Question on mortgage rates for HLS

[SD Realtor]

HLS your points about the builders preferred lender cannot be understated. It is unfortunate but I would say over 95% of the home buyers looking to buy in the new developments go straight to the preferred lender because of the 20k or 30k incentive program. Pretty sad to see but people get hypnotized by the incentive program rather then seriously shop for a better loan, then run the numbers to see how much they could have saved in the long run.

SD Realtor

[HLS]

I’m not trying to fool anyone. Sometimes, the builder incentive issue isn’t something that I can compete with, and I tell people that up front.

To save face, builders don’t like to lower selling price. It affects neighbors, attitudes and comps, etc…. SO what they do is keep selling price the same and increase incentives. It might be prepaid assn fees, or contribute to closing costs, but what I explain to people that I cannot compete with is when builder offers $50,000 in upgrades, that is $50K at their RETAIL. You might be able to get the same work done for $15K (or less) BUT…

One problem is that even if you bought the base model, you cannot get a lower selling price because builder doesn’t want to SELL for less. It also doesn’t make sense to take a brand new base model, buy it, and then start ripping it apart to save money on upgrades. You may void some builder warranties.

Builders play other games like saying if you take our financing, you only need a $5K deposit, but if you want outside financing you need a larger deposit, or have to pay for upgrades UP FRONT. etc.

You are dealing with huge public companies that understand business. You can get a fair deal, but you aren’t going to take advantage of Home Builders, Car Dealers or Casinos regardless of what their employees tell you.

It’s definitely worth checking around, but the builder’s know how to play the game. What you may not know is that the builder may own the “preferred lender” and may even own the escrow company. Somewhere in small print they will disclose their affiliation.

Another HUGE issue with upgrades is the actual appraised home value, regardless of incentives. Lenders don’t always lend on upgrades reatil or prepaid assn fees.

$50,000 “retail” in upgrades might add $15k-$20k to home value. Even if a buyer agrees, the lender may not accept the
appraisal.

Many people think that builders HAVE to lower prices soon…
It’s not so simple. You are dealing with HUGE public companies that have some deep pockets after the last few years. It’s just a game of cat & mouse. Some builders are going to go bust after the boom, others will offset losses from other areas of the country…. They can manipulate accounting numbers for awhile. The true losers become the stock holders.. Management still gets their salaries (and pron bonuses!) Lots more can be said about this.

[HLS]

I’m not trying to fool anyone. Sometimes, the builder incentive issue isn’t something that I can compete with, and I tell people that up front.

To save face, builders don’t like to lower selling price. It affects neighbors, attitudes and comps, etc…. SO what they do is keep selling price the same and increase incentives. It might be prepaid assn fees, or contribute to closing costs, but what I explain to people that I cannot compete with is when builder offers $50,000 in upgrades, that is $50K at their RETAIL. You might be able to get the same work done for $15K (or less) BUT…

One problem is that even if you bought the base model, you cannot get a lower selling price because builder doesn’t want to SELL for less. It also doesn’t make sense to take a brand new base model, buy it, and then start ripping it apart to save money on upgrades. You may void some builder warranties.

Builders play other games like saying if you take our financing, you only need a $5K deposit, but if you want outside financing you need a larger deposit, or have to pay for upgrades UP FRONT. etc.

You are dealing with huge public companies that understand business. You can get a fair deal, but you aren’t going to take advantage of Home Builders, Car Dealers or Casinos regardless of what their employees tell you.

It’s definitely worth checking around, but the builder’s know how to play the game. What you may not know is that the builder may own the “preferred lender” and may even own the escrow company. Somewhere in small print they will disclose their affiliation.

Another HUGE issue with upgrades is the actual appraised home value, regardless of incentives. Lenders don’t always lend on upgrades reatil or prepaid assn fees.

$50,000 “retail” in upgrades might add $15k-$20k to home value. Even if a buyer agrees, the lender may not accept the
appraisal.

