17 Aug 10 Fed Bans Lenders from Paying YSP to Mortgage brokers
The Federal Reserve announced that they were banning mortgage lenders from paying bonuses to brokers for higher interest rate sold to the lender. The change is among several announced by the Federal Reserve, which has been criticized for failing to rein in high-risk lending during the housing boom. The Federal Reserve on Monday approved a rule banning mortgage lenders from paying bonuses to mortgage brokers and loan officers who get borrowers to agree to a higher mortgage rate than they need to pay. The Fed also proposed requiring clearer disclosures about how payments on adjustable-rate loans can change over time.
One of the proposed rules is designed to give consumers more time to review lenders’ disclosures for their home loan costs. Lenders would be required to refund any loan fees collected if the prospective borrower withdraws the mortgage application within three days of receiving the disclosures. That proposal is open for public comment. The change in required disclosures for adjustable-rate loans is set to take effect at the end of January as an interim rule. Mortgage lenders must show the maximum interest rate and monthly payment that can occur during the first five years, a “worst case” example showing the maximum rate and payment possible over the life of the loan. The disclosures must also include a statement that consumers might not be able to avoid rate and payment increases by mortgage refinancing.
The ban on mortgage lenders’ paying bonuses to brokers and loan officers for higher-interest loans takes effect in April. The Federal Reserve said that its consumer tests found that borrowers generally were unaware of the payments and how they could affect the total cost of a loan. Critics have called the bonuses little more than kickbacks that encouraged mortgage brokers and lender salespeople to steer borrowers into costlier loans.
Mortgage brokers have argued that they can use the payments, also known as rebates or yield spread premiums, to cover borrowers’ closing costs, so a homeowner wanting to refinance a mortgage with no upfront costs might accept a higher interest rate to accomplish that. In making the rule final, the Fed said a loan originator “may not receive compensation that is based on the interest rate or other loan terms. This will prevent loan originators from increasing their own compensation by raising the consumers’ mortgage costs.” Mortgage loan originators would still be able to receive compensation calculated as a percentage of the loan amount.
Another rule finalized Monday would require borrowers to be notified when their home mortgage has been sold or transferred. The Fed also proposed a rule to make it easier for consumers to learn who owns their loans. Under the provision, once a mortgage servicer is asked by a borrower for that information, the loan servicer would have to provide it within a reasonable time, which generally would be 10 business days
18 Feb 10 Fed Hikes Discount Rate and Mortgage Rates Rise
Mortgage Rates Pulse announced that the Federal Reserve increased the discount rate today and mortgage rates rose almost immediately. This is the rate at which banks lend to each other. When banks stopped lending to each other overnight altogether in the fall of 2008, discount window for home mortgage loans became even more crucial. The Fed even narrowed the penalty banks paid for using discount window money, moving the discount rate closer to the Federal funds rate during the crisis.
According to mortgage executive, Bryan Dornan, “Clearly, the Fed is signaling a change in direction for interest rates.” Dornan continued, “Now that the Fed is raising rates, expect mortgage rates to begin retreating upwards.” Now that the crisis has blown over, the Federal Reserve wants things to get back to normal.
Late Thursday afternoon, it surprised the markets by raising the discount rate it charges though its emergency window to 0.75% from 0.50% while keeping its targeted Federal funds rate at between zero and 0.25%. The change will take effect on Friday. Meanwhile, the duration of the mortgage loans will revert to the normal overnight period from 30 days come mid-March. Though many thought the Fed was headed in this direction, most everyone thought it wouldn’t act until its next Open Market Committee meeting next month. See the original post online at > Fed Reserve Raises Interest Rates.
08 Jan 10 Will the Fed Let the Mortgage Market Walk?
Many mortgage industry insiders believe the Federal Reserve will take their hands off the housing sector in 2010, when the central bank enables mortgage market to stand on its own two feet. The Fed is unlikely to step in again after its bad credit mortgage buying program devised at the height of the financial meltdown expires. That would take a renewed crisis, like a sudden and destabilizing hike in mortgage interest rates.
Besides conventional and FHA mortgage rates, there are other impediments to a fresh round of mortgage-backed debt purchases, including the Fed’s desire to keep inflation expectations under control. One of the reasons the Fed capped its bond-buying program, which included more than $1.4 trillion in mortgage-related securities and $300 billion in Treasury debt, was the perception that the central bank was “monetizing” federal deficits printing money to keep the government solvent. This latent fear, prevalent in financial markets and reflected in the elevated price of gold, has the potential to turn more than $1 trillion in dormant excess bank reserves into a runaway rise in prices, analysts say.
Barring a double-dip in housing, however, Fed officials are unlikely to meddle. Their reluctance to intervene anew has many roots. For one thing, it would signal a policy about-face that could adversely affect markets as investors reassess what they believed was an improving economic outlook. > Read the original article online.
