It's a great way to track mortgage rate changes from one point in time to another. However, looking at this chart begs the question: what are typical rate markups for going through a retail channel?
Well the purpose of this post is to try to answer that question, at least for one local lender I just got hold of today's rate sheet of: WAMU.
I crunched the WAMU numbers, making adjustments as needed to match the same loan criteria as used by the mortgage professor's wholesale rates, in order to allow comparison of retail to wholesale rate. These criteria are: * 400k loan size * 500k property value (80% loan to value) * FICO score of 720 (WAMU requires 680 minimum FICO for the best rates; they pulling all three bureaus and use the score in the middle.) * Full Docs * Escrow * 60 day lock * rate interpolated to zero closing costs (for WAMU this includes all estimated closing costs for refinancing, including appraisal, etc.)
Here is how the wholesale and WAMU retail rates compare for all the Fixed and ARM Products offered by WAMU and tracked on the mortgage professor, as of today's rates 2/04/2008:
Product Wholesale Retail Mark-up
---------------------- --------- --------- ---------
30 Year Fixed 5.417% 5.683% 0.266%
20 Year Fixed 5.358% 5.581% 0.223%
15 Year Fixed 4.818% 5.191% 0.373%
10/1 Interest Only ARM 5.311% 6.025% 0.714%
10/1 ARM 5.044% 5.925% 0.881%
7/1 Interest Only ARM 5.252% 5.419% 0.167%
7/1 ARM 4.666% 5.481% 0.815%
5/1 Interest Only ARM 4.848% 5.263% 0.415%
5/1 ARM 4.552% 5.294% 0.742%
3/1 ARM 4.247% 5.213% 0.966%
Analysis: * the least markup was .167% * the most markup was .966% * the average markup was .593% * the markups for the fixed mortgage products were .223% - .373% * generally, the arm products offered had a wider range of mark-up variation up than the fixed loan products
If you guys have any other questions about the WAMU rates sheets, let me know.
I hope this information proves useful for others potentially in the market for a mortgage refi or home purchase.
Summary: mark-ups as low as 3/16% - 1/4% above wholesale can likely be found with some comparison shopping.
FarmerOak - indeed there was a max markup of .966%; nice catch. (And what a crappy deal that is too!)
-----------------------
Also, some more information on how WAMU's rates change, which I just remembered and wanted to pass on: the rates vary each day, with a new rate sheet becoming available at the start of the day, in eastern standard time, being "good" for an 8 hour duration, through the end of the day, also in eastern standard time. (So if on west coast PST, can't wait until 5PM!) Through that 8 hour time period they were "good" and would not fluxuate mid-day.
And... I found wholesale rates could be fetched "by state", which would make them more accurate than "whole USA", so here is the comparison done again, this time with wholesale data specific for Washington State:
WA State
Product Wholesale Retail Mark-up
---------------------- --------- --------- ---------
30 Year Fixed 5.402% 5.683% 0.281%
20 Year Fixed 5.369% 5.581% 0.212%
15 Year Fixed 4.817% 5.191% 0.374%
10/1 Interest Only ARM 5.284% 6.025% 0.741%
10/1 ARM 4.989% 5.925% 0.936%
7/1 Interest Only ARM 5.200% 5.419% 0.213%
7/1 ARM 4.606% 5.481% 0.875%
5/1 Interest Only ARM 4.775% 5.263% 0.488%
5/1 ARM 4.512% 5.294% 0.782%
3/1 ARM 4.190% 5.213% 1.023%
Switching to state-specific wholesale data, the mark-ups rose slightly. Notably, the lowest mark-up became .212%, the highest 1.023%, and the average mark-up .593%.
Dreamtoday said: is there a way to get a mortgage at wholesale?
Find a broker and an underwriter and a processor and a title company and an appraisal company and a closing agent and a funder willing to work for free.
