I see a trend right now in the industry of borrowers making decisions of choosing their lender based strictly on rates. The lender with the lowest rate gets the deal regardless of turn times, or regardless of financial stability.

On the surface this seems to make sense, as the lowest rate will save money over the life of the loan – right? Not always.

Several years ago, a lender named Capital Commerce was known for having the lowest interest rates in the market. One day, seemingly without notice, they shut their doors leaving thousands of loans without a home, many loans had been locked at rates that were no longer available. Thousands of customers did not get the rate they had anticipated.

Another lender (who will remain unnamed) was also known for excellent rates. Last week the investor who they sold loans to cut them off without notice. They had loans that they had funded that were now unsalable. Loans that were out to docs had to be stopped and repriced. Today their pricing is nowhere near as favorable as it was in the past and there is speculation that they may not stay open much longer.

This is not to say that rate doesn’t matter. It absolutely does. Taking a rate that is .25% higher than you can get elsewhere can cost you thousands of dollars down the road. It is simply to say be careful of the lender you choose to partner with or to get your loan from. Choose your loan based on overall closing costs. Look at the strength of the lenders. If the rates seem to be too good to be true, ask about their closed volume. If the rates are great but they aren’t doing any volume, this is a red flag. The best rates in the world don’t do you any good if the loans can’t close.

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A recent article in the WSJ online (reported through Yahoo Finance) talks about how political influence is being used to direct the TARP funds. You can read that full article here.

When the original bill was written, it was done as an ‘emergency’ measure to stabilize the economy, and yet there had to be many little additions added to the bill to get other politicians to go along with it. Provisions such as tax credits for wooden arrows…. Not sure how that plays into the credit markets!

If we really want to get through this mess quickly, then we need the new president to step in, and demand the transparency he has been preaching, and hold everyone accountable. No more politics as usual, this is not about getting votes. This is about getting the country on track.

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Earlier this Fannie Mae released their FAQ’s giving a clearer picture to how the “Home Valuation Code of Conduct” will be handled.

In reading through the guide, this will make things somewhat harder on mortgage brokers, and will probably end up costing the customers a bit more money.

The big issue was the minority of mortgage brokers – AND mortgage bankers – coercing appraisers to inflate values on appraisals which ended up costing lenders lots of money.  This did and still is happening.

Lenders have already addressed this by tightening up appraisal review guidelines and Fannie and Freddie have tightened up the guidelines by forcing lenders to repurchase deals if the appraisal was inflated.

The guideline will probably roll out fine, however there are a couple of unintended ramifications:

1st – the broker cannot have any contact with the appraiser. While on the surface this sounds smart, currently many brokers have their appraiser do a comparable search up front, and at no cost to the customer. Now that they cannot use their appraiser, the customer will have to pay for an appraisal without the ability to know if the value is close.

2nd – many brokers have pricing set with their appraisers that is lower than will be charged through the new process. Appraisers will probably make less as there now has to be a profit margin built in.

3rd – Many good brokers know the bad appraisers and steer clear of using them. This option no longer is available.

4th – This system does not ensure that the lender will accept the appraisal that they order. So they could get the appraisal back that they ordered, and decide that they do not like the value. While this may seem extreme, it will happen….

Not all of this is bad however, this will alleviate the brokers from the blame game that has been played – at least where the appraisal is concerned. It will raise the question though of what happens if the loan doesn’t close as the lender is now responsible for collecting payment, and the guidelines specifically prohibit the appraiser from collecting payment at the door. If the loan doesn’t close, the lender is on the hook for the bill!

We shall see how this rolls out. Hopefully it does end up being something good for the consumer and actually protects the banks. Time will tell.

For the full FAQ’s, click here.

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