All About Lender Fees

Written by David Reed Posted On Friday, 11 September 2020 05:00 All About Lender Fees During a phone conversation with a mortgage loan officer for the first time, invariably the question of fees comes up. Yes, rates are at the top of the ‘curious list’ but so too are lender fees. In addition to the interest rate, lenders can charge loan fees to help offset the cost of origination, processing and other items. But let’s take a closer look at these fees, what they are and what you can do to help minimize or otherwise offset lender fees altogether. First, not all lenders charge the same set of fees. There are no guidelines that lenders must follow with regard to the type of fee charged. Lenders come up with their own. Yet there are some common ones that lenders do charge on each and every mortgage loan. Further, lenders aren’t allowed to charge one borrower one type of fee and not charge it to another. That is in the same set of circumstances. Doing so could be considered discrimination by giving one client a break and not the other, or all for that matter. One of the more common fees is called the Processing Fee. This fee is collected to pay for the overhead generated when processing the mortgage application. From the initial submission to ordering closing papers, all loans go through a process which can include several steps. Processing is performed by the Loan Processor within the mortgage company. Mortgage brokers also have loan processors and they too can charge fees. As long as the fees are universal and not selective. Once you’ve submitted your application, it’s the loan processor who you’ll interact with the most. Origination fee is also a common one. An origination fee is listed as a percentage of the loan amount. If the loan amount is $200,000 and the origination fee is 1%, that works out to $2,000. Origination fees are also charged to offset the costs of originating, or finding and bringing the loan in-house, the application. Another nearly universal charge is a Document Preparation fee. As the name implies, the amount is used to offset the personnel cost of preparing and delivering your closing papers to the settlement agent. Documents are drawn after the loan has been completely approved by the lender’s underwriter. An appraisal fee is typically collected upfront when the loan application is first submitted. This fee is collected by the lender but is not paid to the lender. Instead, the lender uses this amount to order the property appraisal from an Appraisal Management Company, or AMC. Appraisal charges can vary based upon different factors but primarily due to the property type, proximity and sales price. The underwriter is the individual within the mortgage company that makes sure the documented loan file meets the guidelines for the selected loan program. An underwriting fee is often charged to pay for the lender’s underwriter. Loan documents cannot be ordered without them being completely approved by the underwriter. A Funding Fee is a fee reserved for VA loans. A funding fee is also expressed as a percentage of the loan amount and is used to finance the VA’s loan guarantee. With a VA loan, should the loan ever go into default, the lender is compensated for the loss. This compensation is financed with the funding fee. With a purchase transaction, these fees must be paid for at settlement and out of pocket (with the exception of the funding fee). When refinancing, these same fees can be present but given sufficient equity they can be rolled into the loan amount instead of paying at the settlement table. Finally, one quick note about how to offset some of these fees. A “no closing cost” loan doesn’t literally mean there are no loan costs, but the lender adjusts the interest rate upward and provides a lender credit at your closing.

Easing The Crunch: The Push To Square Low Housing Supply With High Consumer Demand

