Feds make rule changes for mortgage brokers

The New York Times Lynnley Browning writes about new compensation rules from The Federal Reserve that will affect compensation of mortgages. According to the new rules, borrowers who use brokers “will most likely pay less for their services” and “be offered the lowest possible interest rate and fees for which they qualify.”

Small banks and credit unions which do not fund loans from their resources will also be covered by the rule change.

"But most banks and other direct lenders, including the few mortgage companies that function like banks, are exempt.

“The new rule is known as the Loan Originator Compensation amendment to Regulation Z, part of a strengthened Truth in Lending Act passed by Congress in 2008. Designed to prevent consumers from being steered into high-cost, risky loans, it covers how a loan originator — or any person or company that arranges, obtains and/or negotiates a mortgage for a client — is paid.

“Under the new rule, a lender can no longer pay a loan originator a lucrative rebate known as a yield-spread premium, which is tied to the rate or terms of the mortgage. Banks and other lenders can continue to pay commissions to brokers, but these payments must now be based solely on the loan amount.

“In the past, the higher the interest rate and points, the more money a broker stood to “earn.'"

How does this work?

“Brokerage firms typically earn a yield-spread premium of 1.5 to 2.5 percent of the loan amount, with higher-rate loans paying closer to 2.5 percent. The brokerage and its broker, or loan officer, typically split the rebate. On a $400,000 loan at 5.25 percent, that might total $8,000, based on two points paid, with a point being 1 percent of the loan amount.

“In the new system, the brokerage can earn a fixed commission from the lender, but the amount is not tied to the loan terms. Also, the brokerage cannot pass on a part of the commission to the broker, who must now be paid an hourly wage or salary. The exception is for loans where the lender pays the borrower’s points to the brokerage, typically for higher-rate loans. (The commission range is expected to be 1.5 to 2.5 points.) “

A new day for consumers may be dawning, but you still have to keep a wary eye open for charges, hidden and disclosed, when applying for that mortgage.

Read the full report.

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Mortgage lenders fight back on foreclosure abuse cases

NJ.com picks up an AP story on the New Jersey Supreme Court’s get tough attitude in foreclosure abuse cases. 6 of the biggest mortgage lenders say N.J. high court overstepped its boundaries

“State Supreme Court Chief Justice Stuart Rabner made a splash in December when he ordered six of the nation's biggest mortgage lenders into court to show why their foreclosure operations shouldn't be suspended over reports of widespread irregularities.

“State attorneys general around the country have increased pressure on lenders over the past year, but New Jersey is believed to be the first state whose Supreme Court has stepped into the fray so boldly.

“Too boldly, according to the banks' court filings. With the court hearing looming next month, the banks say they'd already begun remedial action months before New Jersey's court order and that suspending their operations would damage already shaky housing markets and lead to further deterioration of hard-hit neighborhoods.”

The legal argument centers on constitutional issues. Mainly, “the order violates due process and equal protection clauses because it targets six lenders while omitting others and doesn't arise from any specific complaints, according to the filings.”

The court is trying to "remedy what it perceives as a public policy issue," attorneys for Ally Financial's GMAC Mortgage unit wrote. "Such powers are the province of legislators and regulators."

The lenders targeted by the court’s order are GMAC Mortgage, OneWest Bank, formerly IndyMac Federal Bank; BAC Home Loan Servicing, a subsidiary of Bank of America; JP Morgan Chase's Chase Home Finance; Wells Fargo Financial New Jersey and CitiResidential Living, a subsidiary of Citibank. The companies process almost half of New Jersey’s foreclosure actions.

This may seem as good news for borrowers in foreclosure, but all it does is delay the inevitable.

Read the full story.

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Does applying for a mortgage make you dizzy?

From Realty Times, Don't Be Mystified By The Mortgage Maze
by Broderick Perkins

Years after the housing market tanked and sank the economy, more than 70 percent of Americans say getting a mortgage today is a serious national problem, according to a new study by MortgageMatch.com, a home loan and information site operated by Move, Inc.

According to the MortgageMatch.com survey, today's lending environment is so confusing many borrowers are experiencing high levels of stress and frustration.

More than one in five recent home buyers (20.9 percent) told MortgageMatch.com, waiting to hear if they were approved for a mortgage was more stressful than waiting to hear if they got a job.

MortgageMatch.com says home buyers can significantly improve their chances of getting a mortgage application approved on the best possible terms in today's tough lending marketplace by taking the following steps.

• Pay down your debt as much as you can before applying for a mortgage.

By reducing your debt as much as you can, you will improve your debt-to-income ratio and your credit score.

• Clean up your credit long before you apply for a mortgage.

Pull one or all of your three annual credit reports from AnnualCreditReport.com and check yourself, before you wreck yourself.

• Don't make a major purchase on credit and don't apply for new credit before you apply for a mortgage or at any point before your mortgage closes. Purchases and credit accounts increase your debt and hurt your debt-to-income ratio.

• Increase your down payment. The more you put down the better your rate and your chances at scoring on that loan application. If you can't increase your money down, buy a cheaper home. Now is not the time to stretch.

• Get all your docs in a row before you apply for a mortgage. Don't waste time or raise the ire of lenders who are tougher than ever on documentation for income, assets, financial obligations and more.

• Know and prepare for your cash requirements. Cash expenses, beyond the down payment can crush you. Educate yourself.

• Larger loans raise your costs.
• Negotiate tough. Ask for a purchase price lower than the value. In today's marketplace, many sellers are willing to deal. Go for it.

