Pricing Rates in a Volatile Market
Rhonda Porter on 09 30, 2008
Today was a “four rate sheet day” from most of the lenders that I work with (as of 4:30 PST). Although I have fewer banks/lenders to work with, I’m grateful to have options. Here’s an example of how much rates changed today with one of the banks I work with:
7:30 AM: my first rate sheet from this bank (and most of those I work with) would allow me to quote 5.875% with 1 point (origination/discount fee) and an apr of 6.029%.
11:03 AM: second rate sheet from this lender. Pricing has increased by 0.125% to fee.
11:47 AM: almost 45 minutes later and we have a new rate sheet again. Pricing is now up 0.25% to fee.
12:20 PM: my last rate sheet from today. Pricing has now increased by 0.625% since this morning. Rates jumped 0.5% in fee in just over an hour!
If you were rate shopping first thing this morning and “Lender A” quoted 5.875% with 1 point; then during your lunch hour, you call “Lender B” and they offer 5.875% at 1.625% in points or a higher rate. ”Lender B” is not making 0.625% more than “Lender A”, they’re quoting what 5.875% costs at that moment. Unless you locked in the rate (a rate lock is a commitment to the lender, by the way) early this morning, it’s gone. You can call “Lender A” and they may offer you the very same rate as “Lender B” because that is the going rate.
I’ve had circumstances where once a client decides to proceed with locking, rates may change while I’m locking. When rates are going up, it’s frustrating to say the least. This is why I encourage home buyers and home owners who are considering refinancing to ask their loan originator what they can do should rates improve once you have locked.
Several of the banks I’m working with are offering “float downs” should rates improve by a certain percentage (usually around 0.25% to rate). This provides borrowers with a limit of how high their rate may be (if they lock) and the possibility of a lower rate should they improve. And in this market, they just may!
Just a reminder, I post rates at Rain City Guide every Friday and if you’re really curious, you can always see what I’m quoting live.
About the Author: Rhonda Porter
- Author's website: http://www.mortgageporter.com
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49 Responses to “Pricing Rates in a Volatile Market”
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Would you label the 1%, 1.125%, 1.25%, and 1.5% fees as origination or discount on the HUD? Some lenders call them discount fees because the increased fee allows a borrower to keep the same rate, but some lenders label them as origination.
DFI Examiner, are YOU truly a DFI Examiner or impersonating one?
If you truly are a DFI Examiner, please send me an email. I’d love to talk to you about this. I tried to email you but it was rejected as a bad email address.
DFI Examiner, thanks for the email.
How would you recommend a correspondent lender who was under MBPA but is now licensed under CLA to label those fees you reference in comment 1, (fee increase is the actual cost for that rate increasing and not an increase in compensation to the LO)?
On a brokered loan, putting origination on line 801 is non compliant, you would have to put it under line 808. On correspondant loans, you can put it on line 801. The only amount allowed on line 802 is the amount below par that the rate was bought down on the rate sheet. This rule on line 802 applies to both brokered or correspondant, regardless what any ‘Slick Willy’s” have told you. Make sure you put a copy of the rate sheet for the day you lock in the file to cover your rump. If you look on the DFI website on the enforcement actions, they are not playing in 2008. If you don’t have it down EXACT, and you get audited, the fines and the penalties are no joke.
Nick, what do you consider “par” for a rate? Continuing to use my example above (pricing below):
5.875% at 1% total points to the consumer.
6.125% at 0 points to the consumer.
Rhonda or Nick,
What about FHA deals that are brokered? Where do you put discount fees or origination fees? I think that there is still a lot of confusion over that.
Tim, the company I work for is a correspondent lender (now CLA) that is also a direct endorsed HUD lender…so our FHA loans are “in house” and not brokered.
Nick and Rhonda:
OK, this is a little weird.
Nick, you cannot be a both a DFI Examiner and a Loan Originator.
I realize that the online community can be a bit of a gray area in the use of identities, and that the customs of such a community are up for debate, and ongoing change.
I’ll offer my opinion that it is better to be who you really are in a community like RCG, and contribute your expertise, than it is to hide in anonimity or a false identity. This would especially hold true if you are in the business.
I did not even realize that you could put up just any website and email address until yesterday. That also makes me wonder if, with minimal effort, someone could impersonate me, and make statements here in my name.
I will put this question to Dustin.
Nick: Your response in how to enter fees is correct. Not surprising that we would agree, since our files both go thru the same rigorous compliance department before we can get paid.
