First, it says a no-cost refi is a product. False. A no-cost refi is a pricing structure. A 30yr fixed or a 5yr ARM or other loan programs are products. If you’re a consumer inquiring about no-cost refis, ask your lender to see written terms on a no-cost refi and a zero-point refi so you can compare the two. The latter has closing costs without points. A third pricing structure would be closing costs plus points to buy your rate down further (point 4 below explains how you do the math).

Second, it says closing costs on a $200,000 refi are $4,000 to $6,000. Misleading. Closing costs on a zero-point $200,000 refi will be about $3600 or less with any reputable lender. I say misleading because closing costs can rise if the borrower is paying points to buy their rate down. But there’s no discussion of this in the post (I cover it in points 3 and 4 below).

Third, it says there’s “always a cost” to no-cost refis then offers scare tactics but no primer on evaluating costs. In the mortgage industry, higher rates mean lower costs, so lenders can offer a higher rate in exchange for crediting all closing costs to borrower. How much higher depends on mortgage bond trading any given day, because rates change in realtime as these bonds trade. Right now, a no-cost refi will have a rate that’s .125% to .25% higher than a normal-cost (zero point) loan.

Fourth, it says that you should only consider a refi if you “plan to stay in the home for a minimum of three years, and can lower your interest rate by half to three quarters of a percentage point.” Incredibly misleading because there’s no hard rule for every client. All loan decisions must be made on expected time horizon in the home, how long the existing loan has been in place, and total cost savings (interest rate AND closing fees).

If a borrower does a no-cost refi to save even .125%, there is zero breakeven time and the loan amount hasn’t increased, so it’s pure interest cost savings for the consumer the day it closes.

If a borrower is paying refi closing costs (with or without points) to lower their rate, it will take anywhere from six months to four years for the interest savings to repay the fees. Everything from that point forward is pure benefit. So the consumer must tell the lender how long they expect to be in the home, then the lender will work the breakeven math to determine whether a no-cost, cost, or cost-plus-points refi works best. Or maybe the math and borrower’s time horizon reveals they’re ok in their existing loan.

About The Author: The post was written by Vera Gibbons, a journalist and financial analyst (bio below). Vera, I haven’t seen your other work, but please understand that a piece like this adds to consumer confusion about mortgages. If you need to vet your ideas with a mortgage pro, I’d be happy to help. And if it’s not me, I hope you find other sources to help educate your readers.
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Reference:
-The Cost of ‘No-Cost’ Refis: Zillow/Vera Gibbons
-Vera Gibbons bio
-Refi Roadmap: A Locked Rate Isn’t A Closed Loan

The good news is that private mortgage insurance defaults declined last month, according to the Mortgage Insurance Companies of America’s (MICA) monthly report. Private mortgage insurance companies reported September defaults fell to 38,719 from 48,187 the previous month.

The bad news is that new biz is down 29%: private mortgage insurers represented by MICA wrote $4.9 billion in new business September, down 29% from $6.9 billion the same month a year ago. The group (which is made up of MGIC, Radian, RMIC, PMI, and Genworth; not listed on its website are Essent and UG) had $477 billion in primary insurance in force in September. That is down 38% from nearly $773 billion in September 2010.

I’m linking below to the latest in a series I’ve been doing on Mortgage News Daily to help people understand the loan process and rate markets. ‘How To Shop For A Mortgage’ is a primer on how rates are derived and how to get the best terms. Also linking to my previous piece which details the loan process in terms that won’t put you to sleep. Head on over and take a look.
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My Latest For Mortgage News Daily:
-How To Shop For A Mortgage
-Refi Roadmap: A Locked Rate Isn’t A Closed Loan

Conversely, your data is not sold by the (good) vendors mortgage banks and other creditors use to run your credit. Below is a note one such vendor sent their banking clients (including my firm) this week. It contains very useful consumer information about the “trigger lead” process used by the three major credit bureaus.

Every so often, we feel compelled to address the issue of so-called “trigger leads” being sold by one or more of the national credit bureaus (Experian, Transunion and Equifax).

First, as a trusted credit information service provider, please know that we do not sell or otherwise provide any information shared by it’s customers in the process of ordering a credit report or any other information service. Ever.

The national credit bureaus (aka repositories), however, have been supplying lenders for many years with these pre-screened marketing lists, including lists comprised of consumers who are currently shopping for a mortgage. The lead is “triggered” by the mortgage credit inquiry, thereby providing the purchaser of the trigger list with a very warm/hot lead on a consumer they know is already attempting to get pre-qualified for a mortgage.

What can you do to protect your borrower from being targeted? The FTC has mandated that consumers be given a choice to Opt-Out of these pre-screened marketing lists. If a consumer opts-out, your inquiry into their credit history will not trigger solicitations from other lenders.

