Conforming Wholesale Mortgage Rates for 6/16/08
June 16th, 2008 Categories: Mortgage News, Real Estate Technology, Tranparent mortgage pricing, Yield Spread Premiums
Originally posted on www.ratespeed.com/blog…
All subsequent daily conforming wholesale interest rate pricing posts, other schwag, definitions, etc. may be found over there…
What you see above is a screen shot from a results page generated by RateSpeed at 1:41pm on 6/15/08.
The risk based credit, financial and property criteria used to generate the above quote is as follows:
Purchase, Primary Residence, Single Family Residence, Fully Documented income, Debt to Income <39%, Loan To Value <80%, $400k Loan Amount, 700 FICO score.
Don’t believe what you see? Try it out yourself.
Shortly, RateSpeed will be enrolling 25 mortgage professionals as beta testers. Are you a mortgage professional looking to differentiate yourself in the market? Stay tuned to find out how you can be one of the early adopters in the transparent mortgage revolution.
Defining the fields and columns above:
Conf 30 Yr Fixed.
This is the term of the mortgage program. In this case the program is a traditional conforming 30 year fixed mortgage product.
Rate.
This is the interest rate of the loan.
APR, in this alpha rendition, will only account for the Broker/Banker Fee. Traditionally it will (and should) include all closing costs. IMO APR is confusing and manipulatable.
Loan Amount.Self explanatory, the dollar amount of the mortgage.
Monthly Payment.
How much you would pay the mortgage provider each month. Includes principle and interest.
Price.
This is the % cost or rebate that the given interest rate yields in the wholesale market. The Loan Amount is multiplied against the Price to equal the dollar ($) amount in cost or YSP credit.
YSP Credit.
RateSpeed is about choice and displays five levels of Price, one Price below Par (a Par rate is the lowest interest rate a borrower qualifies for, given by the wholesale lender) and four above Par. The higher Rate one chooses above Par the more YSP Credit (or cash rebate) the consumer may receive and apply toward closing costs (Broker/Banker Fee and 3rd Party fees, i.e. appraisal, title, escrow, home inspection etc). An interest rate below Par will cost a consumer to acquire, often times called ‘buying down’ an interest rate.
In the above 30 Yr Fixed, $400k Loan Amount example:
6.25% would yield $1084.00 in cash from the wholesale lender to the consumer to be applied toward closing costs.
6.625% would yield $5844.00 in cash from the wholesale lender to the consumer to be applied toward closing costs. The first $2000 would pay the Broker/Banker fee and the rest may be applied toward 3rd party closing costs (in this scenario).
Broker/Banker Fee.
This is the (negotiable) flat fee the mortgage professional is charging to close this loan. It is completely up to the mortgage professional what this fee ultimately is, RateSpeed does not mandate what a mortgage professional can charge.
$2000 is what we chose to represent as the Broker/Banker fee in this example and should not be interpreted as what all licensed mortgage professionals may charge who offer RateSpeed to their clients. The fee may be more or less, completely dependent on the mortgage professional, but always disclosed up-front.
Net Cost.
Net Cost = Broker/Banker Fee minus (plus) YSP Credit (cost).
Using the same qualifying information, compare and contrast the rates and pricing you see above to other mortgage websites and similar applications and you will quickly see the difference between a transparent mortgage professional who offers RateSpeed and those who don’t…unabated access to real time, best-case wholesale mortgage rates and pricing.RateSpeed: Enabling mortgage consumers and professionals to make smarter decisions with better information.
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Me Thinking Home Mortgage Disclosure Act Data is Improperly Skewed
June 16th, 2008 Categories: Mortgage News
I had the opportunity to chat with Niki Scevak recently, he’s repurposing data provided by the Home Mortgage Disclosure Act into some very cool and useful charts, maps and other intuitive formats on his new site Mortgage.Homethinking. After poking around for a bit I quickly realized how terribly skewed one set of data is, the loan amount to income ratio.
The HMDA was formed by the Federal Reserve Board, yes that Fed. The HMDA purports to:
‘…requires financial institutions to maintain and annually disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings’
Two charts from Homethinking representing HMDA data:
According to the HMDA:
The loan to income ratio for California was ~2.3 times income in 2006.
The average loan amount was $320,000.
Calculating backwards, this would indicate that the average reported income for a borrower in a $320k mortgage is ~$139,000/year.
According to the US Census Bureau, the median income for a Californian from 2004-2006 was ~$53,000. At 2.3 times income, this should equate to an average loan amount of ~$122,000. Even incorporating some standard deviations to account for % of Californians who own homes vs those who don’t, the disparity is obvious. You can barely buy a house with wheels in California for $122k.