Dreamtoday said: is there a way to get a mortgage at wholesale?Of course there is but it will not necessarily be as advantageous as it sounds. Brokers, for instance, typically have access to wholesale rates but when it's all said and done you may or may not be better off with a broker than with a retail branch of a lender. Wholesale rates vary not only wholesale lender to wholesale lender, but also broker to broker. In other words, the same wholesale lender often offers somewhat different rates to different brokers -- it all depends on the broker's volume, the wholesale lender's efforts to garner more of the broker's business, etc... Further, as I am sure you realize, the broker's willingness/ability to pass on the savings has a lot to do with how competitive a particular mortgage package would be.
Each lender's yield spread structure also has quite a bit to do with how competitive each mortgage package happens to be. It is not at all unusual for mortgage brokers and correspondent lenders to include yield spread premium as part of their compensation, which lowers the up front settlement costs and makes their package appear more competitive. Depending on the competiveness of the yield spread structure (it's never a linear relationship, so the first 100bps will typically give you way more money than 200bps, etc...), you also may or may not be better off with a retail lender.
By the way, there are even situations where wholesale terms offered by a particular lender are actually worse than those offered by a retail arm of another lender. This often happens with lenders that have both retail and wholesale branches versus lenders that only offer wholesale services. The former sometimes face pressure from their retail counterparts not to undercut them, so they don't always offer the best terms on the wholesale side. The purely wholesale lenders do not face this pressure.
The bottom line behind all this technical mumbo jumbo is that you should not worry so much about getting retail vs. wholesale rates. You should instead shop a variety of providers and pick one that happens to offer the most competitive terms for your particular situation.
synch22
Senior Member
posted: Feb. 5, 2008 @ 9:18a
i agree its heck trying to get the best retail rate without feeling screwed, just ignore the wholesale... you will drive yourself crazy.
synch22 said: i agree its heck trying to get the best retail rate without feeling screwed, just ignore the wholesale... you will drive yourself crazy.It's not even that. It will often be more expensive for you to get a wholesale rate at par plus all the closing costs than a retail rate with discount points (so that the rates are identical) plus the much lower closing costs that may be offered by a retail provider. Of course the opposite can also be true. As I mentioned above, there are just way too many variables that affect the competitiveness of each mortgage package (even at the same broker, different loan officers sitting next to each other will often offer very different packages), so that you can never assume that you'll be better off by going to a provider offering you a wholesale rate than a retail one.
An excellent example of the above is Penfed, which only offers retail programs. On some programs, such as 5/1 ARM and 15 year fixed (not to mention 5/5 ARM, which is a unique program) at par it is far more competitive than many wholesale providers. At the same time, its yield spreads (both positive as well as negative) are not always competitive, so with heavy buy-downs or buy-ups you can often find cheaper alternatives, including the alternatives that are otherwise significantly more expensive when you are only comparing terms at par.
I second Geo123's advice to simply shop for the best rate, regardless of the retail or wholesale label. And just as important, if not more, is to know how to factor in the up-front fees within the individual's time they expect to hold the loan.
There are a lot of ways to figure this out, but a simple approach is to take: (upfont-fees) + (note_interest) + (upfront-fees*(1+mortgage_rate)^loan_duration)
Closing fees are a whole lot more variable than rates, and can easily turn a good looking rate into a horrible offer.
addendum: The calc above can be simplified to taking all non-identical up-front and closing fees and costs, and adding them to the loan principal. Then all one has to do is look up the interest paid after however long the person intends to hold the loan. The same -- say, 30 year-- table should be used in each instance.
The mortgage professor explains what wholesale rates are here, and explains why tracking them has advantages over attempting to track changes to retail rates:
"Wholesale Prices as a Day-to-Day Measure of Market Conditions
Sensitivity: Wholesale price data are a much better gauge of market conditions than retail price data because they contain much less statistical "noise". The data are offer prices on the day indicated. Retail price series, such as the one published by Freddie Mac, are weekly averages and the timing used by reporting retail lenders is not clear. The lenders could be reporting offer prices, prices on locked loans, or prices on closed loans.
There is also much less price dispersion in the wholesale market because wholesale prices are net of retail markups which can vary widely from one transaction to another."