Many people think that builders HAVE to lower prices soon…
It’s not so simple. You are dealing with HUGE public companies that have some deep pockets after the last few years. It’s just a game of cat & mouse. Some builders are going to go bust after the boom, others will offset losses from other areas of the country…. They can manipulate accounting numbers for awhile. The true losers become the stock holders.. Management still gets their salaries (and pron bonuses!) Lots more can be said about this.

[fromnj]

So, could you recommend me that the best practices to choose builder’s incentives if I have a choice assuming that we get the mortgage through you or from our main bank?

[fromnj]

So, could you recommend me that the best practices to choose builder’s incentives if I have a choice assuming that we get the mortgage through you or from our main bank?

[Alex_angel]

What does the builder get from the incentive if you use it to buy down? Pardee uses Wells Fargo, John Laing uses countrywide. Do these lenders kick back some dough to the builder making the $20k buydown incentive a wash?

[Alex_angel]

What does the builder get from the incentive if you use it to buy down? Pardee uses Wells Fargo, John Laing uses countrywide. Do these lenders kick back some dough to the builder making the $20k buydown incentive a wash?

[HLS]

The lending industry is built on what is called “rebates” or “YSP” (Yield Spread Premium)

A few years ago, the banking industry realized that loan brokers were able to aggressively compete with them and the % of loans orignated was declining through banks. Good for consumer. NOT good for big business.

In an effort to portray mortgage brokers in a bad light, a regulation was created which states that direct lenders do not have to disclose 1 important piece of information to you, but brokers do. (explained below)
It created an unlevel playing field and created the illusion that you would always get the best loan by going to a direct lender, and to this day still has a large % of people fooled.

Because the industry is loosely regulated, a large number of unethical,dishonest,immoral,rogues stepped in and preyed on vast numbers of people by misleading them and taking advantage by overcharging borrower’s to make large commissions.(Rebates or YSP) The bad eggs overshadowed the honest loan officers. Bad for consumer. Good for banks.

It totally distorted what should have been a blessing for the consumer.
This confirmed what the banking industry wanted to show.

Here is how it works:

If you deal with a “direct lender” (one who loans their own money from deposits like banks OR large lenders) they do not AND will not disclose to you that you are paying a higher rate than you need to.
They may say things like we don’t have any closing costs or origination fees, but in fact it’s just built into their pricing. They have to pay employees and commissions too.
When you deal with a bank, they only offer you their limited products and rates do vary.

When you deal with a broker, there are true wholesale PAR rates. If a broker gave you the PAR rate, they would not receive a single penny from the lender, that is why brokers charge a fee. The problem is that many charge ridiculous, outrageous,predatory fees, esp to 1st time buyers and those with credit issues.

IF the broker receives a rebate or YSP, it MUST be disclosed to the borrower, but usually ONLY shows up on 1 line of the closing statement that the borrower ONLY sees at doc signing, and is so overwhelmed with pages at that time, they wouldn’t understand it if it jumped out and bit them.

The ONLY way that rebate is received is because the borrower was OVERCHARGED in rate, so the lender will receive a higher return for the life of that loan.
The broker is rewarded with a commission from the lender for screwing the borrower. Many charge an up front fee AND Overcharge you in rate. They only tell you about the up front fee.

Anybody that claims “NO COST LOANS” are just overcharging you to the point that the commission on the back end covers all the fees and their profit.
It will cost the borrower in higher rates and higher monthly payment for the life of the loan, so the “NO COST LOAN” ends up costing a small fortune in the long run, In our area, possibly tens of thousands of dollars over the life of the loan, AND there still may be fees!

If you plan on keeping a loan for LESS than 2 years, a no cost loan might make sense.
If you plan on keeping a loan longer than 5 years, it is in your best interest to pay a FAIR fee to get a loan, AND buy the rate down to secure a lower rate and payment for the life of the loan, if it makes sense.

