Last week the Fed’s rule on mortgage originator compensation went effect divorcing a mortgage originators compensation from the interest rate and the borrower. Regardless of how high or low an interest rate is, I am going to be paid the same. This is a good thing.
What I’m finding is that many consumers and real estate professionals are assuming that this means all mortgage rates are the same. This is not true. Mortgage rates still vary from lender to lender. The Fed does not control mortgage interest rates and I hope they (or any part of our government) never do. Competition keeps mortgage rates low. If we are ever left with just the big banks providing mortgages or controlling rates, consumers will pay dearly.
If you are to use shopping rates as one of the values for selecting your mortgage originator, please do not rely on APR…even Jillayne thinks it’s a mistake to shop by APR. I do think there are other important factors besides rates (which are constantly changing) in selecting who will be helping you get your loan closed during this sometimes challenging climate…however when you do compare LO’s by rate, make sure to:
- Contact each LO at the same time of the day (within 15 minutes) as it is not uncommon to have mortgage rates change 3-5 times PER DAY.
- Give each LO the same criteria (credit score, sales price, loan amount, program, property type and estimated closing time/lock period)
- Insist on quotes being provided in writing. The LO does not have to issue a Good Faith Estimate without a complete application as defined by HUD, but they CAN provide you with a written rate quote.
- Compare rates by total closing costs (all closing costs less any rebate pricing, if applicable). Pre-paids and reserves do not need to be factored when shopping rates as this is property specific.
I’ve done some checking this morning to compare my rates to a credit union and a bank — I’m seeing a spread of about 0.5% in rebate for the same rate. NOTE: Consumers will need to become more accustomed to the terms: REBATE (credit applied towards their closing cost) and DISCOUNT (additional cost to buy down the rate). Consumers may be hard pressed to find a loan priced with exactly 1 or 0 points with the new rule.
Please do make sure that your mortgage originator is highly qualified to care for your financing needs. Remember, 0.5% difference in fee or 0.125% in rate doesn’t mean a thing if your loan doesn’t close.