I’m not sure why anyone WOULD put fees on the discount line that were not going directly to the lender, unless someone was trying to disguise the amount they were earning.
In either case, (broker or correspondent) the rate sheet the loan was based on must be in the file. If it is not documented, the potential for cheating the borrower goes way up. DFI seems to assume that any omission or error in paperwork is an attempt to cheat the borrower, and will force the lender to refund the money to the borrower.
Read the SOC against Aplus Mortgage, and you will see. In their case, the abuse was pervasive, and it was interpreted as cheating the borrower (correctly so, in my opinion).
Nick, welcome to the group. Play fair, give as good as you get, and I hope you will find the interactions rewarding in some way, as I have.
Tim:
There is considerable confusion over where to put fees on brokered FHA loans.
FHA and DFI evidently disagree on the use of lines 801 (origination fee) and 808 (broker fee), and both seem to insist they are absolutely right. Not unusual behavior for goverment regulators, and eventually it will get worked out.
It is for that reason alone that I will only do FHA loans correspondent. The conflict does not exist with correspondent lending, which never uses line 808.
There is no disagreement (that i know of) that any fee entered on 802 as discount points must be verifiably used to lower the rate below par on the rate sheet. That’s why the rate sheet must be included in the file.
Roger, DFI Examiner and Nick are two different people.
Click on Nick’s “blue name” and you’ll see his Active Rain blog. DFI Examiner has emailed me and verified his identity.
Whoops!
My sincere apologies to both Nick and the anonymous DFI examiner, then!
I’m pretty sure one would never wish to be confused with the other, nor to be as confused as me!
That’ll teach me not to comment before my 3rd cup of coffee!
And, I eagerly await DFI’s official response on how to correctly disclose costs in every kind of loan situation.
Roger,
That is a pickle. I can imagine an audit taking place where the broker shows the conflict between FHA (Federal Guidelines) vs. DFI local regulations. Who trumps who? In the meantime, a broker gets fined for not following local laws even though FHA reg’s are in conflict? Nice.
I don’t work in your world of finance but it seems like DFI may need to do some educating.
Maybe Jillayne has more concrete answers. In the escrow world, we could conceivably have two different requests (put it on 801,802, or 808) by two different LO’s who are both brokering the FHA deals and should be operating under the same guidelines. Confusion still reigns I guess.
Tim:
Maybe they will.
Right now they seem to be in the “Wake Up and Pay Attention” mode of teaching.
The other fairly common pickle is between the broker and the lender on brokered loans, where the lender insists a cost must go on a certain line, and DFI insists it goes elsewhere. I’m sure you’ve been there.
Best defense is probably to include the escrow instructions from the lender in each file.
Tim, I would assume that the lender/broker has to provide you with instructions on what lines (801, 802 or 808) points go on. Do you ever have to make that call?
I recently ran into the FHA 808 vs. 801 situation. The company called some regional FHA office in Colorado and the FHA representative said that an origination fee to the broker on 808 is ok. The important part is that the fee must be labeled as an origination fee and not a broker fee, but line 808 vs. 801 does not matter.
I can’t give an official interpretation on this, but I can say that an origination fee to the broker on line 808 would most likely be acceptable on FHA loans considering the circumstances. All other types of brokered loans would need to label the fee on line 808 as a Broker’s fee.
Brokers who receive a discount fee on line 802 on FHA and every other type of loan will refund that fee. FHA didn’t limit the origination fee to 1% so brokers could put another 1% on the discount.
As far as discount fees on correspondent loans go, we need to see a rate lower than par. For example 6% =100.00 with 0 points, then we need to see 5.625 = 99.00 with 1 point as a discount. This works great when looking at a wholesale lender, but gets really tricky when looking at a retail lender. If the lender has standard/uniform fees that LOs can’t adjust (and the LO doen’t get a cut of the discount), then finding a legitimate discount is easy.
The tricky part happens when loan officers get paid overage and set whatever origination and discount they can get away with. We sometimes see rates above par with LOs receiving a split of the overage, origination, and discount. That situation can get ugly fast.
These comments are a prime example of the over regulation of mortgages in areas that are completely useless…
At the end of the day, if we call it an origination fee, broker fee, discount fee, or the “this is what I want to make” fee, what does it matter?
The last I checked, the rate and sum total of the lender associated fees is all that matters on a deal from a consumer perspective.
What is the better deal?
6% with 1% origination on line 801 or 6% with 1% broker fee on line 808? Who the hell cares! It is the same freaking deal to the consumer.
