Jax Thots

Many homeowners obtaining mortgages in the height of the last refinance craze opted for adjustable rate mortgages (ARMs) that provided fixed rates terms for the first 5 or 7 years. After that initial period the interest rate would adjust based on a series of conditions outlined in the loan. Those homeowners that have not paid off those loans are now facing the likelihood that the interest rate on their loan is about to change and are panicked at what they will go to. In most cases they probably don’t need to worry – yet.

Adjustable rate loans determine their new rate by adding two factors – an index and a margin. The index is the variable component that’s established by some basis outside of the lender’s control. To get into all of the various indices would be much too long a post for this site. Suffice it to say that these indices typically represent the economic conditions of the time. Let’s see why this is the saving grace for ARM holders.

Looking at interest rates in a broad sense we can say that when economic conditions are slow rates tend to be low. This is so that the terms tied to those loans encourage borrowing and growth. This is what the Federal Reserve does when it sets interest rates. Conversely, when growth and spending increase the interest rates will also tend to increase. This is both a supply and demand issue as well as a way of keeping excessive spending and growth in check. If not kept in check inflation can run rampant and eat away at the gains made by the growth.

Because the past couple years have been so dismal economically the interest rate on most indices are very low. The website Mortgage-X provides an extensive list of indices and is a great reference place for this information.

The second factor that influences an ARM’s new interest rate is the margin. This is the amount that is added to the index to determine the new interest rate. Margins are typically 2-3.5% on standard mortgages but can be considerably higher on sub-prime loans.

You’ll find the margin and index for your loan among the papers you signed at the closing of the mortgage. Specifically you should look for the Note. You may also find information in a document called the Variable Rate Mortgage Program Disclosure. These documents will spell out the specifics of the interest rate calculations. You’ll see both the margin and index spelled out and you’ll be able to estimate your upcoming interest rate.

In today’s economic environment most indices are at historically low levels. This means that many of the people that opted for an ARM 5 or 7 years ago may see little if any change in their interest rate when the adjustment comes up. However, great concerns exist over the inflationary effects that all the government bailouts will have on the economy. As we continue to print money to pay for the recovery, the value of the money declines. This will eventually lead to a devaluation of the dollar and in turn inflation. If you have an ARM don’t panic. You’re not going to get hammered with a skyrocketing house payment – yet. However, don’t try to play the market for another year or two. I believe that you will find yourself in a much worse situation when interest rates start going up in the near future.

One of the factors that make up residential mortgages is the percent of the home’s value that is being lent out in a mortgage. This is called the “Loan to Value” or LTV. When a homeowner obtains a loan it’s based on the value of the home as established in a home appraisal. As home prices fall, the amount of the loan becomes a greater percent of the home’s value. This can be very frustrating for someone looking to refinance.

I recently received a call from a customer looking to refinance their loan. They had originally purchased the home with a 10% down payment and we making the payments as agreed. When we investigated the refinance option a little more we found out from the appraiser that the home had lost about 13% of its value since the date of original loan. A new loan at a lower rate was not available to the homeowner because the customer owed more on the home than it was worth.

I had another customer that originally had 20% down but falling prices now required them to have Private Mortgage Insurance (PMI) on the loan. While that wasn’t what we had hoped for, the cost of the PMI was more than made up for by the interest rate savings.

While it was frustrating that the first customer was unable to refinance I was happy that they didn’t incur any unnecessary costs to find out. Most mortgage lenders require an appraisal to refinance a home. Many lenders, particularly internet based lenders, simply collect an application fee of several hundred dollars and when the appraisal is completed, inform the customer that the home didn’t have the value sufficient to secure the loan. Some lenders actually use this up front money as a revenue source for the company. I’m very fortunate to have a working relationship with my appraisers such that they will review a home’s value before initiating a full loan request and paying an application fee. This is commonly called a “comp (comparable) check”. I should note that the majority of homes can be reviewed in advance but occasionally the data isn’t available to do a “quickie” valuation.

Customers with existing FHA or VA loans are the great exceptions to the “new appraisal” rule. These loan types allow the customer to secure a lower rate when otherwise they’d be out of luck because of falling values. Both of these loans allow a customer to lower their interest rate without the need for all the paperwork normally required on a refinance. This list includes employment, income, and asset verification. Credit reports usually are not required but a payment history on the mortgage is since one of the criteria of these “streamlined refinances” is that the customer must have paid their payment on time for the past 12 months. FHA and VA vary slightly on how much of the closing costs can be rolled into the new loan but both offer vastly better options than conventional loans.

