Interest Rates have been on the rise lately moving up and out of 3’s and 4's and into the 5's for 30-year fixed rate loans. The reason for this can be viewed as good from the standpoint of our economy but bad as you qualify for less of a home loan. The reason the Federal Reserve (the Fed) raises interest rates is to slow down inflation in prices of goods and services is due to a higher demand for those goods and services. The reason the demand for goods and services goes up is because consumers have more money to spend with better paying jobs. When you finally hear that the Fed is raising interest rates you, most likely, have seen an increase in pay in one way or another. The increase is a reaction to events that have already occurred and is designed to slow the economy down.
When the Fed raises interest rates they are not raising your interest rates directly they raise the Fed Funds rate which is the rate that banks lend to each other. In turn banks raise rates to consumers on mortgages and on a positive side they also raise the interest rates on savings accounts. With higher mortgage interest rates your buying power diminishes for goods and services and housing. An example of what higher interest rates do to your Real Estate buying power would be; if your household income is $100,000 annually and mortgage interest rates increases 1% it will diminish your buying power by $60,000. Multiply this by all of America and you will definitely see a slow down in the amount of people that can qualify for financing to buy homes. However, if your income increases faster than interest rates it won’t really affect you. This would hold true for the 25-45-year-olds who are in careers that have a high growth rate. For those that don’t have high growth rate jobs you might get priced out of buying a home or must settle for a home in a lower price range.
The Federal Reserve will stop raising interest rates when they see inflation slow. This is not an exact science of regulating the economy through interest rates but it has been policy since the 1970’s. Most of the time they end up over tightening and the economy goes into a little recession then bounces back. This tightening and loosening of interest rates will continue until the Fed can find other quicker ways of identifying the triggers to inflation. With a strong economy currently and with gas prices rising and housing prices rising, and the rising prices of goods and services it looks like we should be in for higher interest rates for at least the near future.
The Fed has come out publicly and said that they intend to continue to raise rates into early 2019 unless the economy shows signs of cooling off. We are seeing rising gas prices as well as rising food prices so the likelihood of the Fed to continue with it’s rate raising campaign is still pretty good. Housing prices have started to level off with decreased demand for the high priced housing across the nation. I don’t see interest rates coming back down to the levels they were at this time last year until the economy slows. If you are in the market to buy a home here at MAE Capital Mortgage we have a program where you can lock your loan in while you are shopping for a home. This will allow you to look for a home without the pressure of rising rates. This is called our Lock and Shop program. We can provide this service for any home buyer in California so if you are in the market to buy a home this could potentially save you thousands of dollars. Call us today 916-672-6130.
You may hear from your Realtor that using a direct lender is faster and cheaper than using a Mortgage Broker. That is just wrong, in fact, it is quite the opposite. With Innovations in Technology and the laws that came about from the Mortgage Crisis it has made the Mortgage Broker more viable than ever. The changes in the mortgage business over the last 10 years has been wide sweeping all designed to help the consumer, however, I feel it has just caused more confusion than ever. The one constant is that all Loan Officers now have to be licensed under the National Mortgage Licensing System (NMLS) which I find to be a good thing as that forced Loan Officers to be accountable for their actions. What also changed is how the fees became regulated and what institutions could charge what fees. These little but significant changes have created areas within the Lending Industry where the consumer may not realize there can be significant Interest rate and fee differences from one company to the next and it all is determined by what regulator the Loan Officer falls under in California. We will be exploring these differences and how you can benefit from having the knowledge.
If you are the market to buy a home and your Realtor has recommended a lender to you because they have worked with them in the past you might want to do your research as you could save yourself thousands of dollars. The big Mortgage Bankers or Direct lenders as your Realtor will call them have carved themselves out a niche to where they can charge more money to consumers than that of a Mortgage Broker and most Realtors don’t even know of the differences. That is where this article comes into play to open up some little known facts. First, your Agent may think a direct lender is a better deal for you as they underwrite their own loans. That sounds sexy, however, in today’s automated world every Loan Officer be it from a Direct lender or a Mortgage Broker has the same automated underwriting systems available to every underwriter. So when you apply for a loan with either a big Direct lender or a Small independent Mortgage Broker they all have the same access to an underwriter. So the myth of having your own underwriter as a selling point is just that a myth. Technology has improved so much that all of the paperwork necessary to process a loan can be uploaded and transmitted to an underwriter instantly and that underwriter can make a decision quickly. Most underwriters today use the Federal National Mortgage Association’s (FNMA or Fannie Mae) automated underwriting system to underwrite all transactions and that same system is available to all Loan Officers either from a Large Direct Lender or a small Mortgage Broker so the decision time is the same or better with a Mortgage Broker.