The nonsense in this business is astonishing…
DFI Examiner, I’m thrilled to have your participation here because I think there is a lot of confusion (and ignorance) on where points should go.
Who sets par? As someone from DFI, are you considering what the individual loan originator can get at par pricing or what the market dictates as par?
Does par mean 0 points to the borrower and 0 compensation to the loan originator from the borrower?
Rhonda,
I am curious to hear about what you (and other local real-estate professionals) have been seeing in the market this September. What, if any, changes have you seen in the market over the last month? Are things pretty much the same in September as they were in July?
Are buyers now more eager to snap up a good deal, what with declines, now than in July? Is it just as easy to get financing today as in July?
Sniglet
Effective today (post to follow) we have some changes with FHA programs–I mentioned them on my last rate post. For the type of business that I do, I would say that things are pretty much the same for me EXCEPT while the bailout negotiations are going on, it seems like many folks are “on hold” with their plans. I think once this is resolved, we’ll see more buyers if they find what they feel is a “good deal”.
Rhonda—- “par” pricing is when you receive no rebate from the lender, nor is there a cost to buy down the rate. In regards to discount fees, this is a pass thorugh fee to the lender if you are ‘buying down’ the rate below “par”. Make sense? Line 802 is not a profit stream that the LO can take part in, regardless if you are broker or correspondant. So if you have bank lines with Wells Fargo, line 802 goes to Wells, not you the correspondant ‘lender’.
Now if you are a federally regulated bank, it’s a bit different as the main auditing bodies are the OCC and the OTS.
Russ—I hear ya brother! But if you don’t follow the rules of the ‘powers that be’ and you get audited, you will find out in HUGE FINES and refunds the difference between lines 801 and 808 etc, regardless if you gave the customer a hell of a deal. It’s kind of like the joke of a document the Truth in Lending form is. It’s intent was to ‘make the cost of the loan easily understandable by the consumer’. Yeah right! Most LO’s don’t understand the TIL.
Rhonda, great post… i really like seeing what you are quoting via twitter
Russ-
You and I know those are all the same deals, but why do companies split fees into processing, origination, doc prep, admin, underwriting, etc.? I’ll tell you why…because borrowers will less likely question a bunch of little fees rather than one large fee. Out of the 50 retail lenders I’ve visited, only 3 companies charged 1 flat fee.
People in the business know points are points, but borrowers think discount=good and fee=bad. Simple as that. We are trying to level the fee description playing field for the companies licensed with us.
Anyways it won’t make much of a difference soon anyways because the congressional hearings on the mortgage/credit market mess will likely result in federal preemption of all state residential mortgage laws. The feds will take over anything to do with the word mortgage. Independent non-depository mortgage lenders (not owned by a bank) will cease to exist (except for hard money).This is my personal opinion, not DFIs.
Rhonda-
For the correspondent lender- the person modifying/padding secondary market investor rate sheets sets par. Par does not mean the lender’s retail LO doesn’t make anything, but the retail LO would not normally make overage, discount, and origination. Sort of like how a broker can’t make YSP and get paid a discount.
Nick,
So which scenario do you consider “par”
5.875% priced with 1 point to the consumer–LO is making zero or little on the back. With this scenario, do you put the point on 801 or 802?
6.125% priced with zero points to the consumer and LO is making about a point on the back end.
I know how I treat this scenario…I’m curious as to how other LO’s do it and DFI’s requirements.
DFI Examiner, I encourage consumers every chance I get to add up all fees in section 800 of the GFE to compare to rate to cost (which is flawed anyhow since rates change so much).
Do you think the consumer would rather see the fee’s detailed out (wire, courier, tax servicing, credit, etc) instead of one lump sum “lender fee”?
I like the line item GFEs so I can explain to the borrower what they’re paying for and what the actual costs are. If lenders had just one lump fee, there’s more room for them to make more profit off the consumer even though it may make for easier shopping.
Re. DFI’s Comment 22: “The feds will take over anything to do with the word mortgage. Independent non-depository mortgage lenders (not owned by a bank) will cease to exist (except for hard money).”
Thanks to our fine elected officials in the State of WA, many correspondent lenders now have the capability to be “hard money” lenders by forcing them to be under the CLA (even if they were originally abiding by the MBPA).
DFI Examiner, we don’t have any “person” who sets par at our office. I have the joy of shopping all the lenders we work with to determine the rates for each individual client I work with (as does each LO at our company).