The purpose of looking at the wholesale rate data, is that it allows efficiently tracking and comparing how the rates vary with differing points in time.
Sure, if you are purchasing a home and have a signed purchase and sales agreement with a ticking closing date, you might have no other option but to "just" shop around for the lowest retail rate, because in this scenario with a potential sale in possible jeopardy if you don't perform, you really have very little flexibility with using time to your advantage.
However, if you do have the ability of using timing to your advantage, for example: if you have a mortgage already and are considering refinancing, but could only do so profitably if the rates drop sufficiently, then tracking the rates that are current may provide you an opportunity to "jump" on a profitable deal, during the brief moment it may only be available. IE: the day the rates drop sufficiently low to make refinancing worth while.
Since wholesale rates changes correlate to changes in the retail rates, and if you know approximately what kind of markup to expect (and that was the intention of me starting this thread), you also know *generally* what can be expected to be found in the retail market at that same point in time. For example, you can make a decision if it's worth your time to go shopping around multiple retail mortgage lenders for quotes (a very time consuming process, based on my experience...), or whether it's really a better use of your time to do something else, and just wait for a day when rates are lower.
jakeru said: Since wholesale rates changes correlate to changes in the retail rates, if you know approximately what kind of markup to expect, you also know *generally* what can be expected to be found in the retail market at that same point in time.This is all true but there is simply no need to make the process so complicated by trying to figure out markups and the like. Pick a couple of providers that generally offer competitive mortgage terms (Penfed on its 5/1, 5/5 ARM's and 15 year fixed program would be one such provider) and monitor their websites for rate changes. This way you'll know exactly what the loan terms are and won't have to waste your time tracking wholesale rates and determining mark-ups.
jakeru said: The mortgage professor explains what wholesale rates are here, and explains why tracking them has advantages over attempting to track changes to retail rates:
"Wholesale Prices as a Day-to-Day Measure of Market Conditions
Sensitivity: Wholesale price data are a much better gauge of market conditions than retail price data because they contain much less statistical "noise". The data are offer prices on the day indicated. Retail price series, such as the one published by Freddie Mac, are weekly averages and the timing used by reporting retail lenders is not clear. The lenders could be reporting offer prices, prices on locked loans, or prices on closed loans.
There is also much less price dispersion in the wholesale market because wholesale prices are net of retail markups which can vary widely from one transaction to another."
The purpose of looking at the wholesale rate data, is that it allows efficiently tracking and comparing how the rates vary with differing points in time.You made the above edit after I created the preceeding post, so I thought I'd address it here. Noone is telling you to look at retail averages, which for your purposes are meaningless. By determining a handful of competitive providers for your particular situation and then monitoring their rates on a daily basis you will accomplish exactly what you are looking for without wasting time tracking wholesale rates and then approximating mark-ups.
By the way, as I explained above, you are not accomplishing anything by approximating these wholesale vs. retail mark-ups, since the mark-ups will differ provider to provider and even loan officer to loan officer. As I also mentioned above, there is a whole host of other factors that will influence the competitiveness of each mortgage program at various providers, so just knowing the rates doesn't get you very far.
geo123 - If you are only using the internet to get your retail quotes, in my opinion you are missing out on a big chunk of the mortgage lending market. Unless you cast a very wide net and perform many quotes, it's unlikely that the lenders you find are going to offer the lowest rates. When wholesale rates drop, you are not guaranteed with your method to see the change if you are only comparing a couple retailer's prices. Also, many internet quotes are in "bits and pieces", or with unstated assumptions (IE: re detailed closing costs), which makes efficient "apples to apples" comparison difficult. Lenders allowing very specific, individually tailored quotes through the internet are few and far between; usually it is necessarily manual and time-intensive process to get a quote that is applicable or comparable. The wholesale mortgage price aggregating service takes much of that legwork out of the equation.
There is much written in mortgage professor's web site about all these details, but it is beyond the intended scope of this thread, which is to answer the question: what is the mark-up of retail mortgage above wholesale rates?