As the rates continue to fall on long term mortgages and you look into refinancing your loan be sure that you seek out a reputable lender and a well qualified loan officer that knows the Michigan market and can provide advice and counsel without you having to pay a lot of unnecessary costs. If you have an FHA or VA loan you can feel confident that options exist even when the home has lost some of its original value.

The big news that we often hear is how the Federal Reserve lowered (or raised) rates. While that has an impact on many financial markets it doesn’t really have a direct effect on mortgages. In fact, the Fed taking one action can actually cause mortgage rates to do the opposite. It can get complex but let’s take a look and see if we can make sense out of it.

The Fed takes action in an attempt to stimulate or slow down the economy and gears their actions towards short term lending transactions. By adjusting the cost of borrowing money the Fed can attempt to encourage or discourage spending and growth. Lowering rates makes it cheaper to do business and tends to stimulate the economy while raising rates does just the opposite.

Mortgage Backed Securities (MBS) are those investments that provide the money for residential mortgages. MBS investors are looking at the long haul as their yields pay out for years not months or even days like the Fed. If MBS investors perceive a particular action of the Fed such as lowering rates as having a long term stimulating impact on the economy they may believe that these actions will eventually result in economic growth. As this eventual growth expands it frequently results in inflation and higher interest rates. Therefore the investors in MBS may interpret the action of the Fed lowering rates as a likely sign of future increases in rates and mortgage rates will rise. The opposite can occur if the MBS market perceives a move by the Fed as slowing to the economy.

From this picture you can see why from time to time we see mortgage rates work opposite of action taken by the Fed. When the Fed makes a move its done based on the same data and projections that investors have when investing in MBS. The difference is that the investors are making daily adjustments to the price and yield on MBS based on the data and projections while the Fed takes action much less frequently. This allows investors in MBS to predict what the Fed will do and calculate that into their investment strategy. It’s when the Fed does something unexpected that things get interesting.

The part of the recent Fed action that will help mortgage rates will be their intent to buy MBS. When people – or in this case the Federal Reserve – invest in MBS they buy a bond that pays them a long term interest rate. As the demand for the MBS increases the price goes up. In turn the rate that is paid on that investment or its “yield” goes down. This increase or decrease in yield is translated to homeowners and the interest rate that they pay for their mortgage. Therefore the yield on the MBS trends along with the rate on the mortgages that they fund.

In addition to the actions of the Fed there are countless factors influencing mortgage rates and anyone that says they know for sure where they are headed is full of crap. Too many things can come up to change their suppositions and projections. While there may be statistical support for mortgage rates to go up or down, MBS are globally influenced investments that can be affected by events around the world. Don’t gamble your house and mortgage on someone telling you that they know precisely where rates are headed.

Several years ago I was meeting with a hairdresser from a local fitness center about her loan options. She told me that several of the employees of the center were originating mortgages “on the side”. They had been encouraging her to join them and said that she’d be very good at it because “she had a great personality”. The fact that she had absolutely no clue about the mortgage process or finances wasn’t a concern for her or her co-workers. That demonstrated to me the depths to which my industry had sunken. Now after many years Michigan is finally requiring licensing of loan originators. Unfortunately there are a few areas where the special interests have clearly influenced the rules.

The original date for registration was scheduled to be January 1, 2009 but some of the requirements weren’t ironed out ahead of time so that’s been postponed until April 2009. Two of the big reasons for the postponement were the requirements for fingerprinting and background checks. These requirements are essential to the licensing but evidently the process wasn’t coordinated with the law enforcement agencies providing those services so that they could be implemented by January 1.

The law only applies to those loan originators the work for mortgage brokers, lenders or servicers that originate residential loans. Loan officers who work for depository institutions or their subsidiaries (i.e. banks, S&Ls, credit unions) are not required to be registered. Having worked for both institutions I know that most depository institutions are pretty good about the compliance laws and enforcing them internally. However, I know that not all are as diligent and it would have been nice to see every loan officer need to go through the same registration process. At least the new law brings most of the major violators of mortgage improprieties under the watchful eye of the licensing agency.