Written by Barbara Pronin Posted On Friday, 11 September 2020 05:00 Easing The Crunch: The Push To Square Low Housing Supply With High Consumer Demand With Labor Day in the rearview mirror and winter holidays ahead, the typical drop in housing demand this year is barely a blip on the radar screen. “The market here is still crazy busy,” said Nelson Zide, executive vice president, ERA Key Realty Services, Framingham, Mass. “We continue to see buyers clamoring for homes, and for second homes, and anything decent under $1million is snapped up within days or hours. One home here listed at $525,000 drew 55 offers in a weekend.” The problem, said Zide, is supply. “In my 40 years in the real estate industry, this is the worst I’ve ever seen it.” The situation is not much different on the other side of the country in Nevada, California and Arizona where, according to Mark Stark, CEO, Berkshire Hathaway HomeServices Nevada Properties, prices are continually being pushed up by unrelenting low supply. “In the entry level space,” said Stark, “we have approximately a two- to three-week supply. In other price ranges, there is perhaps as six-week supply, and in highly desirable Orange County, California, a three week to 30-day supply.” In Michigan, noted, Dan Elsea, president, Real Estate One in Detroit, the 2.5-month supply that existed pre-pandemic has shrunk to half of that in homes priced under $500,000. “Prices here are rising dramatically, as much as a full five percent over a year ago,” Elsea said. “And that number may be low, as today’s closings reflect purchase contracts that were opened just post-shutdown.” And in Colorado Springs, zig-zagging across the nation in a random spot check, “there are 1,100 active single-family homes for sale right now, which is less than half the supply we had a year ago,” said Joe Clement, CEO, RE/MAX Properties. That summer’s busy buying season has extended into the fall is not surprising. “Because of the pandemic, the season got a very late start,” Clement noted, “and changing lifestyles prompted by the shutdown, plus the availability of rock-bottom interest rates, are keeping demand high into the fall. We have not seen any slowdown here, nor do we expect one for a while.” But the supply of inventory in most regions of the country, which was sluggish in most markets even pre-pandemic, has been unable to meet the demand. “Early in the COVID-19 crisis, many sellers pulled back, or held back, fearful of strangers walking through their homes,” said Zide. “To an extent, there is still some of that, in spite of the strict safety protocols we have in place. But the larger concern for many potential sellers is where they will move if they sell.” Seniors ready to downsize are online just like the rest of us, Zide added. They know full well that if they sell the large, family home they’ve been living in for decades, they will be in competition for the few available smaller properties “They’re not going to assisted living at this point,” he said, “and they don’t want to compete in the heavily-contested low- to -mid-range space. So, unless they are moving in with their kids, they are in no hurry to sell.” New construction would help. “But builders are just now getting back into play,” said Elsea. “Land is expensive and financing is tough, especially for new construction in the more affordable, mid-range space.” In fact, according to Robert Dietz, senior vice president and chief economist for the National Association of Home Builders, builder confidence is at 35-year high as developers note the lean resale inventory and see a growing demand for new homes. “The big challenge is lumber,” said Dietz. “The hot housing market, insufficient domestic production, and tariffs on Canadian imports have resulted in a 160 percent increase in lumber prices since mid-April.” That is adding about $16,000 per new single-family home, he said. “But building is slowly picking up after recession-lows in the spring,” he noted. “The number of single-family homes in various stages of construction in July was just three percent lower than it was last July, while construction of multi-family residences has increased by almost 10 percent year over year.” If new construction is slow to meet the need, how do we bring more sellers into the market? “Realtors need to do more work behind the scenes,” said Clement. “Our job is to work harder with pocket listings - that is, when we know a seller would list a home if he or she could find the right home to move to, we need to be working our databases, our sphere of influence, looking to find that right home.” What are the chances that demand will exceed supply well into the new year? “We don’t know what we don’t know,” said Stark. “Unemployment is a big factor, especially in regions like ours, where the hospitality industry has been so hard-hit. What will happen when/if eviction protections end? What will happen in terms of the pandemic itself? There are many unknowns to factor in.” What we do know, said Zide, is that consumers may need to look further afield to find suitable properties - further from the city center, for example, or at properties that are on busier streets, or that need a little TLC. “We are not in recession-mode,” Zide said. “We are in a pandemic. Concessions will need to be made until the housing supply catches up to the need.”

