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Mortgage Blog

Dec 19

A Look at Payday Loans

Payday loans appear to be growing in importance. The spam folder in my email register now seems to have as many solicitations for payday loans as for home mortgage loans. The internet is a more cost-effective way of marketing payday loans than the traditional storefront. In addition, a number of banks have entered the market in recent years with "deposit advances" which are essentially the same as payday loans.

Payday loans including deposit advances are small loans generally in the $150-$400 range, repayable in a few weeks when the borrower is due to receive a paycheck or some other scheduled payment. The loan is designed to tide the borrower over until the payment is received. The cost of a loan is usually $15 to $20 for each $100 borrowed, regardless of whether repayment is due in one week, two weeks, or 4 weeks.

Payday loans are convenient, quick, and readily available without a credit assessment. To assure repayment, borrowers provide lenders with direct access to their deposit account; in effect, borrowers authorize lenders to repay themselves from the borrower's account.

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Dec 13

Can You Use the Good Faith Estimate to Shop Mortgage Prices?

Under Federal law, every home mortgage borrower must be provided with a Good Faith Estimate of Settlement Costs (GFE) within 3 days of receipt of the borrower's application. The GFE was administered for many years by HUD, which made substantial improvements to it in 2010. Shortly thereafter, responsibility shifted to the Consumer Financial Protection Bureau (CFPB) where it now resides.

The GFE describes the loan and its major features, including the interest rate, upfront lender fees, and fees of third parties such as title insurers and appraisers. Because of its complete itemization of all costs to the borrower, mortgage shoppers often ask me whether or not the GFE can be used to shop for the best deal? They have been encouraged to think that it can be so used by both HUD and CFPB. In its current Q and A for consumers, for example, CFPB states that the GFE "will help you compare offers."

If this were true, the GFE would be an invaluable tool for borrowers. Unfortunately, it has never been true and it isn't true today, even with the recent improvements.

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Dec 6

Is Winter The Best Time To Buy A Home?

Buying a home is all about saving and timing. Real Estate gurus often have different opinions on when the best time to buy is and when it boils down to it the best time to buy is when its financially sensible for you or your family, but it may just come down to the weather.

First thing to take into account is the seller. Many home sellers believe that their home shows better in the spring or summer. Because of this, many take their home off the market and according to the National Association of Realtors; inventory tends to drop almost 15%. While this does shrink options a bit it also can open doors. With the holidays right around the corner, and a possible tax advantage on the table, many sellers who choose to leave their home on the market could have an extra motivation to sell.

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Oct 17

Why Will Some Lenders Reject Borrowers That Other Lenders Accept?

Some mortgage applicants will be accepted by every lender and others will be rejected by every lender. However, there is a group of marginal applicants who will be rejected by some lenders and accepted by others.

During the period 1920-34, before the development of secondary markets and mortgage insurance, the risk associated with every mortgage loan was entirely borne by the lender making the loan. The number of marginal applicants was sizeable in that period because each lender had its own underwriting requirements, which varied widely, depending on their business model. Those focusing on generating large loan volume would have more liberal requirements, but would also charge higher rates to cover the larger losses resulting from that policy. The rates charged by more selective lenders would tend to be lower.

The vendor-neutral mortgage professional of that era, if there had been one, would have advised borrowers who could meet the requirements of a selective lender to patronize such a lender. Borrowers with strong credentials who unwittingly placed themselves in the hands of a volume-oriented lender with liberal requirements, would usually overpay.

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Oct 11

The Take on Closing-Cost Rebates

The government shutdown and the debt limit have dominated the headlines, but a behind-the-scenes fight over federal mortgage policy has been brewing and it could affect your choices the next time you apply for a home loan.

The issue concerns differing rules for different types of mortgage sources. Some mortgage brokerage firms have begun advertising that they offer substantial credits to their customers -- often in the $2,000 to $5,000 range per loan but sometimes more than $10,000 -- that can be used to defray borrowers' closing costs. A survey of 164 member firms of the National Association of Mortgage Brokers found that these companies provided more than $69 million in closing-cost credits to clients last year, and are on track to pay out the same or more this year. The group estimates that brokers nationwide rebated upward of $2 billion in 2012.

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