I don't believe that retail mark ups vary as much as you indicate, at least for competitive offers. The mortgage brokers work pretty hard competing against each other for business, to the point that it is a generally competitive market. If you enter into a contract with an upfront mortgage broker for example, your contract may even dictate that he gets a "fixed" commission, regardless of which lender or product he ends up guiding you to. In this case, the retail mark-up truly could be fixed.
Anyway, I am done arguing with you about this. If you don't care for my methodology because you've determined it is not optimal for your situation, then simply don't read it, and do what's best for yourself. No need to threadcrap or discount the value of a methodology already judged useful by many other readers (if the amount of green is any indication).
jakeru said: geo123 - If you are only using the internet to get your retail quotes, in my opinion you are missing out on a big chunk of the mortgage lending market.Please re-read my posts again, as well as those of a few other posters in this thread who have pointed out the same thing as I have. Namely, that you can use the internet to get retail quote, wholesale quotes and everything in between. We've said that you should worry a lot less about "retail" and "wholesale" labels, which are often meaningless, and much more about the overall mortgage terms.
Also, many internet quotes are in "bits and pieces", or with unstated assumptions (IE: re detailed closing costs), which makes efficient "apples to apples" comparison difficult. Lenders allowing very specific, individually tailored quotes through the internet are few and far between; usually it is necessarily manual and time-intensive process to get a quote that is applicable or comparable.That is of course not true. We already have a number of excellent threads discussing some of the most competitively priced lenders in various market segments and loan programs. Read the threads, create a small list of lenders who are likely to offer you the most competitive terms for your specific needs, get an idea about their closing costs (you can even get GFE's from them if you want) and then just monitor the rates on their websites.
The wholesale mortgage price aggregating service takes much of that legwork out of the equation.Ghhhhm, it does? What does knowing the wholesale rate give you when you don't know what closing costs are associated with the rates and what the rate margin is to get the retail rates (as I've mentioned, rate margins will vary widely lender to lender and even loan officer to loan officer).
There is much written in mortgage professor's web site about all these details, but it is beyond the intended scope of this thread, which is to answer the question: what is the mark-up of retail mortgage above wholesale rates?Again, your question is unanswerable because the margin will vary lender to lender and even loan officer to loan officer. As I've also mentioned, it is also not at all unusual for the same wholesale lender to give different rates to different brokers.
I don't believe that retail mark ups vary as much as you indicate, at least for competitive offers. The mortgage brokers work pretty hard competing against each other for business, to the point that it is a generally competitive market. If you enter into a contract with an upfront mortgage broker for example, your contract may even dictate that he gets a "fixed" commission, regardless of which lender or product he ends up guiding you to. In this case, the retail mark-up truly could be fixed.Brokers get compensated in a lot of different ways, so all this "fixed" commission stuff doesn't get you very far. In addition to direct compensation and yield spread, lenders can also offer volume and performance based bonuses, which you will never see. Brokers can offer similar bonuses to their loan officers, which is just one of the reasons that loan terms can often vary widely among loan officers working for the same brokers.
Anyway, I am done arguing with you about this. If you don't care for my methodology because you've determined it is not optimal for your situation, then simply don't read it, and do what's best for yourself. No need to threadcrap or discount the value of a methodology already judged useful by many other readers (if the amount of green is any indication).Fair enough, although I suspect that the amount of green you've received doesn't mean that people have judged your methodology useful. I suspect that the green in this case means that people do not know enough about this but that it sounds promising. Most people do not know enough about this subject to know what is and is not useful and, as some of the posts in this thread demonstrate, a lot of people are interested in "getting a mortgage at wholesale." What they don't realize is that they may or may not come out ahead when they do that -- this is very different from getting any other product, such as a car, at wholesale rates.
