Dennis' Mortgage Blog

Leslie and I were in Scottsdale last week celebrating our 15^th Anniversary, unfortunately our room had very poor internet and not everyone received my weekly update, it can be found at www.DennisCSmith.com/MyBlog  scroll past this week’s to last week’s if you wish to catch up.

Question of the week:  How does everyone get paid in a real estate transaction?

Answer:  Many years ago someone told me that when a family buys a home 100 people go to work: real estate agents, loan originator, processors, appraiser, termite inspector and contractors, title officer, escrow officer, underwriter, document drawer, county clerk employees, home inspector, on and on.  With so many different industries and people involved it is easy to see how the real estate industry is a major influence in our nation’s economy.  So who gets paid how?

Everyone on the “front-line” of a transaction is paid on a commission basis, no one gets paid until a transaction is closed and the funds from the buyers’ side of the transaction transfer to the sellers’ side of the transaction. 

Real Estate Agents  Real estate agents are paid through the sellers’ side of a transaction.  When an agent takes a listing, an agreement between the seller and the agent to compensate the agent if the property sells under certain conditions, a commission amount is agreed upon as to what percentage of the sales price the seller will pay out of proceeds.  The agent then puts the listing on the local multiple listing service advising other real estate professionals the home is on the market and at that time also informs the agents what the commission will be to the agent that represents the buyer of the property.  So the commission is split between the listing agent (represents seller) and the selling agent (represents buyer).  Note that while the listing agent has a signed contract with the seller, most agents do not have such contracts with buyers.  They work to find the right home for a family but do so on the trust that those potential buyers they have been working with will continue to work with them through escrow and not be pressured into writing an offer with another agent at an open house or through a casual meeting.  Until the escrow closes no real estate agents are paid.

Loan Originators Like real estate agents we work on commission and are not paid until the mortgage funds and the deeds recorded.  While we provide detailed disclosures of fees in the transaction, currently brokers are the only ones in California who must also disclose what will be paid to the broker and what is paid to others in the transaction.  Our compensation comes in the form of “points” or origination fees, generally a percentage of the loan amount, and may also come in the form of yield spread premiums—which is how we can do no point loans (note that the federal government is currently reviewing and leaning to eliminating yield spread premiums which would eliminate no point options for borrowers, every transaction would have to have points to compensate lenders directly which will limit the options available to borrowers).  The origination fees can be paid by anyone in the transaction, borrower, seller through credit, agents through credit or as mentioned by the bank in the form of a yield spread premium or rebate.

Escrow Company Escrow companies and escrow officers are also paid when the transaction closes.  Since escrow represents both parties in a transaction, handling paperwork and financial details for both the buyer and seller, both parties pay the escrow company fee.  It is generally split evenly between the two sides of the transaction.

Title Insurance The title insurance fees are split between the buyer and the seller but not evenly as they are with escrow.  The seller pays a higher insurance premium in the transaction and the buyer pays a lower amount.  In a nut shell the seller’s premium goes to insuring the title is clear, that they seller has the ability to deliver clear title for the property described and covered.  The buyer’s premium goes to insuring the lender that theirs is the only lien on title, other than those disclosed for taxes, homeowners, etc.

Inspectors  Home inspectors who perform a very valuable service of inspecting the structural and mechanical integrity of a property are paid before they begin their work by the buyer.  As well appraisers are paid when there work is ordered, also from the buyer.  This makes sense because if the home is found to have significant faults, or if the value is determined to be significantly lower than the sales price some buyers would balk at paying the fee for the work already accomplished.

As I mentioned there are many more people involved in a real estate transaction but these are the  ones  that come into the most direct contact wit the buyer and the seller.  Most of us are commission based and do all of our work before getting paid—keep that in mind if you are asking many people to help you find a home or a loan, only one will get paid and the rest have worked for you for free.

I will keep this link on my “Question of the Week” section to assist new homeowners:

IRS Form 5405 for First Time Buyer Tax Credit for those eligible for the up to $8000 credit. Note credit only for those who close escrow before November 30, 2009 under current legislation.

Have a question for me?  Ask me!   

Time is running out on the IRS tax credit!  If you are considering purchasing a home this year, are qualified and wish to take advantage of the IRS credit hurry and get into escrow.  All escrows must be closed by the end of business on November 30, 2009.  Are you qualified?  Click this link IRS Form 5405 for Frequently Asked Questions click here IRS FAQ

FREE CREDIT PAY-OFF WORKSHOP! Next Thursday September 17^th from 6:30 to 8:00(ish) in Seal Beach I will be presenting my Stop, Drop and Roll! Up your credit workshop.  I will present a proven plan to for those looking for tools to pay off their revolving credit debt and get off the path of debt payments and onto the path of saving and investing.  The workshop is free but workshop supplies are limited so if you wish to attend please contact me and I will forward the location and information and sign you up to ensure you have a workbook.  This method has been used by several of my clients in the past who have gone from swamped with debt and renting to saving money and becoming homeowners.  Give me a call or email and get your name on the list.

It looks like Mortgage Backed Securities will finish the day “green” again, meaning closing with market gains (remember prices up, rates down) for the 13^th time in the past 14 trading days.  This is the longest period of gains since last November, which you can see on the chart is when we saw a big rate drop over several weeks.

Long time readers may recall me writing about trading ranges.  Every commodity and market has a range of the highest and lowest price for the item that is being bought and sold.  For a period of time the prices will be in between that ceiling and that floor.  From time to time market forces, politics, whatever will cause the price of the commodity to break through the ceiling or through floor.  If the price stays above or below for a period of time a new range is established for that product.

For several weeks we spent most Fridays around 4.875% on the conforming rate (on purchase, single family residence, 20% down, 740+ FICO score, 1 point, etc, etc).  Now we have two weeks in a row below that number.  As well we have 14 trading days supporting a lower rate on the 30 year mortgage.  I suspect we are establishing a new trading range.

A major factor in our rates dropping and staying in positive territory for so many days is that investors are still snapping up our national debt.  The Treasury auctions the past month have been very well received, most significant was the number of bidders when the Treasury sold 30 year notes earlier this week—a direct competitor for the 30 year mortgage backed security. 

As long as investors want to buy our debt we will see rates stay low, and they are very, very low having dropped more than 1% since last September.  How long with this last? Not long enough for many, but longer than many others may have anticipated or predicted—myself included.

Rates for Friday September 4th:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional  4.625%                           Down 0.125%

30 year conforming-jumbo 5.00%                     Down 0.25%

30 year FHA    4.75%                                      Down 0.25%

30 year FHA jumbo 5.25%                              Unchanged

Remember we have true, honest to goodness quality Jumbo rates again! Call for quotes as they vary depending on LTV, FICO and loan amount.  $1 million for under 6%?!?! YES!

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Eight years ago this morning America was attacked by terrorists and innocent Americans at work, on their way home from a trip, off to visit friends lost their lives. We entered a new era, our nation’s history was divided between pre-9/11 and post-9/11.  As we travel further from that awful and tragic day the pain and emotion of that day diminishes for many, while our pain and hurt may diminish our memories should not.  America was attacked because we are America, we are a nation based upon the principals of freedom and liberty for all.  We were attacked because of the equal rights we give to all our citizens, men and women, young and old, Jews and Muslims and Buddhists and Atheists, Christians and Sikhs.  What makes us strong, what makes us the greatest nation in human history is also what makes us a target by those who desire none of what we are blessed to have.  God bless those souls whose lives were lost in New York, Washington and Pennsylvania, their families and our country.

Have a great weekend,

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.

Follow me on Twitter for market updates throughout the day.