Beware of “No Cost Refinances” & the Fed’s Unyielding Quest
Beware of “Snake Oil” Loan Officers Selling “No Cost Refinances” If Using Them for Your New Purchase
You know things are getting slow when you hear about Loan Officers telling prospective buyers that if they use them for their loan, they will not be charged “ANY” closing cost when they refinance. The loan officer also sold this story to the realtor, who recommended it to the buyer. Just so we are all on the same page, closing costs in GA range from about 2% to 3%, depending on the loan amount. So, on a $500,000 loan amount, we are talking somewhere around $10K+ in closing costs on the low end. In previous years, there were such things as “no cost” refinances, which were achieved by giving the borrower a rate about .50% above market and the lender would use their premium to do a lender-funded closing cost. In most cases, this is legitimate and does have the possibility of paying all their closing cost depending on the loan amount. However, in our current environment, there are minimal excess premiums to cover closing costs due to current FNMA/FHLMC/FHA and VA pricing and certainly very little excess premium in Jumbo loans. So, are they lying? No, I would not say lying but not fully telling the truth since they don’t have enough premiums, even charging a higher rate today, to cover things like attorney fees, title insurance, recording fees, and other fees that are not charged by the lender. What they are referring to is their “mortgage/bank” fees. These fees have different names, but most of them are under the names of Processing, Doc Prep, and Underwriting Fees, and depending on who the lender is, these fees will range from $1200 to $2000 in some cases. These are fees that a lender can waive for their refinance clients, and maybe even the appraisal and credit report fees. But again, not any of the attorney/title, transfer and/or State fees. BankSouth Mortgage does offer a “No Lender Fee Refinance” that only applies to origination charges. This is for our clients who entered a new application on or after 6/15/2023 and refinance within five years of their original closing date. Bottom line, be sure to ask other lenders specifically what they mean by “no cost” refinance and get it in writing just in case the loan officer may not be there when you refinance.
Fed Simply Won’t Give Up Their Quest
Listening to many Federal Reserve folks is like watching a re-run of the movie “Monty Python and The Holy Grail.” This was a British comedy that came out in 1975, and it was about their hunt for the Holy Grail. Note that I said it was a comedy, sort of like some of our Federal Reserve folks who are still unsure if they are finished with hiking rates as they chase the “inflation ghost.” Even with unemployment rising by more than .5% so far this year and may rise again this Friday with the release of November’s unemployment figures where the market is projecting the rate to remain at 3.9%, I think we may get a 4% “handle” on Friday which will send mortgage rates even lower. The Federal Reserve members are so preoccupied with being right this time that they simply won’t just say…” hey… maybe we went a little too far, and we need to start looking at reducing rates”. They believe the “public” will lose confidence in them if they reverse policy so quickly, though I think that ship has already sailed. Perhaps like when we lost confidence before the hikes when they should have started raising rates months before they did? You now have some Federal Reserve folks looking back at only six months of inflation data and saying, “Wow, if you look at the last six months, inflation has only grown by 3%, so we are very close to the 2% “target.” Amazing, we have been talking about how they calculate inflation numbers by looking in the “rear mirror” for the past 12 months and determining an inflation number was so wrong. If you use their math (the 12-month average), we may need to see a “negative” monthly inflation number to make a 12-month average get to 2%, and deflation, in some economic opinions, is even worse than inflation. So, let’s change how we look at the inflation numbers and only look back six months. Then, we can justify stopping rate hikes and look to start lowering rates. We can only hope. Keep your eyes on the unemployment figures on Friday. Again, the rate is expected to come in flat at 3.9%, and non-farm payrolls are expected to have only increased by 180,000, which is a very low number and indicative of a slowing economy.
Remember… The BEST RATE… IS A LOCKED RATE… with a float down… ask me about our program that allows you to lock your rate and then float down if rates move lower.
Make sure you (or your buyer) get pre-approved before looking at homes so we can determine if you are looking in the correct price range and have you armed to submit an offer with a pre-approval letter!
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Blog post date: Thursday, December 7, 2023