In devising your "methodology," I am afraid that you have misunderstood the mortgage professor's goals in posting all this information on its website. You simply can't use all this information for your intended purposes, but there is a MUCH easier and more effective way to accomplish your goals, which is the same strategy that's been used on this board and elsewhere for quite some time, which is the same very simple strategy several of us mentioned above.
fboyfboy: It involves reading the two rate quotes off the rate sheet, with net closing costs just above zero, and just below zero. Then linearly interpolate the rate for zero closing costs.
For example: let's say you find a retailer offering these loans:
5.375% @ net closing cost of +.05 point 5.500% @ net closing cost of -.25 point
You'll do a weghted average calculation of the two rates. To determine the weights, divide one of the distances from zero (IE: .05) by the range (.25 + .05 = .30) That gives 17% weighting (to be applied to the closing cost furthest away from zero.) The remaining weight (100% - 17% = 83%) get weighted to the other rate.
So that breaks down to the following weighted average formula: (17% * 5.500%) + (83% * 5.375%) = 5.396%
PS - on a retail price sheet, YOU WILL need to inquire about what ALL the closing costs are and take them into consideration. If you are in doubt you are really being disclosed all the information about the costs, ask for a "good faith estimate." In WAMU's case, the closing costs for the "no points" rate sheet loan was $1750 - $1900, and did not vary by loan size. Therefore, for a $400k loan, the additional expected closing cost that must be added to the "points" from the rate sheet is ($1825 / $400,000 = .0045 =) .45 point.
Off topic and on topic at the same time: I love Fatwallet financial. I revel in it; it's like bathing in data. Secret data. Okay, that was weird. But I'll be buying in about one year, so I'm reading up now.
jimgilly
Member
posted: Feb. 7, 2008 @ 1:47p
"We already have a number of excellent threads discussing some of the most competitively priced lenders in various market segments and loan programs."
Could someone please direct me to some of the threads that provide a list of competitive lenders.
jimgilly said: "We already have a number of excellent threads discussing some of the most competitively priced lenders in various market segments and loan programs."
Could someone please direct me to some of the threads that provide a list of competitive lenders.
Here is something you might find interesting. These are the wholesale par rates as provided by Amerisave and posted at http://www.mtgprofessor.com/Wholesale%20Price%20Data/today's_prime.htm. Numbers are for 2/7/2008:
30 year - 5.390% 15 year - 4.793% 5/1 ARM - 4.333% 3/1 ARM - 4.113%
First, if you run a purchase quote for a $400k loan $500 home price from Amerisave using this link at the Mortgage Professors site http://www.amerisave.com/mortgageprofessor/?SourceID=2177, and compare the lender fee against going directly to Amerisave's website to get a quote, you will find the mtgprofessor quote is $500 less.
After you enter data for a quote at the mtgprofessor link, you will also see a page come up stating the loan has a markup of $5300 or 1.375% for the $400k loan amount.
Now when the quote results come up look at the numbers for 30 year FRM at 5.375% which is very close to the par rate of 5.390%. Notice that Amerisave's lender fees are $7843 and not $5300. That is a whopping $2800 and is more like 1.95% instead of 1.375%.
So, either the posted wholesale par rates are not accurate and are too low, or the profit/markup numbers are too low. In any case, something is wrong with the figures.
All this illustrates is the manipulation that goes on in this deceptive industry making it nearly impossible to get straight answers and figures before getting a home loan. Unless someone really understands how this business works, the chances of getting the right program, with the best rates and fees you qualify for, is next to impossible in my opinion.
Anyone have a plan on how to best shop and compare lenders and loan programs? I'd be interested in seeing if anyone has a system they think is easy to use, yet covers all the bases and guarantees you will end up with a good deal all around. After much research, I have yet to find the answer.
jimgilly said: Here is something you might find interesting. These are the wholesale par rates as provided by Amerisave and posted at http://www.mtgprofessor.com/Wholesale%20Price%20Data/today's_prime.htm. Numbers are for 2/7/2008: [snip]
That is an interesting observation you've observed with Amerisave offering a $495 closing cost discount for using the mortgage professor link! I have verified you are absolutely correct on this.