The ONLY fee that a broker is in direct control of is their fees. They CANNOT legally profit in any way from the fees for lender underwriting, title, escrow & appraisal UNLESS they have ownership in them.

There is absolutely NO generalization that will ensure that you received the best loan possible on any given day OR that going to a bank/direct lender will get you a lower rate.

The best thing that you can do is find someone that you trust, agree on their fee, and let them work for you.
There are honest, ethical people in the brokerage biz, and you may benefit by using them.

It’s confusing, even to consumers who have originated multiple mortgages.

Please post any questions that you have or I can contact you privately at your request.

[HLS]

The lending industry is built on what is called “rebates” or “YSP” (Yield Spread Premium)

A few years ago, the banking industry realized that loan brokers were able to aggressively compete with them and the % of loans orignated was declining through banks. Good for consumer. NOT good for big business.

In an effort to portray mortgage brokers in a bad light, a regulation was created which states that direct lenders do not have to disclose 1 important piece of information to you, but brokers do. (explained below)
It created an unlevel playing field and created the illusion that you would always get the best loan by going to a direct lender, and to this day still has a large % of people fooled.

Because the industry is loosely regulated, a large number of unethical,dishonest,immoral,rogues stepped in and preyed on vast numbers of people by misleading them and taking advantage by overcharging borrower’s to make large commissions.(Rebates or YSP) The bad eggs overshadowed the honest loan officers. Bad for consumer. Good for banks.

It totally distorted what should have been a blessing for the consumer.
This confirmed what the banking industry wanted to show.

Here is how it works:

If you deal with a “direct lender” (one who loans their own money from deposits like banks OR large lenders) they do not AND will not disclose to you that you are paying a higher rate than you need to.
They may say things like we don’t have any closing costs or origination fees, but in fact it’s just built into their pricing. They have to pay employees and commissions too.
When you deal with a bank, they only offer you their limited products and rates do vary.

When you deal with a broker, there are true wholesale PAR rates. If a broker gave you the PAR rate, they would not receive a single penny from the lender, that is why brokers charge a fee. The problem is that many charge ridiculous, outrageous,predatory fees, esp to 1st time buyers and those with credit issues.

IF the broker receives a rebate or YSP, it MUST be disclosed to the borrower, but usually ONLY shows up on 1 line of the closing statement that the borrower ONLY sees at doc signing, and is so overwhelmed with pages at that time, they wouldn’t understand it if it jumped out and bit them.

The ONLY way that rebate is received is because the borrower was OVERCHARGED in rate, so the lender will receive a higher return for the life of that loan.
The broker is rewarded with a commission from the lender for screwing the borrower. Many charge an up front fee AND Overcharge you in rate. They only tell you about the up front fee.

Anybody that claims “NO COST LOANS” are just overcharging you to the point that the commission on the back end covers all the fees and their profit.
It will cost the borrower in higher rates and higher monthly payment for the life of the loan, so the “NO COST LOAN” ends up costing a small fortune in the long run, In our area, possibly tens of thousands of dollars over the life of the loan, AND there still may be fees!

If you plan on keeping a loan for LESS than 2 years, a no cost loan might make sense.
If you plan on keeping a loan longer than 5 years, it is in your best interest to pay a FAIR fee to get a loan, AND buy the rate down to secure a lower rate and payment for the life of the loan, if it makes sense.

The ONLY fee that a broker is in direct control of is their fees. They CANNOT legally profit in any way from the fees for lender underwriting, title, escrow & appraisal UNLESS they have ownership in them.

There is absolutely NO generalization that will ensure that you received the best loan possible on any given day OR that going to a bank/direct lender will get you a lower rate.

The best thing that you can do is find someone that you trust, agree on their fee, and let them work for you.
There are honest, ethical people in the brokerage biz, and you may benefit by using them.

It’s confusing, even to consumers who have originated multiple mortgages.

Please post any questions that you have or I can contact you privately at your request.

[Author]

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