has a right to earn a fair living which can be done in this business if you treat people fairly. They in return will refer others to you.
good luck with your closing.
As an broker, I lose many deals a year because I refuse to BS people with closing costs. There are items required to close loans and the people that provide them charge for their services.
Had someone tell me a couple weeks back they were being charged $1300 in fees while also getting a par rate.
I told him I did not think that was possible and that if he could get that to take it but to be careful.
Everyone has a right to earn a fair living which can be done in this business if you treat people fairly. They in return will refer others to you.
good luck with your closing.
Maybe screwed is harsh word. Maybe I was being harsh on purpose to make sure GatorDave did what's best for GatorDave, not what's best for the broker. Sematics aside, if you took out a $200k mortgage, you just saved yourself $1,000 in interest in the first year alone. Always trust the wisdom of HornFans.
One problem with the mortgage market is that people don't borrow often enough to be educated about the process. People don't ask questions. People don't shop around. People treat it like Wal-Mart when it's really like a Mexican Bazzar. You have to push to get the best deal. You have to negotiate. You have to use the only leverage you likely have, which is threatening to walk away for a better deal.
Bernard
One problem with the mortgage market is that people don't borrow often enough to be educated about the process. People don't ask questions. People don't shop around. People treat it like Wal-Mart when it's really like a Mexican Bazzar. You have to push to get the best deal. You have to negotiate. You have to use the only leverage you likely have, which is threatening to walk away for a better deal.
Bernard
Wulaw Horn
1,000+ Posts
My dad (a broker) recently did something a little bit different with a couple of good customers that he'd done a lot of work for in the past. He sent them the best interest rate he could get (not getting a yield spread on the deal) sent them a good faith with his hard costs (I.E. credit report, appraisal and processing) and told the guy he was responsible for filling in the origination amount (the only thing that Dad was going to make) based upon what the guy thought was fair. The guy decided on .875% for an origination (he was doing to loans) and both the guy and dad were really happy with the transaction. Dad would have probably done both loans for .5% and the guy got a lower rate then he was quoted anywhere else and a break on the origination (I guess others were quoting him 1.0%)
Initial quote they are going to try to get whatever they can. The origination and yield spread premium, imo, shouldn't ever be higher than 1 or 1.25% on a decent sized loan for a good borrower. Now, if you've got lots of problems nad it's an FHA or bad credit loan that number is going to go up b/c there are few people that are really good at doing those kind of loans.
But don't pay 1% origination ever unless you are getting par rate (I.E. no yield spread) and don't take a higher rate ever unless you are getting orignation waived.
Brokers deserve to make some money off you but it's your job to pay them a reasonable amount, and you can certainly find someone willing ot do your transaction for 1% provided you don't suck as a borrower.
Ask them up front when they quote you what their yield spread will be. You will sound like a knowledgeable shopper, they will know not to ******** you, and if they don't want to deal with you b/c you are knowledgeable then they are not the right broker for you.
Look for someone with the heart of a teacher that is going to explain the transaction for you. It sounds like there are plenty of people on this board who would be willing to do so. Also, I know a ton of great brokers that I deal with every day that I'd be happy to recomend if for some reason you are really struck. Feel free to PM me.
Initial quote they are going to try to get whatever they can. The origination and yield spread premium, imo, shouldn't ever be higher than 1 or 1.25% on a decent sized loan for a good borrower. Now, if you've got lots of problems nad it's an FHA or bad credit loan that number is going to go up b/c there are few people that are really good at doing those kind of loans.
But don't pay 1% origination ever unless you are getting par rate (I.E. no yield spread) and don't take a higher rate ever unless you are getting orignation waived.
Brokers deserve to make some money off you but it's your job to pay them a reasonable amount, and you can certainly find someone willing ot do your transaction for 1% provided you don't suck as a borrower.
Ask them up front when they quote you what their yield spread will be. You will sound like a knowledgeable shopper, they will know not to ******** you, and if they don't want to deal with you b/c you are knowledgeable then they are not the right broker for you.
Look for someone with the heart of a teacher that is going to explain the transaction for you. It sounds like there are plenty of people on this board who would be willing to do so. Also, I know a ton of great brokers that I deal with every day that I'd be happy to recomend if for some reason you are really struck. Feel free to PM me.
You should be able to tell the broker/bank to get rid of the Origination Fee. It is junk. I just helped a friend of mine go over his good faith estimate and they had the 1% origination fee as well as a ton of escrow. He wants to avoid escrow (and is doing 20% down). He thought that the Origination Fee was part of writing it up and I told him that it is junk; many times it is just another way to say Discount Point. The bank agreed to get rid of the Origination Fee but it knocked his mortgage rate up a 1/8 point.
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