Mortgage Market News and Insight

For the Weekend of April 6^th, 2024

 

Hawaii’s Most Read Mortgage Publication for 16 Years

 

Volume 16 – Issue 31

Is One Lender Better than Another?

What do you think are the attributes that make the lender your friend recommends better than the lender your agent referred you to, or vice-versa?  Yes, the rate offered is very important, but there’s much more than that when deciding who to proceed with.  In my list of qualities, rate, communication, and the ability to ultimately close, and close on time, are all equally important.

 

You may not think you have a complicated loan application, but it may be challenging.  The challenge may be that you just changed jobs and now you get a bonus or part of your pay is commission based.  Maybe you moved from the mainland last year and your cable company charged you for the box you didn’t return, and it now appears as a collection item on your credit report.  Or maybe there’s an issue with the place you want to buy – maybe the house has deferred maintenance, or the condo project lacks full insurance coverage.

 

All mortgage application decisions come down to 4 basic criteria:

 

Credit:       Does the applicant’s credit reflect a history of paying obligations on time as agreed?

 

Income:     Does the applicant have sufficient income for all current obligations plus the addition of the new debt applied for?

 

Collateral: Does the subject property meet the minimum standards required for the loan program.

 

Assets:       Does the applicant have sufficient liquid verifiable funds for the down payment, closing costs, and any required reserves?

 

 

Why does it happen sometimes that “Lender A” says they can get you approved when “Lender B” says no way?  The four criteria above are very clear and straightforward.  There are only 5 possible answers.

 

Misinformation:

This happens a lot.  An applicant gives a lending source all their documents.  That lender does a careful review and determines if the applicant qualifies.  If that lender doesn’t come back with what the applicant wants, they start shopping.  Unfortunately, too often the information they give that second lender lacks all the documentation the initial lender reviewed.  You can see why you’d get two different results.  Given the same documentation, every lender should arrive at the same result when using the same underwriting guidelines.

 

Mistakes & Errors:

I classify mistakes as things such as getting the math wrong when determining one’s income, or a typo in the application that changes the formula of comparing one’s income to liabilities or missing a critical document in the borrower’s application package.  We are human and we do make mistakes.

 

Errors are much more serious in my book.  I consider errors to be things such as a misinterpretation or lack of knowledge of lending guidelines.  Not only are the guidelines voluminous, but they also vary from program to program.  What’s allowed on a Fannie/Freddie loan may not be allowed on a VA loan.  How FHA treats child support and the documentation required may differ from other loan programs.

 

Gray Area:

Despite the guidelines being clear, there is room for interpretation.  How one lender reads the guidelines could be different than another lender.

 

Portfolio Loans:

If the bank is offering you a Portfolio Loan - that’s a loan they fund with their own depository assets and won’t be sold to Fannie or Freddie, or another secondary market investor.  Since it’s their money, the bank has the right to make their own lending decisions.  In some cases, it’s the reason they can offer you the loan, such as financing of a condominium hotel property.  The local banks make these loans, but all the other traditional loan programs such as Fannie/Freddie, VA, FHA, and USDA don’t allow them.

 

On the other hand, the local banks are very conservative with their guidelines.  For example, if you have been self-employed for a minimum of 5 years, Fannie and Freddie require you to submit just the most recent year of tax returns filed.  The banks require 2 years.  Coming out of the pandemic, many self-employed borrowers had a significantly better year last year than the year prior.  Using that one year of income versus averaging the past two years could be the difference between getting the loan or not.

 

Lender Program Availability:

Some lenders have access to loan programs that other lenders don’t have.  And not every broker has access to every lender.  The best example I can give is the current mess with condo insurance – and the lack thereof.  I know of only 3 lenders in the country that have investors willing to lend in condo projects that lack full replacement cost hurricane insurance.  I am thankful that I broker loans to all 3.

 

 

In summary, which is the best lender?  The best lender is the one that makes the fewest mistakes, has access to the most loan programs, and has great rates.  Along with that, they should have updated technology for you to easily apply and provide documentation securely.  But I think the most important quality your lender should have is good communication.  The biggest complaint I hear from consumers is that they can never get in touch with their lender, or that the lender never returns their calls.

 

 

 

 

 

 

And now the week’s economic news…….

 

Job Gains Defy Forecasts

Stronger than expected data caused investors to raise their outlook for economic growth this week, which was negative for mortgage markets.  In particular, job growth continued to exceed the forecasts of economists.  As a result, mortgage rates climbed to the highest levels of the year.

 

Following strong gains for the last three months, the economy added another massive 303,000 jobs in March, well above the consensus forecast of 200,000.  The greatest gains were seen in the healthcare, government, and restaurant/hospitality sectors.  Interestingly, the report indicated that most new jobs this month were part-time rather than full-time, with many people adding second jobs.

 

The other major components of the report were in line with expectations.  The unemployment rate fell from 3.9% to 3.8%, but still is up from 3.4% in April 2023, which was the lowest level since 1953.  Average hourly earnings were 4.1% higher than a year ago, down from 4.3% last month, and stand at the lowest annual rate of increase since June 2021.  Fed officials carefully monitor wage growth because it generally raises future inflationary pressures.

 

Two other significant economic reports released this week from the Institute of Supply Management revealed some interesting results.  The ISM national services sector index fell to 51.4, while the national manufacturing index rose to 50.3.  Readings above 50 indicate an expansion in the sector and below 50 a contraction.  This was the narrowest gap between the two reports in years, suggesting that the consumer preference for services over goods since the end of the pandemic lockdowns is finally moderating.  Also notable, this was the first reading above 50 for the manufacturing sector after sixteen straight months below that level, the longest streak in about 15 years.

 

 

 

 

Next Week

Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy.  For economic reports, by far the most important will be the Consumer Price Index (CPI) on Wednesday.  CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.  The detailed minutes from the March 15 Fed meeting also will come out on Wednesday.  Import Prices will be released on Friday.

Until next week….