Let’s talk about the part of a Mortgage transaction that is the most important to all clients and that is where they can get the best interest rate with the lowest fees associated with that interest rate. This is where it get interesting and you will not get a straight answer if you talk with a Loan Officer that works for a Direct Lender as they probably do not understand it themselves as they are working for the direct lender simply because their commissions are higher per transaction. That is where, as a consumer, you should ask how or why their commissions are higher than that of a Mortgage Broker Loan Officer. That’s right, you are paying them so you should understand how it all works. You have to understand that all Loan Companies get their rates from the same sources it is how they stack their fees onto the interest rate that makes the difference. I could go deeply into how the secondary and Primary mortgage markets work but that would utterly bore you so I will simplify it for you. Big Direct Lenders have a larger overhead and more expenses than that of a smaller Mortgage Broker and they have to pay for all of that by adding fees to their interest rates. In addition, the regulator in California for direct lenders is the Department of Business Oversight (DBO) and they have different laws than the other Regulator; the Bureau of Real Estate (BRE). To be a Mortgage Broker in California you must hold both a BRE license and an NMLS license under the DBO all you need is an NMLS license. The next big difference is how the loan officer receives the Interest rates they can quote to the public. The DBO Direct Lender has to be able to make profit for the company to stay in business as does the Mortgage Broker but the Direct lender has to pay staff to originate the loan as well as the Loan Officer and that stacks up to be a whole lot more than that of a Mortgage Broker. A Mortgage Broker is limited to a maximum of 3% of the loan amount they can make on any one loan and that is a combination of all fee charged or not charged. A Direct lender does not have that limitation and can charge what they want to be profitable. A Mortgage Broker can go to the back door of a direct lender and get wholesale interest rates that only includes a small company profit for the direct lender as they are not paying for staff, branch managers, and Loan Officers. The Mortgage Broker will pass the lower fees and lower interest rates on the customer.
Having been on both sides of the fence I understand completely how this process works and will tell you that you will save thousands by working with a company like MAE Capital Real Estate and Loan. Every Loan we close is a testimony to this as the client’s rates and fees are significantly lower than that of a Direct Lender. As an example we closed a VA loan that came to us from a Veteran who works for the VA and he received a quote from one of the Veteran’s Administration’s “Approved Lenders” that is a Direct Lender and we beat them by .5 in interest Rate and $13,000 fees. We closed the loan at 3.875% and the veteran paid $0 down and $0 closing costs, saving him $13,000 in costs and has a lower mortgage payment. We have many stories like this and most of our clients don’t even realize the savings they are receiving as most clients don’t shop for a loan. So if your Agent is recommending a Loan Officer Check the rates and fees and then check with MAE Capital Real estate and Loan and you will be shocked at what you will save. If you are buying a house in the Greater Sacramento Area (El Dorado, Placer and Sacramento Counties) ask about our Bundling of Services where we represent you as the Realtor and the Loan. This has saved our clients even more money as we can bundle our commissions and get you a home warranty and other goodies that you would have otherwise had to pay for yourself. MAE Capital Real Estate and Loan is one of California’s best kept secrets when it comes to saving people money on their home financing. Call us today to find out more or have us compare your Direct Lender’s Loan Estimate with ours and see how we can save you thousands of dollars. We can Lend all up and down the State of California. Our phone number 916-672-6130 or go directly to our site at www.maecapital.com.
A mortgage Broker in in today’s world has been dramatically redefined from just a decade ago. A decade ago there were no real rules for a Mortgage Broker. There was no licensing, no Consumer Finance Protection Bureau (CFPB), no Loan Estimate forms, no Closing Disclosures, no TRID (Truth in lending integrated RESPA disclosure) and no underwriting regulation, and no real accountability. All these additions to the Mortgage Brokering industry over a decade is a lot to swallow. What that means to a consumer is simple, more red tape to wade through when applying for a home loan. Is this regulation good for the industry, the consumer? In many ways it is but in many ways it is not. And what about loan programs that a Mortgage Broker has to offer in today’s world? Well those are limited as well.
A Mortgage Broker a decade ago had no licensing requirements to go through to become a Mortgage Broker. One day you were a shoe salesman and the next a Mortgage Broker. That has all changed with licensing and the National Mortgage Licensing System (NMLS). You will notice that all Mortgage Brokers now will have to post their license number on all of their marketing material and advertisements. You will see MAE Capital’s at the bottom of this page and if you look up our staff you will see all Loan officers will have their NMLS number posted prominently so you can check them out, if you so desire. My opinion of licensing is a positive one as it makes the field I have chosen to be my career for the last 32 years more professional and accountable. This single one change has kept the riff raff out of the Mortgage Broker business for the last 7 years and I believe that to be positive.