Among the many steps in the process loan originators must take a 24 hour class and pass a written exam. Having taken the exam I can say that the state did a pretty decent job of mixing up the material needed to pass. It included questions on compliance as well as underwriting topics. Loan originators must also have not committed any of a series of criminal acts mostly pertaining to fraud or securities. There will be an annual fee assessed and originators will be required to take 6 hours of continuing education courses. These courses must include legal and regulatory compliance, ethics, and fraud prevention.

One component of the law that doesn’t make sense is the requirement that an originator has 90 days to complete the process after they begin originating loans. I don’t know of any other regulated profession that allow someone to work for 90 days before requiring that person to be licensed – particularly finance related professions. I can only assume that this was put in the rulebook to accommodate those lenders that hire mass quantities of loan originators to work their call centers and see who cuts the mustard. If the new hires perform, then they go through the registration process. In the meantime the very people that are in need of the most education are allowed to counsel homeowners on their mortgages with fewer requirements than someone that’s been writing loans for a couple decades. I suppose the fitness center hairdressers can still write loans for 90 days while they try out the job.

As a rule, I avoid most government involvement in my life. However, this type of licensing has been long overdue. For many years the state claimed that they didn’t have the money to implement this type of system. Evidently the mortgage crisis that’s fallen on our state has helped the state find a way to afford it. Let’s hope it does some good and gets some of the charlatans and thieves out of the business and raise the level of professionalism in the mortgage business.

You have to give credit to the federal government for trying to come up with relief for the thousands of homeowner’s in trouble with their mortgages. However, you have to wonder if anyone ever thinks about the relief measures that they push through FHA.

First, let’s clarify that FHA (Federal Housing Administration) doesn’t lend money, they insure mortgages. The cost for the insurance is set by FHA based on the characteristics of the loan being insured. Investors or loan servicers provide the funds available for the mortgage based on the presence of the insurance that FHA provides on the mortgage. The interest rate and terms of the loan are determined by the investor based on the riskiness of the loan and the ability to pool the loans and sell them on Wall Street.

In 2007 FHA announced a program called the FHA Secure loan. This was intended as a loan that would bail out people that were behind on their mortgage as a result of an adjustment on their adjustable rate mortgage. The product came out ahead of investor interest and pricing. That means that while FHA was making a big deal out of this loan insurance program that they had developed, the investors hadn’t determined if they were interested in the product and under what terms. It took months before lenders started to get on board with the product. By the time it was done, though, so many stipulations were placed on the customer that few people took advantage of the loan. Many didn’t do it because it wasn’t beneficial; some because they couldn’t get the cooperation of the current mortgage holder; and most because they couldn’t meet the specific guides that had evolved on the product.

Recently, FHA announced another program – Hope for Homeowners (H4H) – where FHA will insure loans for customers that owe more on their homes than they may be worth. The program allows for a new FHA loan of up to 90% of the appraised value of the property. The current lender must be willing to accept a reduced payoff on the loan to accommodate that 90% figure. However, with the added cost of FHA insurance, closing costs, and escrow establishment the amount that the current lender must accept is often closer to 80-83% of the value.

To make it beneficial to the current lender, the program needs to offer them so incentive to reduce their balance now. Here’s how that part works: If the owner of the home sells the home, the program calls for the lender to receive a portion (50% to 100%) of the property’s appreciation (since the time of the H4H loan) at the time of the sale. In other words, if the home goes up $30,000 in value from the time of the loan until the time it’s sold, the original lender gets a share of the $30,000. The seller is responsible for any costs to sell the home out of their portion of the split appreciation. There are additional calculations for improvements made to the home that I won’t get into here.

There are some big downsides to the program. First is the increased cost of FHA’s mortgage insurance. The borrower will pay 3% of the loan balance at closing towards FHA’s insurance plus the borrower will pay 1.5% of the loan balance annually. This annual amount will be divided by 12 and paid as part of the monthly payment. These high premiums mean that the customer must be reducing their interest rate and balance rather significantly in order to see any reduction in payment. Also, while the 3% up front figure can be financed into the loan, the current lender must therefore reduce their payoff balance by that amount so that the total loan doesn’t exceed 90% of the home’s appraised value.

Second, and a major hurdle, is that the current servicer must be willing to take the lower payoff on the loan. I’m not certain that too many lenders will jump on this bandwagon and take the kinds of loses on the loans that would make this advantageous to a homeowner – even with the promise of a deferred equity offset.