How to Handle Bidding Wars Legally

Ultra-competitive housing markets have fueled bidding wars as buyers frantically compete for a limited number of homes for-sale. Real estate professionals are finding themselves helping their home-buying clients navigate multiple offer situations. But they must be careful to avoid misunderstandings and reduce the risk of discrimination in the process, too. “Real estate professionals can help avoid complaints and fair housing issues while helping both the buyer and seller understand their options,” Deanne Rymarowicz, associate counsel at NAR, says in a new “Window to the Law” video posted at NAR.realtor. Rymarowicz highlights three principles for real estate professionals to follow when navigating multiple offer situations: Be mindful of your legal and ethical duties. Your state likely has laws and regulations regarding timeframes for presenting offers and what needs to be disclosed to the other party in a multiple offer situation. Some states, for example, prohibit revealing the terms of a buyer’s offer without the buyer’s consent. The REALTOR® Code of Ethics also speaks to handling multiple offer situations, such as requiring that REALTORS® “protect and promote the interest of their client” in multiple offer situations. Watch for potential fair housing red flags. “Buyer love letters”—letters, videos, and photos given to the seller from the buyer expressing their desire for a home—could possibly lead to some fair housing violations. “These ‘love letters’ often innocently include personal information that reveals a prohibited basis for discrimination, such as ‘we can see our family celebrating Christmas around the fireplace’ or the ‘wide hallways will accommodate my wheelchair,” Rymarowicz says in the video. Fair housing centers on eliminating discriminating and “love letters” could potentially cause an implicit bias. “Accepting an offer based on anything other than the price, terms, and merits of the offer might violate fair housing law,” Rymarowicz says. Let the client make the decision. Educate your client about multiple offers and strategies for responses. “You may even offer suggestion and advice based on your knowledge and experience,” Rymarowicz says. But ultimately, “it’s up to the client to decide what offers and counteroffers to negotiate, reject, and ultimately accept.” Source: REALTOR® Magazine Daily News

Bubble? What Bubble? Will Today’s Buying Fever Stand Up?

Written by Barbara Pronin Posted On Friday, 04 September 2020 05:00 In the spring of this year, when a global pandemic kicked the legs out from under what began as a strong 2020 housing market, some pundits argued that home prices would plunge as demand went through the floor. But a strange thing happened in the midst of job uncertainty, increasing unemployment, and pandemic concern: as spring turned to summer, people working from home and examining their space began to vie for very limited inventory. “Vacant properties, in particular, became the hottest thing on the planet,” said Robert Bailey, who with his brother, Paul, leads Bailey Properties in Santa Cruz, Calif. “Overall, our sales in July were 23 percent over June, while listing were down 49 percent from the previous year. Multiple offers and bidding escalated to a buyer frenzy.” Appraisers were looking in the rear-view mirror, Bailey said, while buyers were looking out the windshield, sending prices up along with demand in this gateway to Silicon Valley, where tech workers are virtually assured of job stability. Discovery that you didn’t need to go to the office anymore went viral among workers everywhere, especially among the more affluent, noted Jennifer Ames, Licensed Partner with Engel and Volkers in Chicago. “It was almost like being let out of restraints,” Ames said. “Buyers could indulge their desire for more space, more amenities, or greener pastures - and they did so in droves in a rush to find their dream home amid a very tight supply of inventory.” Fueled by pent-up demand and rock bottom interest rates, home sales soared. “We posted the best July in the history of our company,” said Shane McCullar, CEO, Keller Williams Realty Metro Center, Alexandria, Va., gateway to the D.C. metro area. “Houses listed between $500,000 and $1.3 million were selling faster than in the mid-level range. In all, Keller Williams Realty International paid out over $1 billion in commissions.” In fact, according to a mid-July report from the Mortgage Brokers Association, (MBA) mortgage applications nationwide increased 54.1 percent in June of this year compared to a year ago. At present, as school begins in some form or another in every state of the union, and we head toward the natural drop in demand that accompanies every year-end, some of the same pundits who did not foresee the hyperactive summer market are beginning to use the ‘B’word - B as in Bubble - and even the dreaded ‘C’ word, as in Crash. But little is as it was leading up to the last downturn. “For one thing,” Ames said, “there is little of the home-flipping or speculative investing that marked the 2008 market. Sales today are primarily driven by lifestyle and changing family needs.” Additionally, she noted, lenders are much more conservative. “Mortgage lenders who were approving subprime loans for homebuyers with little or no qualifications then are now checking and re-checking employment status and financial circumstances right up until closing,’ Ames said. To make an obvious comparison, noted McCullar, the surplus of inventory that existed before the last downturn is now an under-supply, and the out-of-control price appreciation that marked the last downturn is today at a far more moderate level. “Also,” said Bailey, “where too many homeowners ten or twelve years ago were using the equity in their homes like an ATM machine, today’s homeowners have on average of 33 percent equity in their homes, and their mortgages are at a fixed rate. The economy as a whole, despite rising unemployment, is stronger in many ways than it was then.” In fact, according to the New York Federal Reserve, household debt in the first quarter of 2008 sat at $12 trillion. In the first quarter of 2020, that number was $14 trillion - and incomes, among those who are employed, are slightly higher now than in 2008. As airlines, hotels, and restaurants - and their furloughed or laid off workers - struggle to stay afloat, it remains to be seen whether record unemployment will slow the fevered housing market. “I think we will see a slight decline in sales between now and the end of the year,” said Ames. “But that’s part of the natural cycle. I fully expect a strong market going into 2021.” Interest rates remain low, and prices are not rising at alarming rates, noted McCullar. “And as more sellers realize how much their homes are worth, and become more confident about the sanitary protocols used in showing their homes, more properties will be come onto the market.” Bailey agrees. “Many of the ‘Greatest Generation,’ and most boomers, are still in the homes they bought decades ago,” he said. “But life goes on, and more will be downsizing or changing their living situation. In California, there is legislation supported by the California Association of Realtors which will allow homeowners 55 or older to transfer their property tax base when they move. That should help ease our inventory crunch.” There will be distractions, all the Realtors we talked to agreed - the political climate and the election in November, for one thing. But overall, there is consensus that housing demand will remain high well into 2021. “This is not the new normal,” said Bailey. “It’s the new now. I’m bullish on where the market is going.”