Rhonda-
Teaching a borrower to add the 800 fees is a good practice. I don’t really know if borrowers prefer one or the other.
In your 5.875% scenario above, I’m assuming it’s a correspondent loan because no lender would allow a broker to collect a discount fee
It’s always safe to put the fee on 801 (unless you’re brokering the loan). That way you won’t have overzealous examiners interrogating you about it.
DFI Examiner,
It’s not often that I have discount points in the picture–but with a buyers market, I am seeing Seller’s pay points and so I will use 802 for that section.
I’m glad I have that right!
I cannot remember the last time I brokered a loan…prior to “the meltdown” I’d say only 10% were brokered (if that).
Chris, thanks! I don’t know if I have more LO or consumers following my rate quotes on Twitter (which DO include apr, BTW).
Rhonda–comment # 24- the first scenario with a clarification that you make ZERO on the back. Above par is where you get paid rebate, below par is where the borrower pays a loan discount to ‘buy down’ the rate.
When I said “hard money”, I meant loans based on private funds, not a line of credit. The traditional hard money lenders service the loans until maturity.
I think we’ll see major changes at the federal level for non-depository lenders who fund loans with a line of credit and immediately sell them.
I don’t quite understand what the big deal is about changing from the MBPA to the CLA…other than the bond and the assessment fees. The CLA is generally less restrictive than the MBPA. I heard the elected officials were going to change the name of the CLA to the Lender Law, but it never happened.
Rhonda:
You asked Nick,
“So which scenario do you consider “par””
but wanted to hear how other LO’s might treat the scenario.
Here’s my take
5.875% priced with 1 point (charged) to the consumer–LO is making zero or little on the back. With this scenario, do you put the point on 801 or 802?
Answer: That depends if you are brokering, or lending (correspondent or direct doesn’t matter).
If you are lending the 1 point goes on line 801, and the little back is not disclosed.
If you are brokering, the 1 point goes on line 808, and if there is a little back (anything above zero), it is disclosed on one of the “other” lines, like 813, and marked as POC (paid outside of closing).
6.125% priced with zero points (charged) to the consumer and LO is making about a point on the back end.
Answer: That depends if you are brokering, or lending (correspondent or direct).
If you are lending no fees go on 801 or 802, and the point on the back is not disclosed.
If you are brokering, no fees go on line 801 or 802 and the 1 point rebate (the back) is disclosed on one of the “other” lines, like 813, and marked as POC (paid outside of closing)
Rhonda–comment # 24-if it is broker, you put your point on line number 808. If you don’t and you get audited ny DFI, they will fine you and make you refund it back to the customer. On correspondant, you would put it on line 801.
DFI Examiner, I’d be happy if LO’s who work for depository lenders were treated the same as those who are not.
What’s your view on National Licensing. Will LO’s who work for depository lenders (banks like WaMU/Chase or Wells Fargo, for example) have to be licensed under the SAFE ACT in WA?
DFI:
Re the feds taking over regulating mortgage lending activity.
Maybe. Certainly we will continue to see a ton of changes continue to roll down the line, on top of the changes we have already adapted to.
They have already nationalized licensing, which I think will be an improvement. WA state/DFI has done a pretty good job, compared to other states, but it is clear that nearly all states were too slow to get to the party. I chauvinistically like to think that we were spared some of the worst fraud because of the better natures of our population, both lenders and borrowers.
The national lenders will certainly NOT oppose uniform lending regulation, as having it reduces their cost of wholesale business dramatically, (imagine their nightmares now) and weakens their smaller competitors.
Consumers will not oppose it. They are looking for someone to hang. Anyone, really.
State mortgage associations may oppose it, because it lessens their necessity, and may harm some local businesses existence (both the good and the bad), but they are very poorly capitialized.
State regulators, and state legislatures may oppose it, as it surrenders their powers to the feds, but only weakly.
The only thing that stands in the way of it happening is the intervention of a greater crisis.
Which may occur. I sincerely hope not.
DFI:
The bond is a big deal if you are a very small broker, the assessment fees a big deal if you are a big one.
I have not found the change to be significant.
Of course, if you were previously unregulated, the change would be very significant.
And I would like to see the law amended to allow more reverse mortgage lenders to fund in the state. Ususally, more choice is better for consumers, and for brokers.
The bond for CLA was a huge increase to our company vs that of being regulated under MBPA.
SAFE ACT–LO’s with FDIC insured banks and credit unions need to register, but they don’t need to be licensed.
Rhonda- Do you know the actual increase in cost (% or dollar) for the increased bond?
