Why did my setting change to moderated?

I don’t think I’ve tossed any bombs in the room….Maybe it’s the length?

Kind of a pain, as it doesn’t allow for edits after posting.

Re#8

You asked:

Would the 1 point for 4.625% be a discount point since the rate is lower than 5% with 0 points?

Sorry to answer so late, but my notify is not working for some reason.

Still insufficient information to answer correctly. It requires the rate sheet you are quoting from to give the correct answer.

Assuming you quote the rate as a correspondent lender, where there is no YSP disclosure required, you can certainly put the 1% on the loan origination line #801.

However, if you wished to put the 1% on line #802 discount points line, you would need to show the auditor the rate sheet that this was quoted from, with evidence that the 4.625% was a direct result of a payment to the originating lender, and achieving a “below par” rate.

The same rule holds for banks. If they wish to put any amount on line #802, they must be able to demonstrate that that payment reduced the interest rate below par, and was not just some way to blithely increase the fee.

So the short answer for any LO is: Beware of putting something on line 802, unless you have evidence in the file that demonstrates that fee is going to pay for BELOW par pricing.

It is not sufficient to simply have a lower rate. Here’s a scenario that would SEEM legal, but is not.

Simplified Fictional Rate sheet

5.5% pays LO 1% rebate
5.00% pays LO 0.0 rebate
4.5% has cost of 1 discount pt paid to lender

Assuming LO wants to make 1 pt, you could say that 5.5 is with no pts (fee coming from lender) and 5% is with one point, and 4.5% is with 2 points.

LO sends a GFE at 5%, and puts the 1% fee on line 802, because it “lowers the rate” from 5.5%.

Wrong. The 1% fee must go on either line 801 (if bank, mortgage bank, or correspondent lender) or 808 (if brokered)

However, if the LO sends out a GFE at 4.5%, with 1% on line 802, AND 1% on either line 801 or 808, THAT is correct.

The rules are inadequate to truly help borrowers make effective decisions, and are constantly jiggered to help whomever pays the most to lobby the rulemakers, under the guise of helping the borrowers.

The best we LO’s can do is to explain it as clearly as possible, and follow the rules. Sadly, no one in the regulatory arena seems to want to hear from us about how to improve and clarify the rules, and worse, many lenders and LO’s exploit the complexity of the rules to benefit themselves, at the expense of borrowers.

Russ, I always like your common sense comments. You truly “tell it like it is”.

Rhonda, thanks as always for getting the conversation started and keeping it real.

It is just impractical. There are a lot of fees that banks don’t even know accurately at the time of application. APR is a good tool, but it shouldn’t be the only criteria that is used when selecting a mortgage. Unfortunately, banks have trained consumers to only look at rate which is why so many people get burned especially in this new market we are in where underwriting guidelines make the difference between an approval and denial.

Rate quotes are NOT a commitment to lend money. Any LO can pull rates out of their you know what. They can also lock rates. However, it doesn’t mean the loan will actually close. You have to depend on the expertise of the person you are dealing with to ensure you are getting good guidance and the loan actually makes it to the closing table.

It almost sounds as if potential homebuyer’s need to bring their CPA along.

APR is an attempt to make a multi dimensional decision one dimensional.

Picking mortgage based solely on the cheapest is the fastest way to shoot yourself in the foot.

Is the Fed definition of APR open to interpretation? Is there an enforcement issue? Is there an education issue to acquire the skill set and understanding of proper discounted cash flow techniques?