But My Neighbor got….

"But My Neighbor got 2%"

No they didn’t; really, they didn’t.  Bankers and brokers do not make “interest rates”, besides the macro economics of it, the individual does.  Now in full disclosure, I acknowledge there are way out there firms, which prey on the masses by padding interest rates and fees.  Quite frankly, it is despicable, and those organizations are now far a few between.  For this articles sake, let’s talk about you.  Joe and Mary consumer.  Well intentioned and hell bent on not getting screwed by a “fat cat” banker.  They find a banker seem to love their service, find nothing out of the ordinary by their estimate of costs and happily await their turn in underwriting and await a closing date.  Then BAM; someone tells them they know someone who has gotten a better interest rate, or they saw an article or news story saying the average FREDDIE MAC loan is 3.25% for a 30 year fixed rate.  Armed with this, Joe and Mary call their banker and demand this new rate.  But wait a second; since Joe and Mary did not actually go to the FREDDIE MAC website, they would have no idea this meant minimum credit scores of 750, a 45% debt to income ratio and 30% equity in the property (that’s 30% down on a purchase for those of you east of Lyons).  How could they, after all, their neighbor says he (although the neighbor never really produces that paperwork, ever) got this and the guy they called in Ohio or Michigan confirmed it, therefore fat cat banker STOP SCREWING ME.  But my short sale was three years ago and after all, everyone got in above their heads then, or yes I work on commission and it has trended downward but I saw that rate in the newspaper.  No that’s my daughter’s car, but she gives me the cash to pay it since I signed for it.  Wait, my debt ratio is what?

They are called risk factors.  Elevated debt to income ratios, credit scores below 740, higher than 70% loan to value, not having at least 6 months of assets in reserves, condominium versus single family home.  All of these things and a few others which are deemed “risky” carry an “add-on” to base interest pricing.  This was set up by Congress when they agreed to take receivership for FANNIE MAE and FREDDIE MAC.  It was their idea of how they were going to help pay the bailout funds (and the meter is still ticking into the trillions) given to these agencies.  I have personally seen consumers run to a company because of a simple ad in the paper or a flyer mailed out from a company in another state, only to be let down.

Even published interest rates for the most part are based on 15 or 30 day pricing, when it’s physically impossible to close a loan in this climate in that timeframe.  Average mortgages from beginning to end take on average 45-60 days.  For bankers, the locking of a loan that doesn’t close, affects the way underwriters and agencies look and rate them.  Therefore the more “lock fallouts” a company may have, the worse it is for them and their risk factor is higher, which means the interest rates they pass along to their clients are higher as well.  My throat is weak as the single man yelling in the wilderness.  Find someone you trust, like you would for your car, your taxes, even your health and doctor and use that person.  You don’t do this to your doctor or your CPA (or do you)?

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