Roger- the CLA will allow reverse mortgages very soon
DFI Examiner,
For the company I work for, the bond (CLA) cost about $4000 more than previously as MBPA. In addition, we have a sales tax (more like an excise tax) which will cost on average $60 PER LOAN.
CLA being less restrictive is not a good thing. I’d rather have us all (including mortgage bankers) have the same guidelines and qualifications.
The consumer often times does not know what type of originator they’re working with and who regulates them if they have an issue.
DFI Examiner, I have an idea I’d like to bounce off you… I think it would be great if DFI had something like a LO Confessional where questions could be asked anonymously without recourse from an overzealous examiner
…the Q&A could be posted on DFI’s site to help other LO’s w/the same questions. Such as “where do I put this point” or “do I have to complete the loan ap disclosure form when…” etc.
Also…I forgot another fee our company has paid thanks to having to become CLA and no longer being MBPA (I’m not sure what it’s called exactly): approx. $4800 for having our branches approved under CLA.
Rhonda-
I saw a $21,000 YSP the other day on a $865K loan. It’s a little hard to sympathize with a few extra thousand in yearly expenses…especially when looking at commision and salaries of brokers and LOs over the last couple of years.
That’s a good idea, but a couple people in our IT department left and we can’t get more people until the state hiring freeze is over. We are extremely short-staffed in IT and that project would be very far down the list.
In the mean time, ask your anonymous questions by pressing star 67 before you dial the Mortgage Broker Financial Examiner Toby Snider or the Consumer Loan Supervisor Rick St.Onge.
http://www.dfi.wa.gov/about/staffcontacts.htm#CS
DFI:
I don’t know whether that’s tragic or funny #42!
I don’t think that is typical, even for a loan of that size. I’ve done a few loans that big and made nothing even close to that much.
We don’t need to go to DFI for sympathy, but it is nice to know DFI is finally helping the good brokers rid the business of those who are clearly taking an unfair advantage of borrowers.
I don’t think that was happening at the rate we are seeing now.
Be sure to not throw the baby out with the bathwater.
Let’s hope it’s not too late.
DFI Examiner, I hope you don’t judge all loan originators by the bad apples (and without seeing the entire GFE, it’s hard to say although, I can’t imagine ever making that much on a loan regardless of how large the loan amount is). Were they paying closing cost with that YSP?
Brokers and LO’s do not make “salaries”, they’re paid commission and YOU could be one too if you pass the exams.
It’s a choice and it can be feast or famine.
When I was in the escrow/title biz, I disliked LO’s in general because of what I thought I was seeing (I’ll bet I was 70%-80% correct in my judgment).
My fear is that this market will weed out “bad actors” (that part is a wish and not a fear) and that new legislation will make it so challenging for the few LO’s remaining that most leave the industry in order to save their sanity.
Your prediction may come true and we may very well end up with just two or three big banks controlling the mortgage market with no competition to help out consumers. I can’t see that as a plus.
Roger,
I wonder if the YSP was disclosed upfront on #42. I’d love to see the GFE to get the whole picture…although it could be quite tragic. I have consumers sending me their GFE’s for review from across the county (and some local) and it’s pretty amazing…but I’ve never seen anything like that.
I remember doing a signing (in my escrow days) where the LO attended to help sign because they spoke a different language…but I could read the HUD and it was probably the most YSP I’ve ever seen (DFI Examiner has it beat based on his example). It was frustrating because (1) I was in escrow and had to be neutral and (2) the LO was grinning ear to ear and I’m sure his borrowers had no idea. It was predatory.
I wonder if DFI Ex could find an error in that file and send the whole shebang back to the borrower?
Whoo-hoo! Somebody would have a good day!
But, the sad reality is that it is OK w DFI to overcharge someone, as long as it is legal.
I thought the LO Confessional was a good idea. The lines would long….
Hey Rhonda:
I just signed up for national LO licensing (under the SAFE act). It was kind of a pain, but not too bad.
Funny, the initials are NMLS, sounded strangely familiar…
Thanks Roger, I liked the confessional idea…because it was mine
and because I do think it would help other LO’s. Many of us have the same or similar questions and may be afraid to ask. If it’s a “web site confessional” then it could also save DFI some time in answering the same LO questions over and over again.
[...] rules for originators who work for banks and those who work for state regulated institutions. On a comment at RCG, “DFI Examiner” confirmed that “LO’s with FDIC insured banks and credit unions need to register, but they don’t need [...]