Scaling up to consider real California property economics…borrowers who acquired a $500,000 mortgage on average should have an income of >~$217,000. A $1,000,000 mortgage would indicate that a borrowers average income should be >$434,000/year.
Between you, me and your monitor this isn’t the case, not even close. One doesn’t need to be in the mortgage industry to know that these ratios are way off to the point of being comical. How do I know this? Let me explain how consumers are typically ‘pre-qualified’ for how much mortgage they can acquire:
Using the $139,000/year income example from above…
Borrower Income = $139k/year or ~$11,500/month. They have documentable, stable job and housing history, good credit, and assets.
Situation arbitrarily qualifies borrower for 6%, 30-Yr Fixed program.
39% debt to income ratio (DTI) allowed within the mortgages underwriting guidelines = ~$4485.00 in monthly ‘credit bureau reporting debt’ (mortgage, car, installment loans, credit cards, student loans…) is allowed.
Lets say the borrower has $1000 in monthly reporting credit bureau debt, not including a mortgage payment. This leaves ~$3485.00 in ‘available monthly debt’ left to ‘qualify’ for a mortgage.
At the interest rate and term above, working backwards from a $3485 payment, would ‘qualify’ one for a $581,000+ mortgage, or a loan to income ratio of 4+, almost twice HMDA’s reported ratio. 90% of borrowers will buy a home within 5% of this pre-approval limit, as the mentality transforms from ‘need’ to ‘want’…fast. Anyway, after some unofficial research I found that almost without fail, consumers end up taking out mortgages at near 4 times their annual income.
It seems logical to implicate the rabid abuse of stated, no doc and otherwise non-provable/ liar income loans but ’stated’ income should be represented and accounted for, even if it is fictitious. Niki made a solid point, stating that 2nd mortgages, home equity lines…loans with relatively smaller principle balances…could be tipping the data.
While this may be a ‘boring’ post to many, I’m intrigued because the Fed is making decisions based on this data, which can be easily misunderstood by those in the Ivory Tower and lead to rash, misinformed policy decisions…and thats not good for (almost) anyone.
Anyway, kudos to Niki for bringing greater awareness to an industry that is shrouded in mystery and scandal…
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It’s an Anonymous, Automated, Transparent, Customizable Wholesale Mortgage Program and Interest Rate Pricing Pre-Qualification Search Engine, Dummy!
June 10th, 2008 Categories: Mortgage News, Tranparent mortgage pricing, ratespeed
‘It’s been a long, strange trip… ‘
- Jerry Garcia
The XBroker blog was started in August of 2006 with this little project in mind.
Part 1: www.ratespeed.com is live…I hope you enjoy the presentation
Part 2:
The Blog will launch over the next 48 hours.Launched.Part 3:
The RateSpeed application will launch by FridayLaunched.
Expounding on the worlds longest title…
Anonymous. Consumers only provide property, financial and credit risk information typically used to determine what mortgage rates and programs are available for a given scenario. This is called ‘risk-based pricing’. RateSpeed does not collect names, addresses, social security numbers, phone numbers or other personal information that may end up in the wrong hands or abused by sales marketers.
Automated. The RateSpeed application is custom configured to simultaneously ‘shop’ every wholesale lender a mortgage professional is individually affiliated with in real time. What used to take a mortgage professional many hours, even days to complete and return to a consumer can now be done in seconds.
Transparent. Users of RateSpeed get to see exactly what they qualify for. Mortgage professionals have no ability to manipulate the information flow between the wholesale lenders database and the consumer, insuring consumers get to see exactly what they qualify for, including every dollar of Yield Spread Premium (the cash rebate a wholesale lender offers the consumer for accepting a higher interest rate than they qualify for.)
Customizable. Unlike other mortgage pre-qualification web-sites and similar applications, RateSpeed is 100% customized to an individual mortgage professionals current stable of wholesale lender relationships. The rates, pricing and programs that RateSpeed displays are the exact same as the mortgage professional would personally quote in person or over the phone.
Wholesale Mortgage Programs. Wholesale mortgage rates, pricing and programs are only available through a licensed mortgage professional. The rates and programs widely advertised on TV and the Internet are retail and often contain hidden and/or inflated costs. RateSpeed allows consumers to see their wholesale rates without middle man manipulation.
