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Choosing a Mortgage Company

When you are ready to shop for a loan, you can work directly with a lender or with a mortgage broker representing many individual lenders. Direct lenders are lending their own money, have in house programs and make the final decision on your application. Mortgage brokers are intermediaries who represent many lenders and loan programs from which to choose.

If you have special financing needs or want to shop the market for the best deal, an experienced broker may be able to find the best loan for you.
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Along with shopping the source, you'll also have to shop the total cost of the loan, including the interest rate, fees, points (each point is one percent of the amount you borrow), prepayment penalties, the loan term, and a host of other items.

OFHEO: Home Price Appreciation Slowed in 3Q

House price appreciation slowed considerably in the third quarter, with five states and 15 cities in California experiencing actual price declines, according to the Office of Federal Housing Enterprise Oversight. Nationally, house prices increased at a 3.45% annual rate in the third quarter, down from 5.10% in the second quarter and 13.20% in the third quarter of 2005. "House prices continued to rise through the third quarter in most of the country, but generally at only low or moderate rates," said OFHEO chief economist Patrick Lawler. The OFHEO report points out that New York, Rhode Island, Michigan, New Hampshire, and Massachusetts saw price declines from the second quarter to the third quarter. Meanwhile, 15 of California's 25 major cities experienced price declines, including Sacramento (-0.89%) and San Francisco (-0.21%). OFHEO can be found on the Web at http://www.ofheo.gov.

Frank Revamping FHA Reform Bill
The next chairman of the House Financial Services Committee wants to restructure a Federal Housing Administration reform bill so that riskier borrowers don't have to pay higher mortgage insurance payments. Rep. Barney Frank, D-Mass, who is virtually certain to be the next chairman of the panel, said he is working on a bill that raises the FHA loan limit to the median house price in high-cost areas and allows the FHA to serve riskier subprime borrowers. Rep. Frank estimated that the FHA, by serving richer communities, will generate more revenues that can be recycled to cover the higher loan-loss rates associated with subprime lending. As a result, the FHA borrowers won't have to pay risk-based premiums. It would make money for the FHA or be a "wash," Rep. Frank told a Women in Housing and Finance symposium. He also told reporters that the FHA loan limit would be similar to a proposal in a House-passed government-sponsored enterprise reform bill that raises the Fannie Mae and Freddie Mac loan limit to the median house price in high-cost areas. The GSE bill caps this increase at 150% of the current conforming loan limit.

Key Justices Dubious About OCC Pre-emption
An attorney for Wachovia Mortgage Corp. tried to persuade the U.S. Supreme Court on Wednesday that the Office of the Comptroller of the Currency has not exceeded its powers in shielding the operating subsidiaries of national banks from state regulation, but his arguments did not seem to win over key justices. Chief Justice John Roberts and Justice Antonin Scalia were particularly hostile toward the OCC's pre-emptive powers regarding an operating subsidiary that is incorporated under state law. Wachovia's attorney, Robert Long, argued that the states cannot interfere with the lending activities of an operating subsidiary like Wachovia Mortgage. He cited numerous cases where the federal courts, including the Supreme Court, held that the states cannot interfere with the lending activities of national banks or their operating subsidiaries. However, Justice Scalia contended that the OCC is completely eliminating any distinction between a national bank and an operating subsidiary. The attorney for the state of Michigan argued that Wachovia Mortgage is incorporated under state law and is not exempt from Michigan's mortgage lending law. The justices are expected to hand down their decision in Watters v. Wachovia Bank in the spring.

........ Home Sales May Be Stabilizing, Fed Chief Says
Home sales "may be stabilizing" due to lower house prices and mortgage rates, according to Federal Reserve Board Chairman Ben Bernanke, but he says he still expects a further reduction in new construction to bring the large inventory of unsold homes back to normal levels. Single-family starts are down 35% since the peak earlier this year. But builders are carrying an inventory of 555,000 unsold homes, which is 57% above the 10-year average. The Fed chairman said this 6.4-month supply of newly constructed homes probably understates the inventory due to a sharp rise in the number of buyers that have canceled sales contracts, which do not show up in official estimates. In addition, there are 3.3 million previously owned single-family homes on the market, which is equal to a 7.2-month supply at the current sales pace. To reduce this inventory overhang, builders are likely to make "further adjustments in the production," Mr. Bernanke said. "The slowing pace of residential construction is likely to be a drag on economic growth into the next year."

...... Loan Limit to Stay at $417K in '07
The conforming loan limit will remain at $417,000 next year. Although the index used to determine the maximum loan amount Fannie Mae and Freddie Mac can purchase or guarantee showed a slight decline of $501, the Office of Federal Housing Enterprise Oversight said recently that it would not lower the ceiling if the index declined. The mere 0.16% slip in the average price of both new and existing houses, from $306,759 in October 2005 to $306,258 last month (as measured by the Federal Housing Finance Board), would have resulted in a $667 decline in the limit -- to $416,333. But OFHEO Director James Lockhart said recently that the ceiling would not be lowered in order to "avoid disrupting the end-of-year" mortgage pipeline. However, the dropoff will be used in calculating the loan limit for 2008. OFHEO took over responsibility for setting the ceiling in February 2004. Prior to this year's decline in the FHFB index, the average increase in the October-to-October price of houses over the previous five years was 8.8%. Last year's limit was 15.9% above the $359,650 ceiling in 2005.

