Your Chicago Mortgage Guy

Dodd – Frank In Action. A Short Play….

<Phone Ringing>

Your Chicago Mortgage Guy: Hello, this is Joe.

Jim The Borrower: Hi Joe. Good News, we got the property!

YCMG: That's great, congratulations, now it's time to start talking mortgage rates. What price did you agree to and when is your closing date?

JTB: We agreed to $375,000.00 and a closing date of May 31^st. After our last conversation, Jill and I decided to go with the 30 Year Fixed option at 20% down.

YCMG: Perfect. At 20% down, you guy's will avoid Mortgage Insurance. Our 30 Year Fixed today is at 5.00%.

JTB: That sounds about right. We've been looking around and everyone seems to be quoting either 5.00% or 5.125%. What's confusing though, are closing costs. What are your costs?

YCMG: Our standard bank fees here total $1295.00. That's for Origination, Appraisal, Application, Credit and Flood Certs. Today though, I can pick up all of those fees. In fact, I can give you a credit totaling $1500 at a rate of 5.00% today.

JTB: Wow, that's the biggest credit we've been offered so far. What I don't understand though is, why does everyone want to pay my fees?

YCMG: Well, according to the new Dodd-Frank legislation, I cannot make any overage on an interest rate any more. So, to stay competitive I am crediting it back to my borrowers. That's good news for you.

JTB: Yeah, that is great! What are the chances of getting to 4.875%?

YCMG: Good question, we are really close to that today. In fact, we are only off by .05%. If you wanted to pay that as an origination fee, I could get you to 4.875%. That's only $150.00.

JTB: What, seriously? Could I still get the credit?

YCMG: No, if you pay an origination fee, I can't give you an closing cost credit.

JTB: So, it's not $150, it's actually $1650?

YCMG: Yes, I guess that's true.

JTB: And, you probably make less money at 4.875% then as well?

YCMG: No, my employer has to pay me the same, regardless of rate. But, 4.875% is below my 1.00% threshold. That's why I have to chare you the .05% to get to the 1.00% threshold on my rate sheet.

JTB: So where did the credit come from at 5.00%?

YCMG: 5.00% was at 1.5%, so I was giving you the extra .50% back as a credit.

JTB: This is getting confusing. What would you have been quoting me before this new legislation went into effect?

YCMG: Well, seeing as you were shopping rates, I likely would have been quoting you the 4.875%.

JTB: Would I have been paying the extra $150?

YCMG: No. But, that depends on what my competitors would have been offering. It's even possible I would have given you a credit.

JTB: At 4.875%?

YCMG: Yes.

JTB: I thought this legislation was for the consumer? I thought it prevented you from steering me into a higher rate to make more premium?

YCMG: It does, but it also sets a floor because my employer can't pay me less money just because I want to be competitive.

JTB: I don't understand.

YCMG: It gets even better. While you might get a $1500 credit at the higher rate, that will cost you another $6700 over the life of your 30 Year Fixed.

JTB: Who get's that?

YCMG: Fannie Mae and your servicer.

JTB: Wait, I thought this legislation was supposed to protect the consumer from the banking industry?

YCMG: Me too.

 

Looking Past April 1st and Dodd-Frank

If you are a Loan Officer right now, you are hearing a lot of doom and gloom about the imminent implementation of the Dodd-Frank legislation aimed specifically at our commission structure.  I could put up lengthy posts about this issue, but anyone that isn't in my seat isn't going to understand most of it, or for that matter, care very much.  But, I have been thinking about the positives that are going to come out of this, and there are many.  Not just for the Consumer, but for the Loan Officer and even our Realtor partners.

I previously posted a very concise article regarding the future of the Loan Officer and our industry in general.  I do not think that the Loan Officer is dead, but I do agree that the days of just writing loans, without any expertise, is over. 

There aren't many indsutries like Mortgage and Real Estate where you don't have to be a full time employee to participate in the process.  If you spend the time and money to get licensed as a Loan Officer or Realtor, I guarantee you that someone will give you a phone and a desk to sell mortgages or real estate.  Think about that.  Beyond the basic licensing requirements, you don't need any other background or knowledge to come in and do what we do.  Scarier still is that they do get deals.  I call these the 'Brother In Law' deals.  When you ask who they are using to buy a house and they say, 'Well, my Brother In Law is a first grade teacher, but he sells mortgages on the side'.  Really?  So, you are going to trust the single largest purchase of your life to a guy that writes maybe five or six loans a year?  Yes.  It happens all the time.

Our industry has changed so much in the past 18 months, that even the most seasoned in our industry can struggle to keep up.  We have added disclosures and compliance at an astronomical rate.  The smallest mortgage shops are doomed at this point.  There isn't any way that they will be able to keep up with the compliance part of the puzzle and the margins have become so slim, there just isn't any room for profit anymore.  The bulk of these firms are home to the lowest volume sales people, and they will not be picked up by the lenders left in the wake.  It's just to expensive now to justify bringing on sales people that aren't working full time.

This is a plus for the consumer.  We are already a pretty lean industry of sales people when compared to our numbers in the mid 2000's when we topped out.  Our ranks should be left with the most experienced sales people, the ones that have been out selling themselves as Mortgage Advisor's, rather than the sales people only concerned with the transaction at hand. 

It's never been more important to vet your Loan Officer.  It's well within bounds to ask how long they have been in the industry.  You should ask what their specialty is and what their volume is like.  An experienced loan officer is probably already sharing this with their potential clients and will likely have references ready to go to back them up. 

Now, the downside for the consumer will be reduced competition.  But, it's Friday and I think I'll leave you with the positives.  Check back next week for how this legislation will hurt the consumer.

Joe Burke

Your Chicago Mortgage Guy

773-742-6707

joe@yourchicagomortgageguy.com