New mortgage rules raise costs for borrowers
Carl Edwards, V-P Lending for National Grand Bank in Marblehead, made a presentation at the offices of Harborside Realty this week. His main message was that the new rules, designed to “protect” the consumer, would have the effect of increasing the cost of mortgages.
The new rules, which are part of Dodd- Frank: generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling …… and establishes certain protections from liability under this requirement for “qualified mortgages.”
The concept of requiring a lender to determine if a borrower can repay a loan may seem like basic common sense, but with regulation comes additional costs. For example, a borrower with a credit score of 700 making a deposit of 30% on a loan sold to Fannie Mae or Freddie Mac will now pay 1.50% in upfront fees.
Edwards pointed out that most borrowers are likely to be surprised when they find that the advertised mortgage rate does not include all the extra points. Points can be converted into a higher interest rate on a formula of about 1/8% extra mortgage rate for every 0.5% of “points”. Our buyer with a 700 credit score putting down 30% would therefore pay an extra 3/8% for her loan instead of upfront points.
There is an alternative. Loans made by banks like National Grand, with assets less than $2 billion making 500 or fewer loans each year, who retain the loans they make rather than sell them to FNM/FRE, are Qualified Mortgages “as long as you have considered and verified a borrower’s debt-to-income ratio (though no specific DTI limit applies).”
In his presentation Edwards pointed out that the average 30 year FRM actually has a life of 6-7 years, so that an Adjustable Rate Mortgage (ARM) may make sense for some borrowers. Here’s an article I wrote Is it time to consider an ARM last summer. And jumbo mortgages are currently available at no premium to conventional mortgages.
I have written before about the advantages of doing business with local lenders such as National Grand. We can now add cheaper borrowing to the other facets, such as a lender who knows and is committed to the community, and a lender who can hire an appraiser who actually knows the market.
Carl Edwards can be contacted at 781.631.6000 or cedwards@ngbank.com.
If you are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 781.631.1223 or andrew@HarborsideRealty.com.
Andrew Oliver is a Realtor with Harborside Realty in Marblehead