FREEandCLEAR Mortgage Expert Blog
Welcome to the FREEandCLEAR Mortgage Expert Blog! The FREEandCLEAR Mortgage Expert possesses over 40 years of mortgage industry experience and uses this blog to bring you insights on the latest mortgage market news and developments. We also use the FREEandCLEAR Mortgage Expert Blog to launch and highlight features, functionality and content offerings on FREEEandCLEAR.com so sign up below to receive blog updates via email or check back frequently.
Let’s face it, the mortgage lending industry does not have the best reputation. Much of the dissatisfaction is centered around the idea that lenders bait and switch borrowers, or promise attractive terms upfront to win your mortgage business but then fail to deliver those terms when it comes time to close your loan. Changing terms at… Read More
POSTED: Tuesday September 26, 2017
Let’s face it, the mortgage lending industry does not have the best reputation. Much of the dissatisfaction is centered around the idea that lenders bait and switch borrowers, or promise attractive terms upfront to win your mortgage business but then fail to deliver those terms when it comes time to close your loan. Changing terms at the last minute when borrowers are desperate to close their loan causes serious borrower frustration and even anger.
The practice of baiting and switching draws the ire of borrowers and has attracted significant attention from government regulators. New rules and disclosures are designed to limit how much mortgage terms can change from the beginning of the mortgage process until when your loan closes, thereby limiting bait and switch tactics.
The heightened government scrutiny raises the question: how common is the mortgage bait and switch? According to the FREEandCLEAR Mortgage Survey, the answer is not common at all. Survey results show a combined 93% of borrowers said their mortgage rate stayed the same (70%) or decreased (23%) from when they selected their mortgage lender until when their mortgage closed, a relatively low number given the perceived prevalance of baiting and switching in the mortgage industry. In fact, it is relatively noteworthy that almost one quarter of survey respondents experienced a decrease in their interest rate over the course of the mortgage process.
Survey participants were also asked how their closing costs changed from the beginning to the end of the mortgage process. Lenders may be delivering the mortgage rate they promised but does that come at the expense of higher closing costs? The answer appears to be no. A combined 94% of borrowers said their mortgage closing costs stayed the same (78%) or decreased (16%) from when they selected the mortgage lender until when their mortgage closed.
The FREEandCLEAR Mortgage Survey suggests that the lender bait and switch is a relatively uncommon practice and there are several factors that help explain the findings. First, the steady interest rate environment over the past several years makes easier for lenders to deliver the mortgage rate they quoted borrowers. It will be interesting to review this topic again in a more volatile and inflationary interest rate market. Second, with mortgage rates being relatively low, borrowers are more inclined to feel positive about their interest rate and less susceptible to, or aware of, a bait and switch.
The other influence that we referenced above is that new regulations are intended to make it more challenging for lenders to increase interest rates and closing costs at the end of the mortgage process. Although implementing TRID and issuing Loan Estimates and Closing Disclosures may have made the mortgage process more cumbersome, perhaps they have been effective in increasing transparency and reducing last minute changes to loan terms.
Although the FREEandCLEAR Mortgage Survey is overwhelmingly positive on the bait and switch topic, the results also show that 7% of borrowers experienced an increase in mortgage rate and 6% of borrowers experienced an increase in closing costs from when they selected their lender until their mortgage closed. While loan terms are always bound to change for a small number of borrowers due to factors outside of lenders’ control (such as a change in credit score or unexpected appraisal report), these borrowers likely represent a small but very vocal minority that should not be ignored.
The proper implementation of government regulations along with conservative lending practices and improved communication should continue to reduce bait and switch incidents in the future. As more borrowers get the mortgage rate and closing costs they were promised, the perception of the mortgage industry should move closer to reality, which is positive for borrowers, lenders and regulators.
We will continue to provide a detailed analysis of each survey question on our blog in the coming weeks and you can review the full results from the FREEandCLEAR Mortgage Survey to better understand how borrowers think about and experience the mortgage process.
As disaster victims in several states start the process of rebuilding in the aftermath of the damage inflicted by hurricanes Irma and Harvey, FREEandCLEAR want to shine a spotlight on a government-backed home loan program that can help communities rebuild their homes as well as their lives. The FHA 203(h) Program enables borrowers that live in Presidentially-designated disaster areas and whose… Read More
POSTED: Thursday September 21, 2017
As disaster victims in several states start the process of rebuilding in the aftermath of the damage inflicted by hurricanes Irma and Harvey, FREEandCLEAR want to shine a spotlight on a government-backed home loan program that can help communities rebuild their homes as well as their lives.
The FHA 203(h) Program enables borrowers that live in Presidentially-designated disaster areas and whose homes were destroyed or seriously damaged to purchase a home with no down payment as compared to the 3.5% down payment required for a regular FHA mortgage and the 5% – 20% down payment typically required by conventional mortgage programs. The ability to get a home loan and buy a home with no down payment can help financially challenged disaster victims recover more quickly following a natural disaster.
Similar to the regular FHA Home Loan Program, other advantages of the FHA 203(h) Program include lower FHA interest rates and more flexible qualification guidelines, including a lower minimum borrower credit score. Additionally, the FHA 203(h) Home Loan Program does not require that borrowers maintain savings in reserve at the time the loan closes, lessening the financial contribution required to get a mortgage.
Another benefit an 203(h) Loan is that it can be used to both buy or reconstruct a home. The flexibility to utilize a loan for the reconstruction of a property is unique to the the FHA 203(h) Mortgage Program and highly valuable in areas that are rebounding from severe damage caused by a natural disaster. The program also applies to both purchase loans and refinances, further enhancing its flexibility and value to borrowers. To summarize, the FHA 203(h) Program makes buying or rebuilding a home more affordable for natural disaster victims.
Among the handful of negatives of the FHA 203(h) Home Loan Program, borrowers are required to pay an upfront and ongoing mortgage insurance premium. The ability to buy a home with no money down plus lower FHA interest rates balance the extra cost to borrowers. The FHA also applies mortgage limits that restrict the size of loan you can obtain. Borrowers that reside in high cost communities may find that the FHA mortgage limits restrict their home purchase or rebuilding options.
To make it easier for borrowers to apply for the FHA 203(h) Program, HUD has implemented procedures to accelerate the mortgage process. Lenders with a direct endorsement from the FHA are allowed to review a loan application without sending additional documents or information to the FHA. This approach streamlines the loan application process so that disaster victims can re-establish their roots faster.
You can apply for the FHA 203(h) Mortgage Program through FHA-approved lenders such as banks, mortgage banks, mortgage brokers and credit unions. Please note that only FHA-approved lenders can offer the FHA 203(h) Program. Borrowers should confirm that their lender is approved by the FHA before submitting their loan application. To be eligible for the FHA 203(h) Home Loan Program, borrowers are required to submit their loan application within one year of the President declaring a county a disaster area.
Please visit FREEandCLEAR’s comprehensive overview of the FHA 203(h) Program for more information.