Lastly, are the terms that are offered on this product by the investors that are lending the money for the loan. Many lenders have not elected to offer the product because they can’t tell if there is an appetite for this loan on Wall Street. Without that knowledge it’s difficult to establish the rates and terms of the loan. Additionally, there are costs to establish and manage any loan product. Without an idea of whether this is going to be a widely desired product, many lenders are unwilling to incur the costs to set up the product at time. Maybe they learned a lesson after the FHA Secure loan.

Those lenders that are offering it appear to be limiting the program to only those loans that that lender is servicing. In other words, Bank of America only offers the H4H option to those loans that they are servicing. They have not opened up the option for loans where another company has the loan.

There’ve been several stories in the news about the Hope for Homeowner’s program that cited great benefits to the homeowner. I suspect that these “home runs” by the homeowners are going to be few and far between. The advertisements you see for this program should include the same fine print that you see on the weight loss commercials – “Results not typical”. If someone attempts to talk you into this product under the Hope for Homeowner’s name or some other branded name, be wary and check out all the terms. Most of all, be cautious giving anyone money to process this loan until you know your current lender will work with you on a balance reduction.

The question was posed to me recently as to how a foreclosure or short sale affects a customer’s ability to purchase a home in the future. With guidelines shifting and changing like sand dunes in the desert it’s tough to answer that question. Clearly a customer that has gone through a short sale or foreclosure is going to need time before they will be able to purchase another home.

To start with, a short sale is when the lender agrees to a lower payoff than the loan balance while a foreclosure occurs when the lender takes the home from the homeowner due to non-payment. Currently, many lenders view a foreclosure the same as a short sale. Personally I think that this is wrong. Understanding that each homeowner’s situation is different, a person that willingly and proactively works with a lender to minimize the lender’s loss on a house through a short sale has taken a higher road than the customer that has stopped making payments and walked away from a home. A short sale takes time and effort on the homeowner’s part and not all are granted but at least the homeowner attempted to work with the lender. I expect that mentality to change in the future and short sales be treated less harshly.

A point to make is that when a customer finances a home they sign two documents. The note is the promise to pay back the loan. The mortgage establishes a lien on the property that allows the lender to take ownership of the property (loan collateral) in the event the owner defaults on the note. They are two distinctly different documents and just because a home is foreclosed on, that doesn’t necessarily make the lender whole on the note. That’s why lenders can threaten to pursue additional action after a foreclosure. While the reality is that few lenders pursue debt collection after a foreclosure, they are often within their rights to do so.

At present, most guidelines require that at least three years (and more in some cases) elapse from a foreclosure or short sale and the purchase of a new home. I expect that as time goes on we will see this change. I’d like to see less pressure on a homeowner with a previous short sale than a foreclosure.

In the meantime, one area that is dramatically different between the two actions is in credit scoring. A foreclosure will reflect both the late payments on the loan that can extend for months until the debt is resolved. In addition, the foreclosure shows up in public records. Credit scoring for people with public records is quite different than the rest of the population. A short sale may have some late payments but typically those late payments are more limited and cease as soon as the home is sold. In addition, a short sale will normally show on a credit report as an account that was “settled for less than the amount due” or something similar. Since credit scoring doesn’t take narratives like these into consideration, the impact on the customer’s score should only be that which comes from the late payments rather than all the damage a foreclosure does to a credit score.

Since so many elements of our lives are predicated on credit scores the logical conclusion would be to do that which is less damaging to one’s credit score – as well as more responsible. While I absolutely understand that some lenders are short sighted and fail to work with homeowners in short sales, if you have the choice, pursue that route. It will help you for years to come in areas totally unrelated to housing.

All the financial doom and gloom is definitely sinking into people’s minds. I was at several functions lately and as a conversation starter several people asked if we had mortgage money to lend. They were under the belief that the banks had simply stopped lending money. When the topic of Fannie Mae and FreddieMac came up then their perceptions grew even worse.

Folks, WE HAVE LOTS OF MONEY TO LEND. We just aren’t being stupid about it anymore.

Granted the guidelines that we evaluate loans to have gotten stricter but that’s like saying that they just imposed a speed limit of 80 miles per hour on the autobahn. It’s still plenty fast just not insanely fast. We now see the underwriting of loan to be more like the loans of the 1980’s and 90’s when the industry didn’t rely on an automated underwriting system to evaluate loans with a seeming disregard for logic and common sense.

Lenders that use the automated systems are now imparting additional credit overlays in addition to those built into the automated underwriting engines. For example, an automated system may allow us to close a loan with limited income documentation but that doesn’t mean that the investor that is purchasing the loan will allow that.

