Weekly Rate & Market Update 5-13-16
Question of the week: What is escrow?
Answer: Last week we answered why you need title insurance which helped a lot of families looking to purchase their first home. This week’s question is the follow up from a first time buyer who is uncertain as to the purpose of the escrow company.
Dictionary.com defines escrow as “a contract, deed, bond, or other written agreement deposited with a third person, by whom it is to be delivered to the grantee or promisee on the fulfillment of some condition.”
By this definition escrow is a third person with whom a contract is deposited. For a contract to be valid it needs two parties, so part of the contract is that both parties agree who will be the escrow, the holder of their contract.
In real estate, escrow is a third party that buyer and seller, or in the case of a refinance the borrower and the lender, use to transact funds from one party to the next; escrow is also referred to as the settlement agent. Given instructions agreed to by both parties, the escrow holder agrees to accept funds from the buyer, and the buyer’s lender if necessary, and then after paying costs for other services involved in the transaction, deliver the funds to the seller once all promises are fulfilled in exchange for a grant deed from the seller that is delivered to the buyer.
Escrow is neutral and has no agency contract with the buyer or seller, its agency is with the transaction. A simpler way to look at this is that the Smiths are selling their home to the Joneses. The Smiths are represented by Mary as their real estate agent and the Joneses are represented by Joe as their real estate agent. Once an agreement to price and terms is made an escrow account is opened with Sally at the escrow company, at that point Sally is the agent of the transaction representing the agreement the Smiths and the Joneses made.
If the Joneses wish to make a change to the agreement, say have $3000 credited to them to off-set some repair costs discovered during their home inspection, they notify Sally at the escrow company. Sally cannot just change the terms of the transaction, she first must get consent from the Smiths for the credit. Once both parties agree to any changes then Sally can amend the transaction.
Escrow plays a vital role in real estate transactions. Large sums of money flow through escrow companies on a daily basis for purchase and refinance transactions. Escrow is not only charged with making sure the initial instructions are followed but also that neither party is able to change the transaction without the consent of the other. At closing, escrow is responsible for disbursing funds to all the parties and services involved in the transaction, refunding overages to buyers or borrowers, pay fees to termite, title, home warranty, lender and themselves, payoff any liens currently on the property such as the seller’s mortgage or tax obligation and transmit the net proceeds to the seller. After the closing escrow provides a very detailed accounting of all funds received and disbursed to all parties.
Escrow companies and officers in California can be independent of any other affiliation or may be part of a title company or owned and operated by a real estate brokerage. If the escrow company for a purchase transaction is owned by the real estate broker representing the buyer or seller this must be disclosed to all parties.
Agents and lenders cannot require that a particular escrow company be used on any transaction; buyers and sellers have the opportunity to request a specific company if they choose, though customary in our marketplace the seller, or the seller’s agent, is given the choice of this service.
A good escrow officer and company is like a good umpire in a baseball game, you don’t always know how good they are until you get a bad one; thankfully the latter are very few and far between these days.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Slow week for economic data until today when retail sales and producer prices for April were released. Consumers were in a buying mood in April across all sectors as sales jumped 1.3% from March. The news is not positive for lower rates, but any pressure for higher rates on the monthly number is tempered somewhat by year over year sales are only up 3% from last April. The data gives a little support to a June rate hike from the Fed, but just a little.
Producer Prices remain slack, after going negative in prior month prices for wholesalers gained only 0.2% in April and are flat year over year. This is slightly positive for mortgage rates and tempers possibility for a Fed rate hike in June.
Rates for Friday May 13, 2016: Last week I mentioned that rates were soft and lenders were hanging on to some of the gains, this week they have let a little of the gains onto the rate sheet and conforming rate dips to its lowest level in four weeks, matching our twelve month low. High-balance conforming rates dip to lowest level in three years—yes three years to Friday May 3, 2013. Lock ‘em!
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Down 0.125%
30 year high-balance conforming 3.50% Down 0.125%
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits
I spent my morning assisting Poly High School by proctoring one of the twenty something AP exams that Poly students have taken this year. Seeing the kids pouring through their testing packets gave me the shivers remembering my years of testing in high school and college. Very proud of our daughter’s school and all of the Long Beach Unified School District which has a very high percentage of students across all the high schools taking and passing the Advance Placement exams in a myriad of subjects. The cumulative savings in college costs for all the students with AP scores is very significant. As well, this year LBUSD has paid for the costs for every student who wishes to take the SAT so there is no financial barrier to taking this needed exam for college admittance.
When looking for a home remember the school district and the opportunities available for your children!
Have a great week,
Dennis