It seems you made a mistake when manually calculating the mark-up, because you were comparing retail quotes from today (2/8/2008) with wholesale rates for yesterday (2/7/2008.) The wholesale rates today (2/8/2008) for the 30-year fixed product have gone up from 5.390% to 5.493%. (Which at .103% is a very significant increase!)
I ran the Amerisave quotes you mentioned today (2/8/2008) and verified the same cost, figures, and disclosed markup ($5300 closing costs, or 1.35 points) that you wrote. (You didn't say which state you used to get the quotes, but I used WA and came up with the same numbers, so that may not be important.)
Although I haven't calculated the markup myself, I'll bet Amerisave's quoted $5300 markup is dead-on accurate for the numbers quoted through the mortgage professor link. I'll bet they are also excluding the third party costs and government recording fees (which the estimate in their detailed costs page, to be an additional $1661.)
I'm guessing the markup for the main www.amerisave.com web site entry would be $495 extra than the quotes through mortgage professor referral link. I also agree it is a little sneaky how they don't disclose on the mortgage professor quotes, that they have a discount. They are basically basically giving an unadvertised discount for applying through the mortgage professor link. And the wholesale-retail markup figures they are disclosing are only accurate with the discount. Nice catch!
--------------------edit------------------
OK I went ahead and calculated amerisave markup, in a manner that is comparable with my Wa Mu mark-up calculations.
I calculated including all the closing costs for refiancing they estimate (including 3rd party fees such as appraisal, title insurance, and government recording fee, etc - estimated by amerisave to be $1511, and $150 respectively.) and also at the $495 discounted mortgage professor referral quote link.
30 year fixed 5.875% = $964 "net" closing costs (.241 net point) 6.000% = -$371 "net" closing costs (-.092 net point)
then interpolating to zero net closing cost, we find the rate offered is: (6.000% * 72%) + (5.875% * 28%) = 5.965%
... which gives a .469% retail markup above today's (5.496%) wholesale rate. Compared to WAMU's mark-ups I crunched earlier, this is neither a good deal nor a bad deal... but a pretty average deal.
I should also mention that this is for a 30 day lock, not a 60 day lock, like I used for WAMU. Adjusting for 60 day lock would make the mark-up calculated for amerisave less favorable. Wa Mu charges .125 pt ($500) less closing costs for a 30 day lock quote than for their 60 day lock quote.
jimgilly
Member
posted: Feb. 9, 2008 @ 5:22a
When I did the comparison, I did use data from 7 Feb and not 8 Feb. The only variance is I used the general wholesale rate Guttentag posts versus a state specific rate.
The state I based the Amerisave quotes on was California, which is about 25 basis points higher than the general wholesale rate which is pretty close.
However, I did another comparison using 8 Feb data. The quote is based on a CA refi in the amount of $400k on a $500 SFR home, 30 yr FRM, with full docs. The same used at mtgprofessor's site at http://mtgprofessor.com/wholesaledata/WholesaleTablesAndCharts.aspx.
Using the Ameisave quote link at mtgprofessor, a page appears and it again lists an Amerisave markup of $5300 or 1.325% of the loan amount. Now, looking at quotes and the 5.500% rate which is close to the 5.518% wholesale rate I got for 8 Feb in CA, it now shows guaranteed lender fees of only $4186. At Amerisave's site it has guaranteed lender fees of $4686 - which is again $500 higher than at mtgprofessor's site.
This equates to markups of approximately 1.05% and 1.17% respectively, which in both cases, is considerably less than the $5300 1.325% Guttentag claims. So this time it is lower and not higher.
The bottom line is on two different days the numbers didn't match up and by a long shot. It also shows just how much the numbers can change from day to day. I have been tracking a number of lenders for fees and rates over the past two years and the results are quite interesting to say the least. By doing this for so long, I have gotten able to read between the lines and sort out the wheat from the chaff, and there is definitely a lot of sorting that has to be done.
While I commend the effort, to determine what a lender's actual markup is, cannot be done by the calculation you used. For one, it makes no sense to add in 3rd party fees for a number of reasons.
