Glad you were able to convince your borrower to lock, the changes are real and are definitely going to be in place with all lenders very soon.

I’d be happy to take you on a stroll through broker-world, and show you the sights. That’s been my address for about 3 years. Before that, I was at Countrywide (only one rate sheet to figure out!).

The change was daunting at first, but when I found that I had complete freedom to find my clients the best loan program, with the most advantageous combination of costs and rate for them, I knew I would never turn back.

I have had correspondent lending available to me for about 8 months now, but since it has not been priced as competitive as brokered loans, I have not used them.

I think there are some advatages to correspondent lending, including ease of use, familiarity, non-disclosure of YSP, and possibly pricing (as the correspondent pricing differs from broker to broker, depending on the deal the broker has with the lender, and how much the broker decides to keep).

Even though I am intensely cost driven (on behalf of my clients), I do not necessarily believe it proves that advantageous to me. It is not ALWAYS the customer’s greatest concern.

If fact, I find that many other ILO’s are more successful in this business, because they pay more attention to other areas, possibly with a greater ROI for them. Salesmanship, PR, customer service, successful advertising, knowledgable authority, referral relationships, and a keen attention to trust, are all important to staying in the business.

I close with saying that I have admired the writing in this guide from all of the contributors, and have particularly followed yours (Rhonda) and Jillayne’s columns, as they are closest to my business concerns. I may have a slightly different perspective, but I have found little that I disagree with, and the facts have been generally solid, footnoted, and relevant.

PS, On the APR question, I reran the numbers and I realized you were NOT overstating the APR. The APR rate implies the APR costs are $5,853, and since you are charging $4,000 for a point, the remaining $1,853 looks pretty standard, as some loan costs are inexplicably omitted from the APR calculations, while others are inexplicably included. It actually looks quite reasonable, compared to the bogus APR’s that typically appear in the Seattle Time Mortgage directory.

I’m happy to publicly eat my (erroneous) words any time, but I plan to go on a diet Jan 2, so I’ll have to be more careful in the future!

I’m just returning from a dinner with people “in the biz” from Las Vegas and it was very interesting talking about our different markets and what we’re experiencing.

Your pricing I’m just not totally getting (probably because I’m really not a broker)…I think I’ll have to send you an email…as I’ve said, I’ve only worked for one mortgage company which is a correspondent lender (I’m grateful for that but I know no other)..

For the first time ever I showed up on Google, from my comment on your site!

Thanks, I feel famous finally!

Here’s a 2008 prediction for you.

More independent loan originators (ILO’s) will go from 1099/self-employed to W-2 than ever before!

Here’s why.

Currently, only W-2 employed loan originators can legally do FHA loans. Yes, I know that some LO’s get around this in a variety of ways, but the loopholes are tightening, and the risks of discovery have grown. Flat out, FHA says you not only must be a W-2 employee, but that you cannot be employed (or self-employed) anywhere else in any related business.

FHA loans dwindled from 19% market share in 1996 to 1.9% in 2006, replaced mostly with the expansion of subprime.

Today, most folks think that FHA will expand to it’s former level in 2008, based on the loss of subprime lenders, and the ghastly pricing and guidelines. I think it will exceed it’s former prominence.

The new Fannie Mae/Freddi Mac overlays are much more significant than folks are thinking, and they will drive more borrowers to FHA.

Here’s an abbreviated example:

So, you have a borrower with a 650 FICO that wants to CO refi to 80%. Not a subprime or even Alt A loan, pretty average. Full doc, of course, and wants the safety of a 30 year fixed.

Let’s look at what you could offer them in the post overlay era. I will quote from HSBC (12/29/07), since they have both the overlays and FHA. ALL lenders will have them by Feb 1st 08, most well beforehand.

Conventional, your par rate is 6.75% (w/ 2.0 in hits, 6.75 nets .44 back)

FHA, your par rate is….5.75% w/ .355 back

Of course there are other factors to consider. The FHA loan will have PMI equal to .5 to rate, and will be at least somewhat more expensive in cost. But, the FHA loan has no hits!

So, who would win this deal? The FHA/W-2 ILO, or the conventional ILO? The one with the rate .5 less, that’s who!

The picture looks considerably worse for conventional at anything above 80%, since both would have PMI, and the difference becomes more like 1 percent worse to rate.

Even your Mom wouldn’t stay with your conventional loan on that deal!

The difference is a little less with a 660 FICO, conventional ILO gets to offer a 6.625% w/.375 back.

As long as these differences remain, I would expect to see FHA business to reach 25% of the total, and a mad rush for ILO’s to become W-2 employees, instead of 1099’s.

Of course, the beauty of a prediction like that is that I have no idea how to measure the results (of ILO’s converting from 1099 to W-2)! Maybe I will be able to measure the percentage of FHA loans by the end of the year, but it appears those stats are slow in coming out as well.

Does anyone care to comment on or dispute my assumptions. Honestly, I kind of hope I am wrong. I’d much rather stay 1099!

YSP…APR…SRP…GFE…TIL…it is all soup!

Sorry, alphabet soup mixup. I meant to say your APRs seem grossly overstated.

I’d like to give you a call next week sometime. I like my broker, but you may be with a better one, offering better rates on your correspondent lines. I never use correspondent, because broker rates are always better, at least where I am, and I never concern myself with showing the YSP, since my net revenues are modest.

You have a nice web-site as well, full of relevant and timely content.

Thanks for fighting the good fight!

I can help you overcome your difficulty.

The license issued by the state for your company says “Mortgage Broker.”

The individual license you hold says “Loan Originator.” Licensed loan originators work for brokers, not bankers.

Your company is a mortgage brokerage firm with a correspondent line of credit.

Your company is not a bank, but you do have a correspondent line of credit with a bank.

So your company is a broker not a banker.

If you worked for a federal or state chartered bank, that also brokered loans out, then you could call yourself a banker.

Brokers with a correspondent line are generally well regarded within the industry. Other brokers look up to these companies because they often have decades of a solid, proven track record of good service in their community.

Medium to large sized brokers with correspondent lines will likely survive our current mortgage market conditions because they are often FHA approved.

Nice work. I’m surprised that more loan originators are not paying attention to the Fannie and Freddie overlays, it makes a whale of a difference to rate and/or costs. One by one, the lenders are adding them in, soon they will all have them.

As for the confusion regarding the reasons for the increase in rates/costs from the GSE’s (Fannie and Freddie), I think it is because the problem has been conveniently and incorrectly defined in the public arena as strictly a subprime problem, with the blame being put on the adjustable rates.

These ARMs are problems for some, I’m sure, but according to a study at
http://www.bos.frb.org/economic/wp/wp2007/wp0715.htm ,

the ARMS are not the primary cause of the foreclosures. The 2 main causes are subprime mortgages (presumably made mostly to subprime borrowers), and declining property values.

Most subprime borrowers have a documented pattern of not meeting their obligations (forget the reasons, just analyze the data). I cannot really fathom decent originators putting prime borrowers in subprime mortgages, but I cannot find any statistics that document it’s frequency or severity (I’d love to see that study!). Mostly is does not make sense to me from the origination side in a dollars and cents equation, as prime loans pay better.

Declining property values will affect ALL lenders, as it greatly increases the likelihood that the borrower will mail in the keys, according to the logic and belief system of the borrower.

The latest reliable number I have seen regarding mortgage loss write downs was $100 BILLION, and climbing. Chump change to the Bush War profiteers, but in the financial markets that is one serious sum.

Anyways, I enjoy your writing. Keep it up.

PS Why are you overstating your YSP so much?