An individual Loan Officer now has a choice where they wish to work or more specifically what regulator they would like to be under. What this means is that a Licensed Mortgage Originator may also possess a California Real Estate License and with both a NMLS and a Real Estate License they now have a choice of where they could to work. If a Loan Officer holds both licenses they can work for a Broker like MAE Capital Real Estate and Loan where we are regulated the California Bureau of Real Estate (BRE) allowing our firm to offer both Real Estate Services as well as Mortgage Brokering services. Having both licensing makes an individual Loan Officer more well-rounded in the information they have of the industry. I would argue that one could only be a Mortgage Broker if they were licensed under the BRE. The other licensing a Loan Officer could have would be one under the California Department of Business Oversight (DBO). Under this regulator, a Loan Officer can only originate loans even if they possess a BRE license they still could not act as a Real Estate Broker. An individual Loan Officer working for a company regulated by the DBO does not have the ability to “Broker” loans to other companies like a BRE regulated loan officer. Not having the ability to look at a multitude of companies to deliver loans to limits a Loan Officer to only offering products that their specific company can offer. A Loan Officer under the BRE with both licenses can look to hundreds of different sources of money across the nation to fulfill their customer’s needs. MAE Capital Real Estate and Loan is a true Mortgage Broker in that we offer products from different companies all across the nation and we can offer Real Estate services.
A Decade ago a client would go to a Mortgage Broker for a loan and they had no idea who they were talking with and if the person they were talking with could be trusted. A Mortgage Broker today has to account to the NMLS their activities every quarter. This means that a Mortgage Broker must know where their business is coming from and certain tracking items must be in every file. A decade ago a Mortgage Broker was not limited in the commissions they could make on a transaction. Today a BRE Mortgage Broker cannot make more than 3% total on an owner-occupied loan transaction and the commission cannot be tied to the interest rate at all. If you go to Loan officer that is licensed under the DBO you don’t know how much money that company is making off your transaction as they do not have to play by the same rules as those of us regulated by the BRE. The disclosures are different when you deal with a true Mortgage Broker like MAE Capital as we must show you, the consumer, more information than a DBO Loan Officer. We provide you with a Mortgage Loan Disclosure Statement form as well as the Loan Estimate, both show you what we make and what the costs of the transaction are to you so you know where every dollar is going.
As a Mortgage Broker for the last 7 years with these new regulations it has been tough to have to tell my clients that they will have to work harder to get a loan than ever before. This is where we all have hope in the industry that the new administration will fix those things that need fixing to help consumers be able to get financing easier. I am not talking about the recklessness that was the Mortgage Crisis but rather, I am talking about common sense things. Currently if you are self-employed it is nearly impossible for you to get a home loan the way things are today with having to verify every little bit of a person’s income before they will be granted a loan. It just makes sense to view individuals differently based on their jobs, their education, their credit and their ability to be able to deal with it all. I know some of you reading this think that we are all created equally and that is true on the rights we enjoy but it is not true in the way we chose to lead our lives. Those that are entrepreneurial should not be discriminated against because their tax returns don’t show enough income in the right areas to qualify for a home loan, these people should be looked at in different ways than someone who works a salary at a State job. As a Mortgage Broker we have found companies that can help these folks but these companies are under fire from the CFPB for not playing by the rules they created. So hopefully this new administration can bring back some make-sense underwriting criteria and loosen up the rules for people to be able to purchase Real Estate. As a Mortgage Broker in California we are here to find new and innovating ways to serve our customers.
As a Mortgage Broker licensed under the BRE a Mortgage Broker has more loan program options to offer clients. The loan products we have to offer as a Mortgage Broker ranges from conventional FNMA and FHLMC loans, FHA, VA, CalHFA, USDA, to Alternative loans like Bank statement only and W2 only programs for owner occupied loans. It becomes real interesting when we see start talking about the options we have for investors buying investment property. An investor can choose whether they need short term funds or long term funds, from a qualifying mortgage with low interest rates to no qualifying loans with higher interest rates. Private Money or Hard Money, as it is otherwise known as, is also an option we have for investors that want to take property under an LLC and may not have a track record a Bank will require or the credit score a bank will require. We can fund land, and commercial property as well as single and multifamily homes with private funds. A Loan Officer working for a company that is under the DBO as their regulator does not have this ability.
MAE Capital Real Estate and Loan is a Mortgage Broker and a Real Estate Brokerage firm allowing us to bundle our services and provide better deals for clients. With all the laws and regulations that we must comply with, we sincerely hope that you will use our Mortgage Brokerage services as well as our Real Estate services and for doing so we will work to lower your overall costs and we will purchase a home warranty for you, so when you move in to a house you know if there are any problems it will be covered by the warranty for the first year. We look forward to assisting you with your Mortgage and your Real Estate needs. We can lend all over the great state of California and our Real Estate area would be Sacramento and Placer counties. Call us today for information on Pre-Approval and free home searches or go directly to the site for more information at www.maecapital.com or call at 916-672-6130.