In speaking with a potential client this week, I was reminded, yet again, how most people take things at face value without considering consequences. This person had initially reached out to me in the summer for a second opinion on a refinance; He told me the rate and fees that he was offered elsewhere and wanted to know if I could beat the terms. Admittedly the rate he was quoted was very good… perhaps a little too good to be true. I was familiar with this scheme – I mean structure – where the broker/lender is affiliated with the loan vendors and receives income from the fees generated for appraisal, title, closing, and the like. Those above-market fees are then used to offset the seemingly “below market” rate.
My bigger concern was that they didn’t price the loan correctly and failed to consider the loan would need an “assignment of mortgage” to complete the transaction. As he would be forced to forfeit the lock-in fee, I encouraged him to proceed with the original lender and to be very vigilant during the process. Unfortunately, I wasn’t surprised to hear from him when he called to say the loan never closed. He reminded me that I said it’s a simple equation where everyone has the same cost of money, but everyone tries to dress it up differently. The loan officer was so focused on peddling the “sticker price” that she forgot to delve into the loan details and didn’t price the scenario appropriately.
Another conversation I had this week involved a rate shopper who told me that he was quoted a quarter-of-a-percent below my best rate offer. I insisted that the bank will charge him “points” for that rate, but he said it was never mentioned. When he finally got the written terms, he saw that the bank was indeed charging over one-percent in an additional fee for the lower rate. While the rate was impressive, I emphasized that it’s a simple equation of comparing the savings versus the upfront cost of the funds. For this particular equation, the monthly savings were nominal, but the upfront cost would not be recouped for over ten years. I reminded him that the value of a dollar today is worth considerably more now compared to such a long period of time. Added to the equation was the fact that he and his wife planned on selling the house well before he was going to be in the green.
As I write this article, it was announced that Congress passed the $900 billion stimulus deal and the $1.4 trillion government funding deal. There are many facets of the stimulus, including a $300 per week federal unemployment supplement through mid-March and $600 to individuals for eligible taxpayers, plus $600 per child. The plan also allocates $284 billion into the Paycheck Protection Program for small business loans. The deal extends the programs making freelancers and gig workers eligible for benefits. The bill extends the Federal eviction moratorium through Jan 31st and funds $25 billion in rental assistance.
As much as most experts insist that a stimulus plan is needed to prevent a softening economy, we must consider the consequences. Again, it is a simple equation – where is this money coming from, and what are the long term disadvantages it will bring? Most agree that it will lead to higher rates and a devaluation of the dollar. If you are keeping ‘score at home,’ now is the time to act because the cheap money available today will not last indefinitely.
Shout out and Happy Birthday to Jonathan Gellis, Shimmy Giller, Avi Goldenberg, Zvi Kurlander, Taylor Lucyk, Naama Manahan, Rivki Schwartz, and Maty Youngewirth.
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected]