A few examples of this trend may be seen by looking at Bank of America and Wells Fargo. Both lenders have announced that they are decreasing their mortgage origination divisions. They are trending towards national origination centers to largely service their existing pool of assets. They’re decreasing the overhead generated by their local branch offices and focusing on streamline refinances and purchase mortgages for existing customers. And, this makes sense because they already have an existing relationship with customers that have a level of past performance and a positive history of payments - which directly reduces the level of risk of default. Last year, Bank of America announced that it was exiting the wholesale mortgage business entirely. At the same time, J.P. Morgan Chase announced that it would no longer purchase loans originated by Brokers, as they believed that loans generated internally far outperformed the purchased loans from Brokers. It’s not unreasonable to assume that Wells Fargo and other large national lenders will eventually follow suit.
Servicers are large institutions that purchase loans from other originating banks and lenders. Their goals are to profit from the long term income from mortgage payments, which is a combination of principal and interest. And, if you’ve ever seen a Truth-in-Lending form from a typical loan transaction, then you understand that there is a large amount of money involved in the long term servicing of loans. The higher the interest rate, the higher the interest profit-yield. Some types of loans purchased even come with a warranty insofar as if the servicer discovers that there was a mistake in origination or fraud then the originating lender may be forced to purchase the loan back. The importance of these trends establish a dividing line in the assembly process of a mortgage loan. Local banks and lenders are better equipped to interact with the borrower, gather necessary documents, coordinate with the venders (title companies, tax authorities, insurance, and appraisers) and are better attuned to local laws and markets. Larger and national servicers are better equipped to manage the day to day affairs of mortgage payments, default, workouts, foreclosure and general customer service. One mortgage loan default to a servicer is considered a cost of doing business. One mortgage loan default to a small local bank could be considered devastating.
As we weather the storm of regulation in the mortgage lending industry, local banks and lenders will increasingly assume a larger share of the origination pie. This means that first-time home buyers can at the very least expect to be run through the proverbial ringer in the course of qualifying for a mortgage loan. I strongly suggest that prospective first-time buyers establish a relationship with a local bank or lender. Some simple suggestions are as follows:
1. Establish a checking and savings account with a local bank – this will give your future originator access to a wealth of financial information, including bank statements, income, deposits, reserves and payment history. Sometimes, an established account may qualify you for a lower rate;
2. Establish a credit card with your local bank – this will establish your ability to pay certain credit debts timely;
3. Consider refinacing your existing car loan with the bank - this may be a double benefit as it may reduce your monthly payments and establish a credit profile with the bank; and,
4. Make it a point to know the bank branch manager – in a world that sometimes in bulk seems cold and insincere, local banks still emphasize customer appreciation and loyalty. Your smile and a hello may just get you somebody in your corner advocating for your loan approval.
For more information please feel free to contact me anytime.
Jonathan J. Moriarty, Esq.
Law Office of Jonathan J. Moriarty
53 South Main Street, Ste. 3
Randolph, MA 02368
Telephone: (781) 961-2200
Facsimile: (781) 961-0017
Email: jjmoriarty@verizon.net
Website: http://www.attorneymoriarty.com
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