Expect to see other news and major announcements shortly, stay tuned…
RateSpeed, The Transparent Mortgage Search Engine…
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DOJ vs NAR Lawsuit Turned Into an Exercise in Irrelevancy
May 27th, 2008 Categories: Uncategorized
Here is a classic case of technology outpacing the legal system.
The Department of Justice (DOJ) settled its case with the National Association of Realtors (NAR) primarily because neither side had much to fight for. The policies that the DOJ had issues with simply became irrelevant with the increasing ubiquity of ‘cheap technology’ and the social media dynamic.
Real estate blogs, other ‘Web 2.0′ centric real estate sites like Zillow and Trulia and especially brokerages like Redfin have effectively achieved what 3 years and untold millions of dollars couldn’t do in court…vanquishing NAR’s ability to ‘restrict competition and consumer choice in real estate services, and discouraging low-cost services.’
NAR lost its hands on this wheel awhile ago, fighting the DOJ in court while Ivory Tower technologists disintermediated the industry from underneath them. Dissension from the large trade organization is rather en vogue right now for the once tightly locked constituency, so you gotta figure they cut their losses and settled out of an irrelevant and expensive lawsuit, hopefully to address bigger problems and spend their war chest on items that may keep them viable, going forward. If I was a tax paying Realtor, I’d be doubly pissed since I would have theoretically paid for this lawsuit on both sides…
This should be a lesson carefully studied by the mortgage industry. Before everyone goes all legal on each other, consider one of my favorite Twain quotes: ‘History may not repeat itself, but it sure does rhyme’. The industry of real estate traditionally runs about 5-7 years behind the rest of the world when it comes to implementation of progressive practices and technologies, pretty bad until you consider the industry of mortgage lags a few years further behind it.
It’s a matter of time before the release and adoption of similar technologies and progressive practices achieve what the perpetual mortgage circle jerk will only fumble through…achieving greater transparency and refined business structure within an industry that has internal conflicts of interests, misalignment of objectives and a slew of other appropriate cliché’s [Insert Y0ur Favorite Here]…
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Zillow Mortgage Marketplace, Cultivating a Better Crop
May 21st, 2008 Categories: Mortgage News, Tranparent mortgage pricing, zillow
Since launching last month, Zillow’s Mortgage Marketplace has grown quite respectably. They’re already adding features as a result of listening to members of their community.
According to Nate Moch from the Zillow Blog:
Since launching Zillow Mortgage Marketplace a little over a month ago, we’ve received all sorts of recommendations and feedback from our users. We have been busy fixing a few things since then, but we’ve also recently added features the our lender community has asked for. We appreciate the great suggestions we’ve received and hope the new offerings we added will be useful tools for the 2,000+ lenders in the marketplace.
The improvements: a Quote Pre-fill, Loan Quote Flags, and Lender Leaderboard attempt to address some of the inefficiencies within the community, specifically the latency and accuracy of information from participating lenders and consumers.
Quote Pre-fill reduces redundant data entry for the mortgage professional making the act of filling multiple, similar consumer quote requests more efficient.
Loan Quote Flags allows the professional community to police itself from traditional mortgage gamesmanship by reporting obvious grievous actions.
Lender Leaderboard ranks professionals by the number and quality of reviews they’ve received.
The big Z has also begun to offer some nice intuitive calculators…
All in all, a positive direction for the community, though probably still not enough to increase the viability of the Marketplace to a point of an acceptable client pull through rate ratio, for the upper end professionals.
Zillow still has to markedly improve on a couple areas before they become a viable community for anonymous, transparent lending a.k.a. Mortgage 2.0:
Decreasing and normalizing the latency in information exchange between the consumer and professional. ‘Vanilla quotes’ come back within an hour, but quote requests that deviate from the conforming norm take substantially longer or go unaddressed. Both time frames are far from ideal.
‘Accurately and efficiently quoting a myriad a loan scenarios’ is an oxymoron. With the market changing daily as far as product availability, a professional who’s not diligent in their research may misquote unintentionally and get flagged even though they were genuine in their actions.
Zillow is still completely beholden to their professional community to provide the most critical information, rate and price, in a truly transparent fashion.
IMHO the big Z is addressing this dynamic one step too late in the infochain-link:
Wholesale Market-Professional-Zillow-Consumer
Ideally:
Wholesale Market-Zillow-Professional-Consumer
would be far more effective, alas far more difficult to pull off…
Today Zillow is still closer to Bankrate 2.0 than Mortgage 2.0 (I’m throwing 2.0’s around here) but they’re trying hard and getting better, taking continued important steps to ultimately getting it right…
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