First and foremost, 3rd party have nothing to do with actual LENDER fees, which are the only fees they truly control and benefit from (unless they are getting an illegal rebate somewhere).
The only way you would know what a lender/broker is making on the deal and what their true markup is, would be to have the actual wholesale rates they are getting and see what the wholesale lender either charges or credits for the rate you are being quoted. From the discount points being charged or rebated, you then have to add any other lender fees to this, such as application, processing, underwriting, doc prep, etc. etc.
So, if a rate of 5.75% for example, has (1.00) after it on a rate sheet and the loan amount is $400k, the wholesale lender will be paying the loan originator $4,000 to deliver them the loan. If the quote also has a processing fee of $250 and an underwriting fee of $400, you are then looking at total lender fees of $4650.
Of course, while this all sounds easy enough to do, it works only in theory. First of all, the public rarely, if ever, has access to rate sheets and even if they did, a lot of people would have a problem reading them. You would also have to make sure you are looking at exactly the same rate sheet you are being quoted from since rates and other factors can dramatically change daily.
Even if you were lucky enough and able to get your hands on a rate sheet, you would have to be able to read and understand it, negotiate a deal, get in an application, get it approved, and lock the rate you want immediately and by that I'm talking in a matter of hours or less. Otherwise, all bets all off and you get to start all over again.
I'm not even going to get into the various types of lenders that receive compensation in ways other than discount points (YSP) such as mortgage bankers/correspondent lenders. There are SRPs, bonuses based on volume and other ways an originator can add to their bottom line, which even if you were to work for one of these companies, you would never know what the actual numbers were.
Moral of the story is it is imperative to shop and compare a number of loan options before jumping into a home loan or else it could cost you a fortune. The key is, however, you need to know how to CORRECTLY compare loan programs and loan sources and very few people I have found, can do it.
Moral of the story is it is imperative to shop and compare a number of loan options before jumping into a home loan or else it could cost you a fortune. The key is, however, you need to know how to CORRECTLY compare loan programs and loan sources and very few people I have found, can do it. Well said.
I posted my calc in the PenFed 5/5 thread. How do you compare offers ?
jimgilly
Member
posted: Feb. 9, 2008 @ 12:19p
There are a number of items that need to be considered and weighed in order to effectively shop and compare a loan. It is a lot more complicated than people think or are led to believe and one of the biggest mistakes is people go in thinking it is easy and almost always get taken because of this misconception. While there is no simple answer, things that need to be considered include:
1) What program, rate and terms to initially compare when getting a quote prior to applying 2) Where and which loan sources should you get quotes from 3) When and how many quotes should you get before making your selection 4) What information do you need to provide for a lender to give you an accurate quote and what information shouldn't you provide before submitting an application 5) What questions are crucial to ask each loan source that will help determine if you should eliminate them from your short list or consider giving them your business
The key is the borrower must reverse the role and be the one in control when shopping for a loan instead of the loan originator, be it a mortgage broker, mortgage banker, or major retailer that you are dealing with. Unfortunately, study after study, has shown even the most educated individuals who think they have the knowledge to adequately compare lenders and get a good deal often end up getting fleeced.
If even just 3 out of 100 people ended up getting what they atually qualify for and should be able to get, I would be surprised. Often the homeowner is just happy if the loan closes on time and they aren't hit with any new last minute fees at closing. The fact they may have paid several thousand dollars or more in either upfront costs or fees added to the loan amount, doesn't seem to matter as long as the deal gets done. Believe me, this is the rule and not the exception.
I am aware of a program that will be online and will guarantee a borrower who signs up will get the right loan under the right terms, rate and fees for what they want and qualify for but unfortunately it won't be available for a couple more months.
