Why are Mortgage Payments Made to Other Lenders?

Home mortgages are often sold to a loan servicing lender, who collects and processes payments because the original mortgage lender is only in the business of selling mortgages.

A mortgage may be originated by a broker or lender who then sells it to the loan servicer, who then combines it with other mortgages and sends them to Fannie Mae or Freddie Mac, who then securitizes and sells them on the secondary market.

In a normal real estate market, mortgage investors could be mutual funds, school endowments, pensions, foreign governments, etc. Currently, the primary investor is the Federal Reserve, who has been maintaining low mortgage rates by purchasing those securities.

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Note Rate is Lower than APR When you Compare Mortgage Rates

In order to help standardize the process of comparing mortgage rates and fees, lenders are required to quote the APR in addition to the mortgage note rate.

The annual percentage rate will almost always be higher than the note rate of a mortgage because certain fees are included in the calculation.

Mortgage fees usually included in the APR:

• Loan processing fee
• Document preparation fee
• Underwriting fee
• Private mortgage insurance cost, if applicable
• Discount points
• Origination points
• Pre-paid interest amount

There are other closing costs in a mortgage which are not included in the APR, such as, credit reports, appraisals, notary, recording fee, title insurance, and escrow fees.

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Insurance Fees Go Up for FHA Mortgage Loans

Insurance for FHA mortgage loans now costs more. All borrowers must pay an upfront insurance premium in order to get an FHA loan. That fee was just increased from 1.75% of the mortgage loan amount to 2.25%.

There is also a monthly payment required to maintain the insurance, which lawmakers are currently trying to increase as well.

The reason for increase is to help FHA replenish dwindling cash reserves that have been used to cover increasing mortgage defaults.

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Simple Mortgage Quotes vs. Accurate Mortgage Rates & Fees

New rules have been implemented to help protect consumers against bait and switch mortgage quotes, which makes it easier to compare, but also makes it difficult for lenders to provide basic mortgage rate quotes to some uncommitted shoppers.

To accommodate loan shoppers who do not provide complete information, some mortgage lenders are using worksheets or loan scenario forms that have no requirement for accuracy, instead of a good faith estimate with legally accurate mortgage rates and information.

HUD says that worksheets can be a useful tool, but if they threaten to water down consumer protections provided by good faith estimate reforms, updated guidelines may be issued.

In order to get a firm commitment on mortgage rates and closing costs, borrowers need to ask for a good faith estimate, which means providing the lender with all the necessary information.

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Fed News Forecasts Rise in Mortgage Rates

News from the head of the Federal Reserve in Boston said he expects mortgage rates to rise by ½ to ¾ of a point in the coming months as a result of the end of a government support program.

The chief executive of the Boston Fed, said in an interview that he expects mortgage rates to rise when the Fed MBS purchase program ends, or before, as the end approaches.

He said. "You maybe would have thought you would have seen rates move up more quickly than they have, but nonetheless that is a concern."
The Fed could extend the mortgage buying program if the economy deteriorated dramatically, but he said "That's not in our forecast, that's not what we're expecting."

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Keep Credit Scores Safe Before a Mortgage

If you are thinking about a mortgage refinance or a home equity loan, there are certain things to avoid before applying for a loan that could reduce your credit score, which can raise the mortgage rates that lenders are able to offer you.

During the 60 Day Period Prior to a Mortgage Loan:

• Don’t apply for any new credit cards before a getting mortgage
• That includes not opening new accounts to transfer credit balances
• Running up credit card balances may drop credit scores
• Don’t buy a vehicle that requires getting new financing
• It is not a good idea to close accounts with or without a balance
• Do not allow any payments to go over 30 days late or to collection

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Balancing Mortgage Rates, Real Estate Values, and Inflation

The Federal Reserve is scheduled to complete its purchase of $1.25 trillion of mortgage-backed securities in March. The program has maintained low mortgage rates after the real estate bubble burst.

The Fed’s balance sheet has more than doubled since the financial crisis, and bond investors, among others, fear too much money will eventually get into other sectors of the economy, which could fuel inflation.

Fed officials and private economists have differing views on what might happen after the mortgage-backed securities purchase program has ended. Some officials are worried that a rise in mortgage rates may threaten fragile real estate values. The purchase program could be re-instated if mortgage rates were to increase substantially.

Despite some news of stabilizing home sales and prices, Fed policymakers are also concerned about the risk of more foreclosures and the wind-down of the government's home buyer tax credit program.

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Mortgage Lenders Closing Cost Disclosures Change with RESPA News

Comparing mortgage rates and lender fees should now be more standardized with the news that HUD has changed the rules regulating lender disclosures of closing costs.

Mortgage lenders must now disclose to borrowers a single origination fee on the Good Faith Estimate and the HUD-1 Settlement Statement, which includes all lender fees and compensation.

Lenders are not allowed to increase their origination fee from the estimate. Some other closing costs, including title insurance and recording fees, can increase by as much as 10%. Estimates for other charges, such as homeowner’s insurance and other services provided by third parties selected by the borrower, are not subject to these limits.

A new version of the HUD-1 closing form includes a comparison of the estimated and final closing costs, and a summary of mortgage information and terms.

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