• Don't get taken. When you see rates attractive rates advertised on the Internet or TV don't froth. Advertised rates maybe what you see, but they are often not what you get.

Read the full article, Realty Times - Don't Be Mystified By The Mortgage Maze

Broderick Perkins parlayed a 30-year career in old-school journalism into a digital-age news service offering editorial content and related consulting services.
The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based content provider specializing in residential real estate, consumer news and consulting.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

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Calculating the Annual Percentage Rate

The New York Times’ Lynnley Browning is a little off his fine writing in this article dealing with the annual percentage rate calculations required by lenders.

THE lending industry has tried to make it easier for borrowers to understand the true cost of a mortgage by disclosing both its interest rate and its annual percentage rate, or A.P.R. But consumers may often wonder which figure they should focus on when buying or refinancing a property.

This is the first mistake in Browning’s report. It was not the lending industry that focused on making a loan’s true cost understandable, it was the folks in Washington, D.C. who promulgated the Truth-in-Lending Act.

The answer, many mortgage experts say, may seem counter intuitive: while the A.P.R. is popularly seen as providing a more complete picture of what you are actually paying each month, it often omits some costs.

Yes, that’s true, but what is overlooked is the underlying premise of the APR—that all lenders will have to calculate the APR the same way. There never was a promise that consumers would have to do some homework in figuring out which loan was best for them.

“When someone calls for a quote, we always give the interest rate, not the A.P.R.,” said Melissa Cohn, the president of the Manhattan Mortgage Company, a brokerage firm. “The A.P.R. is not all-inclusive.”

Whoa, if they did that in print, it would be a violation of Federal law.

When you read the full report you will see that the argument is being made for the further dumbing down of the loan process by including ALL costs in the APR calculation. In reality that sounds like a plan that would work, but by lumping in costs that are fixed in the marketplace, such as, mortgage tax in NY, and those that vary by company, for example, credit checks, you create a scene that is ripe for errors.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

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Tel 973-808-6130 - Fax 201-656-4506

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The curse of water damage - Battling Mold Infestations

This article by Jonathan Vatner in the New York Times is worth reproducing in full. Here it is:

TOXIC mold continues to be a problem in New York City. Last year the Department of Housing Preservation and Development issued 14,290 violations for mold in residential buildings.

It’s not just older buildings that can be infested with the greenish-black mold called Stachybotrys chartarum, which, along with other molds, is linked with illness of the respiratory tract; some think it causes immunological and neurological problems, too. Of the roughly 500 mold cases in the city investigated each year by Microecologies, a company that identifies and seeks to resolve indoor environmental problems, one-fourth are in buildings less than five years old, where incorrectly installed plumbing or insulation has caused water damage.

“We’re talking about multimillion-dollar condos,” said Bill Sothern, a certified industrial hygienist at Microecologies. “Brand-new!”

One defense against infestations is mold-resistant drywall, usually installed in places prone to water damage or leaks, like bathrooms and kitchens, or near heating and air-conditioning units. These products — trade names include DensArmor Plus from Georgia-Pacific, Gold Bond XP from National Gypsum and Fiberock from USG — typically include specially formulated paper or fiberglass coatings. They are not much more expensive than traditional drywall, which is paper-faced gypsum board. But using them during construction can save millions in remediation down the line.

To be on the safe side, the developers of one new building, the Laureate, a 76-unit condominium at West 76th Street and Broadway, decided to use mold-resistant drywall even in areas not prone to water damage. The brand they chose was Mold Defense by Lafarge.

“It’s a culmination of industry practice over the last seven or eight years,” said James Davidson, a principal in SLCE Architects, which designed the Laureate, “using mold-resistant Sheetrock not only in the wet areas where you’d expect moisture but also in standard partitions where you don’t expect moisture to be present.”

Though mold-resistant drywall isn’t especially expensive, installing it everywhere in the building added up: The Laureate’s developer, the Stahl Organization, paid a total of more than $150,000 extra.

The building industry may soon adopt mold-resistant drywall as a standard. Last year the Green Codes Task Force, an assemblage of architects, developers and other building experts, released a set of 111 guidelines for making New York’s building codes more environmentally sound, one of which is a proposal to require mold-resistant gypsum board and cement board — even more unfriendly to mold — in areas prone to wetness. Thirteen of those guidelines have been enacted by the City Council; the mold proposal, also known as HT 7, is under consideration.

“This is a very low-cost proposal with substantial health benefits,” said Russell Unger, the executive director of the Urban Green Council and the chairman of the steering committee for the Green Codes Task Force. “Mold is not just unsightly; it can be a serious health hazard.”

The use of mold-resistant drywall alone is not enough to ensure that a home will be mold-free. The exterior needs to be impermeable; all the building materials need to remain dry during the construction process; and condensation should not form inside the walls.

Before closing on any apartment, whether a resale or new construction, potential buyers should ask questions about mold, Mr. Sothern said.

In addition to ascertaining the kind of drywall, buyers should ask what the heating and air-conditioning equipment is insulated with — especially when the building isn’t brand-new. “Fiberglass often gets extraordinarily moldy after about 10 years,” Mr. Sothern said.

He also recommended examining the perimeter of the apartment for wetness. If condensation is forming inside the windows, or if moisture is getting in around windows and doors, that should be a red flag. Also check for warping on the floor at the edges of the unit, and any musty smells.

Another option to consider is paying for a home inspection. Microecologies charges $475 and up for an inspection, including a written report.

“So many mold problems are hidden from plain view,” Mr. Sothern said.

The on-line version can be found here.
Pretty scary, don't you think.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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