Also feeling the brunt of the tightening are loans like investment properties, “cash-out” refinances, some condominium projects – particularly new developments, and similar elevated risk loans. The ability to purchase a home without the sale of the customer’s previous home is getting additional requirements levied on it.

A customer’s credit score is a major component of not only the loan option but also the rate. As I mentioned in a previous blog entry, credit scores can not only prohibit a customer from getting the loan option that they want but can also significantly increase the interest rate.

If you are looking to borrow money for a loan be prepared to provide more documentation. Sometimes the paperwork you provide may prompt the lender to ask for additional paperwork. For example, if you give the lender a bank statement that has a deposit of $10,000 showing, you can expect to need proof of where that deposit came from. There’s a list of items that you may need here. Either way you can expect the lenders to ask for a lot of stuff that they weren't requiring over the past several years.

For many years a critical element in a mortgage approval was the customer’s credit score. For conventional (Fannie Mae / Freddie Mac) loans this typically played more of a pass/fail role in the process. FHA didn’t use credit scoring in its underwriting process and based its decision on credit history and payment record. Profound changes in the mortgage industry over the past year or so has made lenders and mortgage insurers rethink these practices.

We now see more and more use of Risk Based Pricing (RBP) being used in all areas of mortgage lending. While they existed, sub-prime lenders used this idea (RBP) of basing the interest rate of a loan on a combination of credit score, equity, purpose, and type of loan. Conventional and FHA loans are now adopting that philosophy. Interest rates on conventional loans vary dramatically based on the percentage of the property the lender is financing (Loan to Value or “LTV”) in combination with the customer’s credit score.

Here are some examples:

• A conventional 10% down borrower with a 679 credit score can find their interest rate as much as .625% higher than a customer with the same down payment but a credit score of 720.
• A conventional 5% down borrower with a 619 score will have an interest rate over 1% higher than if their credit score was 720.

Additionally, many lenders and PMI companies have set minimum credit score standards that require a customer with low down payments to have higher credit scores. For example a 5% down borrower often needs a score of at least 700 and a 10% down borrower needs at least a 680 score.

When looking at FHA we must take into account two parties including FHA and the investor lending the money. Since FHA insures the loan, it wants to begin pricing its mortgage insurance rates on the customer’s credit score. The biggest impact of this change is felt in the amount of FHA insurance that is paid at closing. Since this money can be and is almost always rolled back into the loan amount the added monthly cost for the insurance is typically nominal and often results in less than a $10 monthly increase in payment.

The larger impact on a low credit score borrower on an FHA loan comes from the investor. A low credit score on an FHA borrower can easily increase the interest rate by .5%. On a $140,000 loan this means an increased payment of around $35 monthly.

What can you do? First of all, consult with a lender that knows about credit scoring and discuss ways to improve your score. Since credit scores are not changed overnight its imperative that you review your credit and credit scores with a trained loan officer well in advance of purchasing a home. I get countless calls from people that are ready to make an offer on a home who have not even spoken with a loan officer. Others have gotten approvals from online lenders or untrained loan officers that can’t provide the advice necessary to help the customers. These people often end up paying hundreds of dollars extra each year because they didn’t plan ahead.

There’s a lot to know about credit scores and unfortunately not all lenders or loan officers have their facts straight. I’ll admit that in the early stages of credit scoring I gave out incorrect information. I’ve learned a great deal about scoring because I’ve taken the time to research the topic and have become more thoroughly trained. You can’t always tell if the lender is accurate in what they are telling you so be sure to check it out. See if it agrees with the information available from reputable credit score websites such as MyFICO, Consumer Federation of America, Equifax, Experian, and TransUnion.

It’s never too early to speak with a lender about the purchase of a home. I’ve met with people months before they purchase their home so that they had time to prep themselves financially for the best terms possible.

We at Home Loan Specialists were hit last Friday with a memo stemming from the elimination of Down Payment Assistance programs (DPAs) per HR 3221. In effect the memo states that if a customer is not now locked in on a loan with us, we are unable to provide an FHA loan using a DPA. There are more action dates contained in the memo but basically they boil down to anything going forward we can’t do (until the law is changed). Out of fairness to prospective homeowners using a DPA I must point out that not all lenders are following our time frame so there may still be opportunites for you with other lenders. Just be careful that the program is not eliminated before you are able to close on a loan.

