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Why mortgage brokers must give rebates to borrowers

By Jeff Lazerson

12/20/18

What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.

Rate news summary

From Freddie Mac’s weekly survey: The 30-year fixed rate improved to 4.62 percent, down 1 basis point from last week. The 15-year fixed averaged 4.07 percent, unchanged from last week. And, the Fed raised its prime lending rate to 5.5 percent earlier this week.

The Mortgage Bankers Association reported a 5.8 percent decrease in loan application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $193 lower than this week’s payment of $2,489.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages for zero cost: A 15-year FHA at 3.875 percent, a 30-year FHA at 4.0 percent, a 15-year conventional 3.875 percent, a 30-year conventional at 4.375 percent, a 30-year FHA high balance ($484,351 to $726,525) at 4.25 percent, a 15-year conventional high balance ($484,351 to $726,525) at 4.25 percent, a 30-year conventional high balance at 4.625 percent, a 15-year jumbo (over $726,525) at 4.375 percent and a 30-year jumbo at 4.875 percent.

What I think: This is my second column on the National Association of Mortgage Brokers’ annual convention, which I attended recently in Las Vegas. Last week, I shared the news that the ex-CEO of Countrywide Financial, Angelo Mozilo, got a standing ovation from brokers, something that put me ill at ease. This week I’ll share what I learned about some new loan programs, the value of arranging your mortgage through a broker and the increasing mortgage broker market share.

Full disclosure: I am a mortgage broker.

First, a quick explanation is in order about the role of a mortgage broker in the borrowing process. Mortgage brokers do not grant credit. Rather, they arrange residential real estate financing for purchasing and refinancing along with seconds, home equity lines of credit (HELOCs)  and more.

The mortgage broker business is similar to the insurance broker business model. Brokers shop a wide variety of wholesale sources on your behalf, attempting to find and arrange better financing and faster service for you than you might find on your own through retail mortgage sources (banks, credit unions and non-depository lenders called mortgage bankers).

Under California law, mortgage brokers have an additional fiduciary duty to the borrowers (requiring them to act in your best interest).

If you go to any lender, the lender may attempt to sell you whatever the lender offers, regardless of whether it is the right product or if it is competitively priced.

Mortgage brokers’ market share is 12 percent this year, according to Guy Cecala, CEO and publisher of Inside Mortgage Finance. I recall that the mortgage broker market share was in the single digits during the Great Recession.

One more reason to consider a mortgage broker: NAMB President Richard Bettencourt points to borrower rebates and pricing transparency as the biggest benefit for consumers to go to mortgage brokers.

“Lender credits have to go the consumer,” said Bettencourt.

He’s right. Dodd-Frank empowered the Consumer Financial Protection Bureau to create loan officer compensation rules. The biggest symbiotic blessing for consumers and mortgage brokers is the requirement that mortgage brokers must disclose all back-end lender rebates.

Any lender rebates beyond the broker’s pre-set compensation with that investor must go to the borrower. Lenders have no such mandate. Do you really think your lender is going to give you back money if he or she isn’t required to do so?

The biggest tip of the convention was regarding appraisal waivers.

During one general session, Freddie Mac’s technology sales manager Thomas Smith said: “We’re told (by our customers) that Freddie Mac is providing twice as many appraisal waivers as (Fannie Mae).”

So, be sure that you make your mortgage broker or lender run your property through both Fannie and Freddie’s engines. It might save you $600 or so if the appraisal is waived.

The biggest loan with the lowest down payment gets you in with just 5 percent down up to a $2.5 million loan amount.

One investor is requiring just 3 percent down for new doctors, dentists and optometrists.

And how about a bank that offers land loans with 35 percent down and aggressive rates? Typically, you will find 50 percent or more down, lots of points and hard money pricing.

The biggest disappointment of the convention? Fannie Mae didn’t bother to show up.