Over the last five years, one of the newest developments in real
estate is the ability for home buyers and sellers to search
online for a home's value. Popular Web sites such a Zillow.com,
Cyberhomes.com, and Eppraisal.com offer free home estimates, but
some consumers and real estate industry professionals say the
values calculated often are inaccurate and misleading.
MAKING SENSE OF THE STORY FOR CONSUMERS
Online home appraisal Web sites assign home values without
knowing the features or upgrades of a home or the neighborhood
in which it is located. Some Web sites offer a price range of
$20,000 - $40,000 more or less than the actual value of the
home.
Since housing markets are local and not every home of a certain
size is the same value, consumers can be misled into believing a
home is worth more or less than the actual value. Working with a
local REALTOR® can help minimize inaccuracies in home values.
REALTORS® can provide local housing market data and show
homeowners and buyers recent sales of comparable homes in the
area, to help determine an accurate list or offer price.
While some agents report that Web estimates can educate clients
and provide a reasonable assessment of market conditions and the
home-buying process, working with a local REALTOR® is the best
option.
The Federal Reserve approved a rule banning lenders from paying bonuses to mortgage brokers and loan officers who get borrowers to agree to a higher interest rate than they need to pay.
The Fed also proposed requiring clearer disclosures about how payments on adjustable-rate loans can change over time.
The changes were among several announced by the Fed, which has been criticized for doing little to rein in high-risk lending during the housing boom.
One of the proposed rules is designed to give consumers more time to review lenders' disclosures on the costs of their home loans. Lenders would be required to refund any loan fees collected if the prospective borrower withdraws the mortgage application within three days of receiving the disclosures. That proposal is open for public comment.
The change in required disclosures for adjustable-rate loans is set to take effect at the end of January as an interim rule. Lenders must show the maximum interest rate and monthly payment that can occur during the first five years, a "worst case" example showing the maximum rate and payment possible over the life of the loan. The disclosures must also include a statement that consumers might not be able to avoid rate and payment increases by refinancing their loans.
The ban on lenders' paying bonuses to brokers and loan officers for higher-interest loans takes effect in April. The Fed said that its consumer tests found that borrowers generally were unaware of the payments and how they could affect the total cost of a loan.
Critics have called the bonuses little more than kickbacks that encouraged mortgage brokers and lender salespeople to steer borrowers into costlier loans.
Brokers have argued that they can use the payments, also known as rebates or yield spread premiums, to cover borrowers' closing costs, so a homeowner wanting to refinance a mortgage with no upfront costs might accept a higher interest rate to accomplish that.
In making the rule final, the Fed said a loan originator "may not receive compensation that is based on the interest rate or other loan terms. This will prevent loan originators from increasing their own compensation by raising the consumers' loan costs."
Loan originators would still be able to receive compensation calculated as a percentage of the loan amount.
Another rule would require borrowers to be notified when their mortgage has been sold or transferred.
The Fed also proposed a rule to make it easier for consumers to learn who owns their loans. Under the provision, once a mortgage servicer is asked by a borrower for that information, the loan servicer would have to provide it within a reasonable time, which generally would be 10 business days.
The interest rates for 30-year fixed-rate mortgages are in free fall, averaging just 4.44% on Aug. 12, according to Freddie Mac. Not only was that down from 5.07% in January, it was the lowest since Freddie began keeping records in 1970.
But even better deals can be found at smaller banks and credit unions.
"I've found that my clients can get routinely better rates by heading to a more regional lender and forgoing the bigger lenders," says Sean Satkus, a real-estate agent in the Washington, D.C., area.
The differences can be stark. On average, the three biggest banks—Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co.—offer rates of 4.66% on 30-year fixed mortgages for home purchases, according to Bankrate.com. By contrast, St. Louis's Heartland Bank is offering a rate of 4.50%. Acacia Federal Savings Bank comes in at 4.25%. And Rockland Trust Co. in Boston is offering just 4.13%. (None of these offers include "points," or extra fees to secure lower rates.)
To some extent smaller banks have always been a little more competitive on rates. But "the discrepancy is widening," says Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, "and I only expect it to get wider in the future."
Consolidation during and after the financial crisis is the biggest factor. Together, Wells Fargo, BofA and Chase accounted for 56.5% of new mortgage originations in the first half of this year, according to Inside Mortgage Finance—up from just 36.6% in 2007.
Now these banks don't have to compete on pricing in the same way, Mr. Cecala says: "They have a large share of the market, and aren't worried about demand."
Pricing Advantages
Smaller mortgage brokers and regional banks also have some built-in pricing advantages, says Greg McBride, a senior financial analyst at Bankrate.com. They are nimbler than larger competitors, he says, and can cut overhead when they need to—making them lean enough to price loans aggressively.
Compensation structures for loan officers are also a factor. Smaller lenders tend to pay on commission, "and will sometimes operate on thinner margins to get higher volumes of loans out," Mr. McBride says. "Mortgage brokers tend to live or die on volume." By contrast, big banks tend to pay loan officers a salary regardless of volume. In fact, it often is cheaper for big banks simply to buy loans originated by smaller banks, or "correspondent lenders," than to reduce rates to compete with them.
"The bigger banks can save money on origination by buying the loans from correspondent lenders later in the chain," Mr. McBride says.