Would Lenders Sign Fannie Patent Agreement?
Lenders may not be able to sign a Fannie Mae licensing agreement due to the liability exposure and restrictions on third-party vendors, according to the Consumer Mortgage Coalition. "Without changes, I suspect it will be extremely difficult for lenders to sign the agreement," CMC executive director Anne Canfield said. Fannie is seeking comment on an "open license agreement" that would allow lenders -- without paying fees or royalties -- to use its patented process for customizing mortgages. Under the agreement, lenders cannot share access to the patented process with third-party vendors, which lenders depend on for a variety of services. "While large lenders could potentially reorganize their businesses to bring third-party services in house, this option is not likely to be available to smaller banks and mortgage companies," the CMC says in a paper that outlines its concerns about the agreement. The CMC also notes that the agreement caps Fannie's liability at $50,000, but damages for licensees is unlimited. "[I]f an entity were to sue Fannie Mae for violating any law or infringing on any patent that this license covers, the licensees would have to indemnify Fannie Mae for the losses," the CMC paper says.

White House Economist Uncertain on Housing
President Bush's chief economic advisor said the housing market has been "hit harder" than expected and he isn't sure when it will bottom out. "Obviously, we don't like to see any one industry get hit and hit hard. That affects people's jobs," said Ed Lazear, chairman of the President Council of Economic Advisers. But so far the downturn in the housing section has not really impacted construction jobs because commercial construction has "taken up much of the slack," the CEA chairman told reporters. Nevertheless, the President's chief economist has lowered his estimates of real gross domestic product from 3.6% in 2006 to 3.1% because of the housing sector. But he believes the most the decline in housing activity has already occurred. "Whether it's bottomed out now or whether it will take another quarter or so I think is still up for grabs," Mr. Lazear said.

Fannie Patent Proposal Gets Lukewarm Response
Fannie Mae's proposal to allow lenders to use its patented mortgage origination process is acceptable to the GSE's regulator, but some industry groups claim it does not go far enough and there are problems with the licensing agreement. Consumer Mortgage Coalition executive director Anne Canfield called Fannie's proposal a good first step. "We appreciate the overture by Fannie Mae. However, it falls far short of a contribution to the public domain." Fannie has circulated an "open license agreement" that would allow lenders -- without paying fees or royalties -- to use its patented process for customizing mortgages to meet borrower's individual circumstances. The government-sponsored enterprise is hoping free access will calm industry concerns about the patent. A spokeswoman for Fannie's regulator said, "The Office of Federal Housing Enterprise Oversight believes this is a reasonable resolution of this issue." But CMC is concerned the licensing agreement "calls for very complicated arrangements that appear to deter usage." Nevertheless, the industry group is willing to work with Fannie. "We are hopeful that everyone can come to a mutual agreement on this very technical, but important issue, that will benefit industry and consumers alike," Ms. Canfield said.

Banks Get 2/3 of SF Originations via Wholesale
Commercial banks and savings banks get two thirds of the single-family loan originations through their wholesale channels and only one-third through their retail branches and offices, according to new data from the Federal Deposit Insurance Corp. The Call Report data show that 575 banks originated $330.1 billion in first mortgages and $9.8 billion in closed-end second mortgages during the third quarter. It is the first time the FDIC has collected origination data, and it only requires banks with at least $1 billion in assets, or smaller banks with at least $10 million in originations over the past the two quarters, to report. The Office of Thrift Supervision requires all thrifts to report their origination activities. A breakdown shows that the reporting banks originated $226.3 billion in first-mortgage loans through their wholesale channels and $103.8 billion through their retail channels. Wholesale includes purchasing and funding loans through correspondent lenders and mortgage brokers.

.....OCC to Hear Misdirected Complaints
The Office of the Comptroller of the Currency has agreed to field consumer complaints involving national banks that are misdirected and filed with state regulators by mistake. "The burden should not be on consumers to know which agency regulates their financial institution," Comptroller John Dugan said. The referral procedures worked out with the Conference of State Bank Supervisors offer bank customers a "seamless system for ensuring that their complaints reach the right supervisory agency," the chief supervisor of national banks said. In a recent speech, Mr. Dugan urged community activists to refer complaints about national bank lending practices to the OCC's consumer assistance shop. It seems the comptroller is preparing to testify next year before the new House Financial Services Committee chairman, Rep. Barney Frank, D-Mass. Rep. Frank recently told reporters that he plans to have an oversight hearing on the OCC's consumer protection record. "I will put a lot of pressure on national regulators that have pre-empted state consumer protection laws to demonstrate that they have a capacity to do consumer protection," he said.

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