Consumers may do this by visiting www.optoutprescreen.com or calling (888) 567-8688. When discussing this option with your clients please make them aware of the following:

-Opting out (or not opting-out) has no impact on their credit score(s)

-Removing their name from these lists for firm offers of credit or insurance doesn’t affect their ability to obtain credit or insurance.

-Consumers may not submit opt-out requests on behalf of other members of their family.

-The opt-out process can take up to 5 business days to take effect and can be done on a 5-year or permanent basis.

Lastly, it has come to our attention that some of our clients may be concerned about inadvertently supplying their borrower’s phone number or e-mail address when ordering a credit report that might be used by another lender to solicit their borrower. Please know that regardless of whether you are ordering directly from our website or from your loan origination software, the only consumer data being passed to the bureaus in a credit report request is your borrower’s name, address(es) and social security number.

This of course raises the question: why can the bureaus sell your data? The short answer is good lobbying.

The longer answer is that, under the Fair Credit Reporting Act (FCRA), the major credit bureaus are permitted to include your name on lists used by creditors or insurers to make firm offers of credit or insurance. The FCRA also requires the bureaus to let you “Opt-Out” (as detailed above), which prevents bureaus from selling your data so you don’t receive credit offers that aren’t initiated by you.

Also don’t forget to ask your mortgage lender how they run credit, and if the vendor they use sells your data. This will normally be disclosed in the lender’s privacy policy.
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Further reference:
-FTC: Consumer Rights On Credit Reporting

On a purchase, the borrower must buy two title insurance policies: one to protect them as the owner of the property, and one to protect the lender they’re using. All lenders require this.

On a refinance, the borrower must buy title insurance to protect the lender. This is true even if you bought your home recently and paid for the lender’s policy at that time. You need a new policy to be matched up with that new loan.

In short, title insurance protects you and your lender from any claims anyone can come along and make on your title after you’re the owner of the home.

The owner’s policy runs for as long as you own your home, and the lender’s policy runs for as long as that loan is in place.

Examples of claims might be someone making a claim to having use to your driveway. Or an old claim from a contractor who never got paid for work done to the home before you even owned it.

The latter example is settled at closing by your title company, because most lenders won’t make loans on properties with open liens—including contractors and tax liens. But it’s still worth noting because the insurance would cover it if it came up later.

When you’re doing a home purchase or refinance loan, your lender and realtor are typically the first to brief you on title insurance details and fees, and to recommend a good title/escrow officer who takes it from there.

For further reference, below is a video that explains title insurance. Thanks to Megan Sorensen at First American Title for the link.

It didn’t fade yet but I also noted that “rates will continue to rise and fall on each little development in the European debt crisis.” So let’s look at the latest in Europe and preview the October 17-21 week.

Recap Oct 10-14 Market Week
Overly optimistic interpretations of “less bad” news and data continue to drive trading.

Jobless claims last week were 404k, above but close to the 400k line, below which the job market is considered to be improving.

September retail sales were 1.1%, which was at the high end of expectations and the largest gain in 7 months.

Eurozone leaders are inching toward a new plan for recapitalizing banks and the bailout du jour for Greece. More below.

The result of this less bad news and data was that the S&P 500 rose squarely above it’s 50 day moving average (chart), and mortgage bonds (3.5% FNMA coupon) dropped below their 50 day moving average.

Rates rise when bond prices drop like this.

Preview Oct 17-21 Market Week
Here are next week’s economic calendar highlights with rate impacts:

Monster Earnings Week: This week is huge for earnings including reports from Apple, Microsoft, Intel, IBM, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, Coca-Cola, McDonald’s, and GE. Tech companies should be ok but financials may offset. Stock momentum was strong last week, contributing to bond selling that pushes rates up. Rates could rise a bit more on better earnings.

Manufacturing Reports: The October Empire State and Philly Fed manufacturing reports are released Monday and Thursday. Both reports were down sharply last month (-8.82 and -17.5 respectively). Any improvement will be in the ‘less bad’ category, which would bring negative rate sentiment. Rates even to up.

Europe Remains Huge U.S. Rate Factor: I’ll repeat a note from last week that market optimism about Eurozone bank safety nets misses the main point: Bank liquidity moves probably won’t stop defaults, they’ll just help manage liquidity problems when defaults come—and U.S. rates would likely benefit from Eurozone defaults. This needs to play out further, but there’s still no clear evidence supporting a sustained rate spike. It might not come this week since there’s new reports of progress, but this story is far from over, and the only bright spot is low U.S. rates medium term.

Technical Trading Factors: The 50 day moving averages noted above are important because there’s still room to drop from here—enough to push rates up another .125% to .25% near term. Charts (or “technicals”) are critical but ultimately impacted by economic fundamentals, which aren’t strong.