Profit margins are falling sharply at smaller firms. According to a July 20 study by the Mortgage Bankers Association, profits per origination at independent mortgage lenders were down to $606 during the first quarter of 2010 from $1,088 in the same quarter last year.
Room to Fall
Yet there still may be room to fall, says Cameron Findlay, chief economist of LendingTree, an online lender. On Aug. 1, he says, the average rate for 30-year fixed-rate mortgages was 4.56%, which was more than one percentage point greater than the average of 3.45% at which lenders could sell these loans to investors in the secondary market. "There's clearly more wiggle room there," he says.
Borrowers looking for smaller lenders or brokers can trawl websites like Lendingtree and Bankrate.com, which lists rates in local regions.
Alex Sorokin is taking advantage of small banks' largess. The 52-year old accountant wanted to buy a two-bedroom condominium in Brooklyn, N.Y., and initially thought he would get the best rate from Chase, Commerce Bank or Wachovia, now part of Wells Fargo.
When he started inquiring in April, he says, he was surprised to find that none would offer a rate for a $279,000 mortgage lower than 4.8%. That is when he decided to contact Luxury Mortgage, a Connecticut-based lender. He ended up with a rate of 4.625%.
"We closed in July," Mr. Sorokin says, "and I am really happy."
CASH-OUT refinancing, in which borrowers pull out equity from their homes to finance everything from vacations to sports cars, were all the rage during the housing boom.
Now, as the nation continues to endure the slow, painful correction of that boom, another trend may be emerging: cash-in refinancing. In this case, borrowers put extra money into a transaction to obtain cheaper loans and pay down debts.
According to Freddie Mac, the government-sponsored entity that, along with Fannie Mae, helps set lending standards, 22 percent of homeowners who refinanced their mortgages in the second quarter of this year paid additional money at the closing to lower their principal balance. That ties the record for the third-highest “cash-in” refinancing — set in the fourth quarter of 2002 — since Freddie Mac began recording such transactions in 1985. The highest level was in the fourth quarter of 2009, with 36 percent of refinancing homeowners cashing in.
Freddie Mac’s chief economist, Frank Nothaft, linked the change to low interest rates on cash-equivalent investments like certificates of deposit. Consumers are finding that they can save more money on monthly interest payments by paying down their mortgages than by leaving their cash in banks, which are offering meager interest rates.
Indeed, mortgage industry executives said they had heard borrowers express such motives when choosing a cash-in refinancing strategy. But they said borrowers were also looking to qualify for a cheaper loan. Often, the more equity they have in their homes, the easier it is for them to qualify for certain loans and for lower interest rates.
Michael Moskowitz, the chief executive of Equity Now, a lender based in Manhattan, said that over the past year he had seen more borrowers add money to their mortgage refinancings with the aim of lifting equity levels high enough to qualify for a lower monthly payment.
For instance, if someone has 19 percent equity in a home — just below the prevailing minimum down payment of 20 percent — he or she must pay private mortgage insurance, which in turn raises the monthly payments.
Likewise, if the borrower has 29 percent equity in the home, he or she may sometimes face interest rates one-eighth of a percentage point higher than those who have 30 percent equity.
Mr. Moskowitz said it was also common for borrowers to put extra money into the refinancing transaction so they could avoid taking out a “jumbo” mortgage. In areas with the highest-cost housing, like New York City, loans of more than $729,750 are in that category. Elsewhere in the country, loans of more than $417,000 are considered jumbo.
Jonathan Satovsky, the chief executive of Satovsky Asset Management in Manhattan, said that one of his clients recently paid a lender about $90,000 in order to reduce the principal amount on his mortgage below $729,750, and thereby qualify for a 15-year loan at about 4.25 percent interest. In early August, Mr. Satovsky said, the 15-year fixed jumbo rate was about 4.75 percent.
BECAUSE the $90,000 payment reduced the borrower’s financial flexibility, Mr. Satovsky said, he advised his client to raise that money through a home equity line of credit, or Heloc, as it is commonly known. Helocs are variable-rate loans, “so you want to more aggressively prepay that in case rates rise,” Mr. Satovsky said. “But that gives you more flexibility to have that line available.”
The combination of a first mortgage and a Heloc is known as a piggyback loan, and such arrangements were popular during the mortgage boom, though they largely disappeared as home equity lenders considered them too risky.
“You definitely have to maneuver to do it now,” Mr. Satovsky said. “But if you’re looking to manage your balance sheet creatively, it’s doable.”
Having lived, attended schools, worked and raised a family in Santa Barbara, Don has a unique and in depth knowledge of Santa Barbara County. He has been a top producer for over 26 years in his association with Coldwell Banker and their predecessors. Don specializes in neighborhoods such as the Upper Westside of Santa Barbara, the lavish Bel Air Knolls, and Cold Springs in Montecito. With an in depth knowledge of these neighborhoods and their buying/selling history, he is better capable of getting your house on the market, getting it noticed, and getting it sold effectively. His experience in Santa Barbara will lead you to find that house that best suits your needs.
Don was raised in Santa Barbara. In his youth he played football in high school and college. Don and his wife Holly have been married for over 40 years and have three adult children, two sons and a married daughter. They are proud Grandparents of four young children. Don's idea of a fun vacation is backpacking in the wilderness with his extended family. Don's first love is his family followed by tennis and the wonderful and inspiring escape to nature during vacation.
