So if you want the very cheapest loan, I cannot say it any plainer, use a broker like us. It won't cost you more. It will cost you LESS. That's because Dodd-Frank prohibits mortgage brokers from charging the consumer for the loan. Plain and simple. This rule does NOT apply to banks and bankers.
The Dodd-Frank Financial Reform Act of 2010
There's a lot of good in Dodd-Frank, and much of it will actually help consumers, without destroying the availability of capital. The good news is that for a conventional, VA, FHA, or USDA loan, the rules work in the borrower's favor, as long as the borrower uses a BROKER to close their loan. In Nevada, a "broker's" license is the highest level of mortgage license in the state of Nevada.
Here are the basics of the rules:
ABILITY TO REPAY
The lender MUST verify that the customer has the "ability to repay" the mortgage - without having to sell the house, and the lender MUST factor in any balloon payment less than 5 years away or any rate adjustment that might occur in the next 7 years. This rule applies to both owner occupied loans AND non-owner occupied loans. Not only that, but the lender must prove that the borrower had the ability to repay by using verifiable evidence that the borrower makes enough money to always make the payments. This means that paystubs, bank statements, tax returns, W2's, 1099's, and financial statements are required. On non-owner occupied loans, the rules are a bit more relaxed as some of our lenders are allowing "stated income" loans again.
The fees are capped at 3% of the actual loan amount. But, brokers CANNOT charge the borrower ANYTHING if they are going to be paid by the lender. Banks and mortgage bankers are not under the same rule as bankers are paid on the "back end" not the "front end" like brokers are. (Two different things: "banks" refers to regular banks that take deposits like BofA, Wells Fargo, and Chase, whereas "banker" refers to ANYONE who has a line of credit, closes the loan with the money from the line of credit (or from their checking account), and then sells it off on Wall Street or to the GSE's, for a profit, which isn't counted anywhere.) This means that banks and bankers can - and usually do - charge a 1% origination fee, a processing fee, an underwriting fee, and any other fee you are willing to pay, as long as the fees don't exceed the 3% amount. However, most banks and mortgage bankers are also going to charge you more on the interest rate and get paid additional points on the back end when they sell the mortgage to Fannie, Freddie, etc. Trust me, I know this for an absolute fact.
QM AND LAWSUITS
"QUALIFIED MORTGAGE" - lenders are protected against lawsuits if the loan meets "QM" status. QM loans must have the following characteristics:
- Must meet "ability to repay" requirements
- Fees capped at 3%
- Brokers cannot by paid by both the customer and the lender
OTHER DODD-FRANK REGULATIONS
Qualified Mortgages Cannot Have "Risky Features"
NO interest only loans
No negative amortizations
No Balloon loans (exception until January 10, 2016 for small lenders who keep the loans and don't sell them off.)
Loan term is less than 30 years (no 40 or 50 year mortgages allowed)
Points and fees are less than or equal to 3% of the loan amount for loans over $100k
AND WHAT ABOUT THE RULES THAT DON'T HELP CONSUMERS?
And then, there are other rules that don't actually help the consumer. When we read these rules, we had to backtrack and read the section about 15 times before we believed it. To us, it appeared as though many sections of the Dodd-Frank Act were actually written by big banks who wanted to get back at everyone who walked away from a mortgage. For example, if you wish to refinance your home that you live in, you have to pay your fees 100% up front and give escrow a money order, cashier's check or wire for the fees at least 10 days before closing.
That rule doesn't help anyone but the banks and bankers Since brokers CAN'T charge anything to the consumer anyways, that means that if you are refinancing through Bank of the Whahoo, you need to pay them before they will close your loan. I like that rule because that means that I am going to get a lot more customers. Who has the cash available to pay for their refinance in advance? Most people don't and who would want to pay in advance anyways?
THIS IS THE STUPIDEST RULE OF ALL
Another rule we hate is the one that says that renovated homes must have two appraisals done when the purchase price of the house is greater than 10% of the previous sales price in the past three months, and 20% within the past 6 months. That means you shop for a house for 6 months, you find one that has been beautifully redone, you offer the listing price of $160,000. The seller bought the property for $110,000 put $25k into repairs, paid a realtor fee of 6%, which is $9600, and closing costs of $3000. That is a total of $147,600, so the seller will make a profit of $12,400, which pays for his time and effort doing the rehab. Here is a perfectly good transaction, in which all parties benefit, but our government wants you to pay $450 for an appraisal, and then wants the lender to pay another $450 for a second appraisal. Are they trying to say that the first appraiser didn't know what he was doing? Do they think that the seller will change his price if one of the appraisals comes in low? Do they think that the lender will still do the loan at the agreed upon price? Isn't this the most astoundingly idiotic government rule you have ever heard of?