Points of Interest

The following article showed up in my mailbox yesterday.  Here’s part of it:

U.S. House lawmaker to offer credit card bill

By John Poirier

WASHINGTON, July 30 (Reuters) - A New York lawmaker said on Monday she plans to offer legislation to address some of the problems plaguing credit card customers who have been blindsided with interest rate changes and various fees.

"Consumers are concerned about interest rates and fees and not knowing anything about it," said Carolyn Maloney, a New York Democrat who chairs the U.S. House of Representatives subcommittee on financial institutions and consumer credit.

After a two-hour meeting with credit card issuers and consumer group advocates, Maloney told reporters her congressional office also plans to propose this week a set of best practices for those companies.  She did not provide specifics on them or on the legislation.

Maloney said the meeting -- attended by representatives from six companies including megabanks JPMorgan Chase & Co., Citigroup and Bank of America Corp. -- resulted in an open, "cross-exchange" of ideas she plans to use as her office prepares the principles and legislation.

Representatives from credit card issuers Discover Financial Services, Capital One Financial Corp. and American Express Co. and House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, also attended, Maloney said. - -

In March we complained of the problems consumers were encountering centering around credit cards and the interest rate increases that seemed to appear out of no where.  It’s too much to expect that we had anything to do with the current action, but nevertheless there is new legislation being formulated.

We trust that the congresswoman understands that any action which is prohibitive may actually reduce credit availability to those who most need it.  Recently, several states have enacted legislation with the proclaimed desire to protect the consumer in reaction to the ongoing mortgage credit related market problems.  One notable example is Minnesota's requirment that all income must be documented, thereby eliminating stated income or no doc loans.

Overreaction?  Perhaps.  Sound legislation?  Not likely.  While there were numerous instances of abuse concerning these "low doc" loans there are always borrowers who benefit from these types of loan programs.  A self employed individual with 20% equity or more and 750+ credit scores with multiple sources of income is the ideal candidate.

The whole article can be found here.  While we may not have the answer, we definitely have some ideas.  You'll find them here in the future.  On the other hand, if you have a concern please let us know by repsonding to "Post a Comment".  Thanks.

Our Economy & the Markets

As reported by the Federal Reserve Bank of St Louis, disposable personal income (DPI) has been reported to have grown 1.46% from January 1, 2007 to May 1.  That is approximately a 3.5% annual rate of growth in the measure of the total amount of income an individual makes after direct taxes.

At the same time, the Department of Housing and Urban Development (HUD) has recently adjusted downward many of the Area Median Incomes Fannie Mae uses for determining eligibility for many of its housing finance programs, most notably its MyCommunityMortgage (MCM) program.

One government entity (HUD) reports incomes down and another non-government (or at best quasi-government) entity reports incomes up.

What’s going on here?

Well, there could be a couple of things.  Reporting anything of this magnitude is not an exact science.  A lot of it is based on modeling.  And models of reality are infected with presuppositions of the modeler.  Sir Arthur Conan Doyle famously quipped, “Insensibly one begins to twist facts to suit theories, instead of theories to suit facts”.

And maybe it’s something else.  Maybe incomes in certain parts of the country have gone up so much that it counteracts the areas that have lost income and overall allows the Federal Reserve to report increased DPIs.  That may explain why certain area’s median incomes are down this year according to HUD.

LOAN INFORMATION:

In the past few weeks as a Bank of America banking customer I have been barraged by their “No Fee Mortgage Plus” program as I am sure that many of you have.  Some of the highlights mentioned in the copious marketing are the following:

No application fee
No Closing fees
No private mortgage insurance required
Close-on-time service guarantee
Best Value Guarantee

It’s a beautiful marketing idea to capture new customers and since they are “introducing” it, one might assume that it’s new, different or both.  Au contraire!

Application fees are an up-front charge that lenders are allowed to collect from their customers.  Their thinking may be that if I get an “up-front” fee the borrower is less likely to walk.  MetFund never requests or charges an up-front fee as brokers are not allowed to by law.  Besides, we want our counsel and service to maintain the relationship rather than monetary handcuffs.

If we were to provide a prospective borrower with a Good Faith Estimate that only enumerated the closing costs that are included in their no fee program we would woefully underestimate the true costs to the borrower.  The two biggest charges to the borrower excluding points are transfer taxes and title insurance premiums.  It’s not clear, but they may offer to cover the lender’s portion of title insurance.  And yet in their Terms and Conditions it states “fees for products or services voluntarily chosen by the customer” are not covered.  That would exclude owner’s title insurance coverage and that is the most expensive premium.  Remember, this offer is only for purchases of primary residences.

Having no mortgage insurance (MI) premiums with any purchase and less than 20% equity could be a real savings.  In fact, on Bank of America’s web site it’s the single biggest number in the example that I tried (a $500k purchase with zero down in Virginia).  Again, you have to read the fine print to find “that there may be an incremental cost” for no MI.  We usually refer to that as lender paid mortgage insurance (LPMI) where there is a higher interest rate that pays for or self insures the risk for the lender.  And as one of our disclosures point out, one of the disadvantages is that LPMI can never be cancelled.

Every participant in the real estate transaction typically wants it to close on time.  There are loans that don’t close on time for bizarre reasons beyond the financing component’s control including title defects, payoff statements not being obtained or either the seller or buyer being hospitalized.  Bank of America acknowledges this with qualifications.  MetFund has closed purchase loans in as little as 7 days from the date of a ratified contract (9 days from the time it was written).  We understand there is much at stake in meeting the timelines of a purchase contract including lock commitments, moving trucks, subsequent transactions requiring the sale proceeds not to mention our reputations and most significantly the satisfaction and peace of mind of our customers.

A claim of Best Value is very subjective and I consider that to be a throw away aspect.  As they say, beauty is in the eye of the beholder.  When I went into the lobby several weeks ago to make a deposit a rate sign was in plain view.  It included the rates charged for the conforming 30 year fixed rate mortgage for that date.  I was intrigued.  Bank of America’s web site suggests they do not charge a premium for the no fee mortgage.  But the rate on the board was high and above the market price of which I was aware.  After returning to the office I confirmed that if their rate was 6.625% we could offer 6.50% for the same costs.

MetFund was a pioneer of the no fee mortgage in 1992.  That’s how we were able to refinance hundreds of customers with zero point, zero cost loans.  There are limitations spelled out in the fine print of the Bank of America’s No Fee Mortgage such as that you have to be an existing customer, but that is to be expected.  As consumers we must all be attuned to the nuances of offers and I would strongly suggest that we allow other professionals in the field, be it financing, investment or insurance to review, and then help us understand, any proposal before committing.