Mortgages, Divorce and Separation

Written by David Reed Posted On Friday, 04 September 2020 05:00 Okay, so let’s say a couple meet, start dating and later on down the road they decide it’s best to tie the knot and live happily ever after. Yet unfortunately, many such unions don’t make it all the way. Sometimes the couple decides to maybe take a breather from the partnership and live separately. Just to think things through with a clear head. When this decision is made, many times they decide to separate before nulling the marriage entirely. As in most such situations, there’s a lot more that needs to be addressed, especially as it relates to money. If there’s a mortgage involved, there can be a difference between what the couple decides and what the mortgage lender thinks. It’s important to mention at this point that this isn’t considered legal advice, just how mortgage companies are involved. First, note here there is a legal definition of a separation. A couple who independently decide to take up different residences doesn’t let one party off the hook for the mortgage payment. After all, if it took two incomes to qualify for the existing mortgage, a lender will want to know if anything substantial changes. They both signed the note at the outset and they both obligate themselves to pay the mortgage each and every month. Many such situations have one spouse staying in the purchased home while the other moves out and finds another place to live. It may also be that one party declares responsibility for the mortgage payment. So far, this is nothing more than an agreed-to arrangement. But that can present a problem for the individual moving out of the home and looking to buy another. It’s quite possible that when trying to qualify for a mortgage to buy another property, that person can’t qualify because of the outstanding mortgage payment. Even if the couple decides between themselves who is paying for the mortgage and who is not, the lender is not involved in those discussions. An in-person agreement does not remove one party’s responsibility for making the mortgage payment each month. A legal separation might carry a bit more weight. A legal separation spells out in the court documents who is responsible for what. The document is signed by a judge and recorded in public records. If the document states one party is going to be making the payments, that might help offset the debt. But probably not. The lender doesn’t really care if the marriage is on the rocks. It cares that its mortgage might be on the rocks. The obligation will typically still remain on both parties’ credit report, even if the separation agreement spells out who is paying for what. A divorce works in a similar manner. The divorce decree also spells out who gets what asset and who is responsible for a variety of matters accumulated over time. If one party assumes the mortgage, the lender can remove the monthly debt from one party but in order to completely remove one party from the transaction, not only will the occupying spouse need to refinance the existing mortgage into his or her name, but also to quit claim ownership from one party to the next. Both the mortgage and title need to be taken into consideration. Still, the lender will have a say. Some lenders want to see the monthly payments be made in a timely manner over a specific period, say for twelve months. Once it’s been demonstrated the payments have been made, there can be a case for removing the non-occupying person from any future obligation. If a marriage doesn’t work out, getting one party off the note legally is a process, not just a marital agreement.