REFINANCE MORTGAGES REACH RECORD VOLUME April, 2002 Refinancing home mortgage loans reached a whopping total volume of $1.1 trillion last year, as interest rates fell far below the 7 percent level. That was an all-time record high volume. This year, the number of refi loans will probably decline considerably in the wake of currently rising interest rates. At this writing, the average rate nationally for a 30-year fixed-rate conforming mortgage loan is about 7.00 percent, and appears to be generally in a rising mode. Refi mortgage loans will reach a volume of about $520 billion this year, it was predicted by Sung Won Sohn, chief economist for Wells Fargo. Interesting, rising interest rates often stimulate more applications for refi loans, at least for a while. Consumers are motivated to act fast before the rates go up even higher. One industry analyst - Phil Colling, economist for the Mortgage Bankers Association - doesn’t expect a dramatic slow-down in mortgage applications this year, unless and until those interest rates rise above 7.3 percent. Some of those thousands of families who refinanced their mortgage loan last year - and those who plan to do so this year - may be paying more for their new loan than they should. The culprit is the system used to determine an individual’s credit score - the method widely used today to evaluate a person’s credit worthiness. Most lenders use a system that produces scores that range from the upper 300s to more than 850 to calculate a borrower’s default risk. Lower scores mean the borrower is at a higher risk for default, and therefore lenders charge higher interest and fees. Some mortgage lenders still use outdated scoring systems that tend to report low scores. This allows the lender to charge inflated interest rates, closing costs and required down payments. The old scoring methods are primarily keyed to finance company loans or multiple credit applications. Marginal or borderline applicants seeking a refinance loan or a new loan to finance the purchase of a home are most affected. The most commonly used system to produce scores is the FICO scoring system, developed by Fair, Isaac & Co. But its developer can’t require lenders to use its newer software that in many cases would benefit the mortgage loan applicant. The high cost of installing such programs have kept some lenders from using the newest generation of software - a program that has been available for more than a year. For consumers who are now considering a refinance mortgage loan, or any type of mortgage, it would be a good idea to seek out a lender who is using a score producing system that doesn’t date back farther than two years ago. * * * There have recently been so many horror stories about cases where people have been victimized by various forms of mortgage fraud, executives of the Mortgage Bankers Association has decided to face up to it. They have launched a new consumer education campaign to combat it. “No reputable lender endorses predatory lending practices,” said John Courson, MBA’s chairman-elect. “We support full enforcement of consumer protection laws and efforts to make the mortgage process more consumer friendly. Our `Stop Mortgage Fraud’ campaign demonstrates our commitment to prevent predatory lending. It will help consumers learn how to protect themselves, and at the same time help identify the predatory lenders through the complaint process.” The new MBA consumer education campaign is one part of the association’s three-pronged approach to solving the problem. The other two are more strict enforcement of current laws again predatory lenders, and reform and simplification of the entire mortgage transaction process. * * * There’s no question about it - we’re on the move toward totally “paperless” electronic or Internet mortgage transactions. A major step in that direction was recently achieved with the first full release of a set of paperless data structures that range all the way from mortgage applications through documents needed in the servicing process, according to a report from The Mortgage Industry Standards Maintenance Organization. “The release of this new version is a testament to the commitment the real estate finance industry has to simplifying the electronic mortgage application process for consumers and lenders alike,” said Gabe Minton with the Mortgage Bankers Association. “With both Fannie Mae and Freddie Mac agreeing to support the new version, the industry can continue to move swiftly to make the Internet a more viable option for all aspects of the mortgage process.” * * * The battle between major banks and the real estate brokerage industry continues to grow. Should banks be allowed to sell and manage real properties? Banks and real estate brokers are locking horns on the issue - but some leading brokers are now agreeing with the view taken by banks. The dispute centers on banking interests seeking permission to sell and manage real estate through proposed regulation now before the Federal Reserve Board and Treasury Department. Many Realtors feel the proposed rule is contrary to what Congress intended when it passed financial services modernization legislation in 1999. The National Association of Realtors launched a multi-million dollar advertising campaign to encourage members of Congress to cosponsor the Community Choice in Real Estate Act. This would prevent large banking conglomerates from taking over locally owned and operated real estate companies, according to a report from NAR. The multi-media campaign opened with a series of newspaper ads. The ads read, in part, “H.R. 3424 will keep the personalized service consumers now receive from their local neighborhood real estate professionals. We need the support of strong leaders so that consumers and local communities will win.” The Community Choice in Real Estate Act would clarify congressional intent to preclude any such action by the Federal Reserve or Treasury, according to a NAR report. Recently, another group of real estate brokers - The Realty Alliance - expressed their disagreement with the NAR stand. This group (a for-profit corporation) is comprised of many of the nation’s largest independent residential real estate brokerage companies. Realty Alliance has gone on record as favoring and supporting a “fair and free market environment unbound by legislative restrictions.” They find it hypocritical and fundamentally wrong to ask that national bank subsidiaries be barred from real estate brokerage activity when some real estate brokerages are now involved in mortgage banking, insurance and title insurance businesses. Members of the Alliance believe the banks have a powerful lobby in Washington that could be used to prevent real estate brokerage firms from operating in these other businesses should they be prevented from owning companies that sell or manage residential real estate. “We believe that consumers would benefit from the influx of capital that may result from nationally chartered banks entering this arena,” Richard Christopher, chairman of The Realty Alliance, wrote in a letter to the NAR president. “We also believe increased competition from companies of size would benefit consumers by making all of us sharpen our skills and improve the services we provide. “In our view, the role of government is not to limit competition, as your (NAR’s) legislation would do, but rather to foster a business environment in which consumers benefit from competition.” | 