In the meantime, the best advice I can give everyone is caveat emptor -"let the buyer beware". Don't shop just rates or APR, and don't go with the first lender a friend, family member or your local realtor recommends. I could go on and on, but I think you get the gist of what I am saying.
jimgilly, your observed retail markup (excluding third party closing costs) discrepancy of .2785 point closing cost (1.325 - 1.0465) might be explained by the following:
1. The Amerisave quote is for a 30 day lock, while Mortgage professor wholesale rates mention a 60 day lock. (I don't know how much more Amerisave charges for a 30 to 60 day lock upgrade, but I can tell you looking at Wa Mu's rate sheet their going price for this upgrade is .125 closing cost points.) 2. You didn't interpolate between two quotes to get the exact figure. You used "nearest neighbor" method, which will result in reduced accuracy. You'd need to obtain costs for the rate quote above and below wholesale. You only used the rate quote @ 5.500%. You should have used weighted average of 84.8% x (lender costs for 5.500% = $4186) + 15.2% x lender costs for 5.625%. 3. Amerisave charges $495 (= .12375 closing cost) additional through their main web site entry page than their "referred by mortgage professor" page. (You identified that one.)
Also, IMO the reason why it is important to consider ALL costs necessary to refinance, when determining if it's worthwhile to do so or just continue to hold onto the current mortgage, is to avoid being in for a surprise at the closing table, owing more for all the third party costs than anticipated.
Obviously, garbage in = garbage out. So if you are not sure the lender's estimated costs are accurate, substitute in your own, standard, more conservative, estimates. I can tell you from experience from previous dealings with the Wa Mu officer who provided me the rate sheet and cost estimate, that when closing his loan previously the HUD-1 came out very very close to how he estimated it would... No surprises.
Also, it's worth mentioning that Amerisave has some very complete disclosure about costs. It's almost like getting a GFE, online and anonymously. So it should be pretty for any one of us to find inaccurate (IE: optimistic) cost estimates. They give us substantially detailed information that it's pretty easy to document assumptions.
all - Feel free to use other assumptions, included/excluded costs, third party cost estimates, location, other term deviations, etc you like, just tell us what they all are when you share on this thread your estimated or observed retail mortgage mark-ups.
jimgilly
Member
posted: Feb. 12, 2008 @ 2:05a
Jakeru,
"all - Feel free to use other assumptions, included/excluded costs, third party cost estimates, location, other term deviations, etc you like, just tell us what they all are when you share on this thread your estimated or observed retail mortgage mark-ups."
The point I have been making is that trying to figure out what anyone's retail markup is will result in a guesstimate at best and in the end not worth the effort. Why you are still pressing the issue that there is a need to come up with a retail markup of any lender when shopping for a loan, makes no sense to me. Care to explain in more detail why you think it is important?
I do agree figuring in all closing costs that will be incurred at closing is necessary if someone is considering a refinance to see if it makes sense, however, this still has nothing to do with what any lenders' markup is so I am still not following you.
You used the term -"garbage in, garbage out". A saying I like to use is "before you can get the right answers, you have to ask the right questions" and in my opinion, what anyone's retail markup is, is not one of them.
lanb
Thrifty Member
posted: Apr. 29, 2008 @ 12:13a
Resurrecting this thread to see
a) if the online tool jimgilly was talking about is released
b) is there any other better way to get the best rates
jimgilly
Member
posted: Apr. 30, 2008 @ 6:05a
From what I am aware the tool to compare quotes will be out sometime at the end of May.
Regarding the second question. There are a number of steps needed to getting the best rate you qualify for. Factors such as your credit history and credit scores, down payment or equity are becoming more important and will have a major impact on rates.
Then there is the loan program itself. Are you talking about a fixed rate or adjustable rate mortgage; what duration are the rates fixed for, is there an interest only option, will you be waiving escrow, is it a conventional or non-conventional loan. Jumbo or conforming. What is the use of the property, will you occupy it, etc, etc etc.
Bottom line is there is no simple answer to your question and that is why shopping for a mortgage is like a trip through a minefield with a blindfold on. Many loan originators use that lack of knowledge against the borrower and that's a good part of why the mortgage industry is in such a mess it is. You have to know what the right questions are to ask and then you need to know how to read the answers you get back to see if they are truthful.
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