Inflation: September consumer and business inflation reports are Tuesday and Wednesday. No strong inflation trend here, so rates even.

Housing Starts & Existing Home Sales: Housing starts have been dismal and no big change expected. Existing home sales rose 7.7% in August, a five month high, so if this turns into a two-month trend, it will provide some optimism. Rates even.

Bottom Line For Rates: Rates could rise more next week on further perception of progress in Europe and corporate earnings, but it’s still reasonable to expect another dip to record levels in the coming months as Eurozone issues play out.

Here’s a MUST READ while waiting: How To Shop For A Mortgage.

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Further Reference
-‘Record Low Rate’ Headlines Are For Expired Rates
-How To Shop For A Mortgage
-WeeklyBasis Rate Recap/Outlook

But rates change in real time. Example: they rose and fell .25% last week as Eurozone optimism did the same and U.S. home prices, jobless claims, and GDP were first perceived positively then sentiment reversed. This extreme daily volatility won’t stop. So here’s how to shop for a mortgage.

Shop For Loan Agents, Not Rates
Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate.

Here’s what I see every week with shoppers focused only on rate: I quote a rate only after I’ve analyzed their entire financial profile and analyzed their home’s value and condition—also known as pre-approving them.

They’ll either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else.

Then 80% of those cases come back to me because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.

Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms.

What’s not the same lender to lender is the loan agent’s ability to advise properly, analyze borrower and property profiles, and close with no surprises.

So shop to find the lender and loan agent you feel most confident can perform on these three things.

Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it.

That’s for refinancers. For homebuyers, you can’t lock a rate until you’re in contract to buy a home. Once you’re in contract, the same approach applies.

Rate Targeting
Their are two reasons for the pre-approval and rate targeting tactics discussed above:

(1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on.

(2) Rate lows are here and gone each trading day as mortgage bonds rise and fall on economic and technical trading signals. So rate targeting ensures you’ll obtain the best rate amidst all the volatility.

Your loan agent should also be able to brief you daily or weekly on the market outlook.

Rate Preview October 3-7
Here are next week’s economic calendar highlights with rate impacts:

ISM Manufacturing Index Monday: This is a national reading of manufacturing activity, and while the last two months barely crossed into positive territory in July and August (50.9 and 50.6 respectively. Above 50 is expansion, below 50 is contraction), the regional surveys out of New York, Philadelphia and Chicago haven’t shown any consistent strength in recent months. This may drop to 50 or below, and if so, rates would be even to down.

Jobs Reports Wednesday & Friday: Payroll provider reports their September jobs figures Wednesday, and the official Bureau of Labor Statistics September report comes Friday and markets are expecting to show 60k new payrolls created. This after the economy added zero non-farm payrolls in August. Plus July was cut to show 85k new payrolls instead of the previously reported 117k, and June was cut from 46k to 20k. If Friday’s report is below expectations, rates will fall.

Europe Debt Crisis: As the Economist explains this week, political paralysis in Europe is still the theme so rates will still rise and fall on each little development in Europe.

Also Ben Bernanke gives his economic outlook to Congress Tuesday, and the Fed’s Operation Twist—where they sell short-term Treasury debt and buy long-term debt—begins Monday. Bernanke will likely reiterate the Fed’s rather dismal outlook reported September 21, which is neutral to better for rates.

Bottom line: Rates are likely to remain even next week, along with some brief dips below current lows.
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Must-Read for mortgage shoppers:
Refi Roadmap: A Locked Rate Isn’t A Closed Loan

Stocks were hit on the FOMC’s gloomy economic outlook and bonds rallied wildly on the mortgage bond buying news, pushing rates down. But as I said Wednesday, a correction was likely. Sure enough, mortgage bonds are selling sharply (FNMA 30yr 3.5% coupon -62 basis points), and rates are up.

But all is not lost: rates touched extreme lows yesterday, but they’re still at pretty extreme lows.

How To Lock Rates Amidst Extreme Volatility
Here’s what you need to know getting the best rates amidst this “here and gone” rate volatility.

Gut-wrenching daily rate swings up and down will continue as traders enter and exit mortgage bonds based on the latest global economic news.

When locking rates in this environment, remember that rate locking strategy isn’t like investing strategy.

With investing, you stick with a plan and adjust slightly through short-term bumps. With rate locking, it’s a trading exercise.

You have to pick a high-end rate target that you can’t or won’t go above, and be ready to act whenever it’s there.

Since rates change throughout each trading day, make sure your mortgage advisor knows your target so they can lock your rate at a moment’s notice as markets dictate—even if they can’t get in touch with you.

Rates are truly ‘here and gone’ in seconds each day, so pick your target and give your mortgage advisor a standing order.

Keep your seatbelt on, and stay tuned:
Follow @thebasispoint

WeeklyBasis: my market recap/outlook with rates published Saturdays.