Annual default premiums (MIPs) on 30-year Federal Housing Administration (FHA)-insured loans for homebuyers with less than 5% down payment rose to 1.1 or 1.15% of the home value from 0.85 or 0.9%, effective April 18, 2011. For a homebuyer paying the minimum 3.5% down payment on a $400,000 home, the FHA’s recent increase in MIPs adds $83 to his monthly payment to the lender. Homebuyers who make down payments of at least 5% can obtain better rates with private mortgage insurance (PMI) companies whose insurance premiums decrease for higher down payments.
first tuesday take: The FHA or the myriad of private mortgage insurance companies may tweak their MIP/PMI premiums over and over again, but at the end of the day, the homebuyer must act the role of the sharp and savvy investigative consumer against lenders. The hindsight of lessons from the post-Millennium Boom housing crisis demands no less, and buyer’s agents need to be able to advise on the alternatives available to their buyers if they are to stay in the game.
For uninformed or inexperienced homebuyers, their real estate brokers and agents must be actively involved in the handling of the loan application process. Homebuyers need assistance with interview forms and advice on lenders while they shop for the purchase-assist financing to satisfy closing conditions – most likely the largest loan of their lives. [For more information on shopping for a loan, see the May 2010 first tuesday article, Shop, shop, shop until you drop.]
Lenders do not like to be faced with competition, but the buyer’s agent, who lenders refer to as the transaction agent (TA), needs to advise the homebuyer to submit loan preapprovals or applications to at least two different lenders. Lenders are required to issue homebuyers a Good Faith Estimate (GFE) at the time an application is received. This uniform requirement for delivery of the GFE itemizes loan closing costs and the interest rate charged. The GFE is designed primarily to provide a homebuyer who shops lenders to easily compare GFE content and choose the lender with the lowest costs and rates available. [For more information on the GFE, see the September 2010 first tuesday article, The Good Faith Estimate is designed for shopping around.]
In California, lenders are also required to deliver homebuyers a Department of Real Estate (DRE) mortgage loan disclosure statement (MLDS), which includes additional information on top of the GFE. [See first tuesday Form 204, 204-1 and 204-2.]
Agents and homebuyers have to be on guard. Some lenders shirk regulations and issue “loan scenarios” or “worksheets” instead of a GFE. Such alternate documents lack the clarity and protection which the GFE affords the prospective homebuyer. The surprise comes for the homebuyer just after they hand over an application and advance costs to that game-playing lender – and receive the real GFE. [For more information on lender obligations, see the January 2010 first tuesday article, Lenders take steps to avoid HUD’s updated GFE.]
The government can pass laws and regulations, but as we see, it takes brokers and agents in the guidance of their homebuyers to ensure lenders follow the rules. No one else is there to police lenders, leaving the buyer’s agent as the sole line of defense. This requires constant agent diligence since, given time, lenders do figure a way to work around the rules.
RE: “Dealing With Higher Costs of F.H.A. Loans” from the NY Times
THANK YOU JOHN H!!!
Yet again, “first tuesday’s take” is bashing lenders and trying to make it sound like using a make sense cost worksheet IN CONJUNCTION WITH the new GFE is because we’re trying to do something sneaky. Congress seems to think they know more about real estate lending than industry professionals do, and we have had to suffer with countless revisions to 30 year old forms that were fine to begin with (as long as lenders acted in the spirit of the regulation). So they create these revised disclosures that are proving to be an epic fail, creating no more transparency than before, and it takes a year and a half before they realize it. Now we are waiting on drafts of even newer disclosures that will combine TIL and GFE. Can’t wait.
The bottom line here is that loan officers and lenders are the most highly regulated and policed professionals in today’s world! Where do you get your data that “no one else is there to police lenders”? Are you kidding me? As if we don’t have enough regulatory agencies, they’re continuing to pile them on as we speak. With all due respect, I refer my buyers to real estate agents that are competent and have my buyer’s best interests at heart. I trust that they will act ethically in their fiduciary responsibility to our mutual client. I don’t feel like I need to sit with them and ensure they are handling their paperwork properly so why should a realtor have to be “actively involved in the loan application process?”
Your opinions on these articles about lending are sorely behind the times. Maybe you should take the time to find out what is really going on in real estate lending today before warning people about a bunch of wolves that are no longer in the business.
I’m growing weary of your opinions that are constantly biased against lenders. So when it comes time to renew my DRE license, I suppose I will take my business elsewhere.
Obviously, you haven’t seen the current GFE or know how utterly confusing it is to the borrower compared to a fee worksheet or (in CA) the MLDS form. Precisely the reason Congress is once again revamping the TIL and GFE into something that homeowners CAN understand. Their last effort in Jan 2010 has been a dismal failure and brought more confusion than “transparency” to the table.
You should also know that every lender has a different interpretation of how the GFE is to be completed — there is no uniformity. The points made in this article would have better suited for pre-2007 rather than today.
Then there’s the issue of that last 1.5% down — many buyers in CA don’t have it to give. 3.5% down on a $300k purchase is $10,500. 5% down is $15,000 — there’s a significant difference for borrowers there the higher the sale price. 5.00% is a better deal, but it isn’t as if mortgage lenders or brokers are getting a kickback for selling higher UFMIP or MMI. If the borrower has it to invest, sure. If not, it is what it is.