HR 3221 law calls for the elimination of DPAs for loans that are underwritten after October 1. However, many of the end loan investors we work with are taking a more conservative approach to the change and making sure that all of the loans that they purchase are insurable by FHA. One way the investors do this by shortening up the time frame more than is necessary and essentially raising the bar higher than necessary to insure compliance with FHA’s rule. This puts mortgage bankers in a tough spot as they are trying to originate loans.

Mortgage bankers work under the model that they can originate and close loans with the knowledge that those loans can be sold to end loan investors and servicers after the loan closes. By having a loan closed and funded by the investor prior to the October 1 date, mortgage bankers are assured that the end investor will accept the loan. If mortgage bankers don’t take that approach, they can find themselves in a position where the end investor has changed their guides before they receive the loan. In a case like that the originating mortgage banker can be left with a loan that no one will buy or that can only be sold to a lender that charges rate and terms higher than the banker closed the loan at.

In the meantime, many organizations and groups are calling for passage of HR 6694. This bill allows DPAs but sets standards on the buyer based on credit scores. For borrowers with credit scores above 680 there is no impact. For those with scores 620 to 679, they can use a DPA but will be charged a slightly higher mortgage insurance premium. This additional premium will be refunded to those borrowers when the pay off the loan provided they make timely payments. The actual amount of the additional premium is not mandated in the bill but is capped. However, at the max allowed under HR 6694, these increases can add as much as an additional $100 to the payment on a $150,000 loan. With a potential payment increase this large, customers with credit scores between 620 and 679 need to evaluate all options available to them before proceeding with a DPA. There may be other options that will cost far less than the additional monthly payment increase.

In the meantime many well qualified customers that are simply unable to save the money needed to purchase a home are left out of home ownership. An already troubled housing market is made worse by taking these potential buyers out of the buyer pool. While I think that there are other options that wouldn’t be as costly to prospective homeowners as those proposed in HR 6694, until members of congress call me for my opinion it’s all we have going. It’s imperative that we all lend support to HR 6694 and get it passed as quickly as possible. Please take 5 minutes to lend support to the bill that could have a huge benefit on the housing market in Michigan and to the lives of hundreds of prospective homeowners.

If it seems to be getting more difficult to pin down a lender on an interest rate you’re not alone. The culprit however, isn’t necessarily unscrupulous lenders but rather the overhaul that the mortgage industry is undergoing.

FNMA, FHLMC, FHA, banks, Wall Street investors, investment managers, and many more groups are at the same time trying to weather the storm of defaults while re-evaluating and predicting the cost and risk associated with different loan parameters. There were dozens (hundreds?) of loans available 18 months ago that simply don’t exist on a large scale any more. You may still find the periodic lender that has the ability to place the oddball loans but for the most part, many of the higher risk loans are gone.

The loans that still remain are under heavy scrutiny as agencies and lenders scramble to fill the holes in the crumbling mortgage dike with revised credit standards. One of the ways that agencies like FNMA and FHLMC account for the increased risk associated with a loan is to impose loan level pricing adjustments as various elements are present in the loan. For example, a borrower that is refinancing to pull cash out of the property increases the risk on the loan because those loans will tend to have a slightly higher default rate than a simple refinance that only pays off an underlying loan. FNMA and FHLMC will impose additional fees to the loan designed to offset the additional costs anticipated as a result of the increased risk. If that same borrower is refinancing a rental home the risk climbs considerably. The additional costs associated with the latter borrower will be considerably more costly than the first buyer.

Pricing adjustments are imposed for elements such as credit scores, equity levels, occupancy, etc. Each time a pricing adjustment component comes into play the interest rate that the customer pays is impacted. Keep adding components and you’ll see some large rate swings. I’ve seen rates change by ¾% due to the customer simply putting less down and having moderate credit scores.

If a lender estimates the interest rate on a loan but incorrectly calculates the pricing adjustments they can go from making money on a loan to losing money. Some of these lenders will simply add the mistake at closing and you may not see it until you sign the final papers. Some lenders may “encourage” you to not close as it may be less expensive to lose your business than for the lender to pay the missed pricing adjustments.

All of this means that if you are shopping for an interest rate you should anticipate a lot of disclaimers and probing by the companies providing you with a rate. The lender can provide you with a quick rate quote but be prepared for the rate to change after the lender has all the information they need to thoroughly price the loan. Trying to shop rates amongst lenders that post rates online will be increasingly difficult as more loan level adjustments are introduced.