“Disruption is inevitable in any industry, but is most predictable in an industry faced with a set of conditions that render the existing model too challenging, too inefficient, too costly, too unresponsive to the needs of consumers and businesses alike,” the paper said. “The best innovators recognize and capitalize on the opportunity presented by an increasingly ineffective approach and develop new capabilities to meet the needs of the marketplace. Mortgage finance has reached this stage.”
“Borrowers who refinanced in 2014 will save on net approximately $5 billion in interest over the first 12 months of their new loan. Over the course of last year, borrowers continued to take advantage of near record low mortgage rates to lower their monthly payments, shorten their loan terms and overwhelmingly choosing the safety of long-term fixed-rate mortgages – more than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of what the original loan product had been.”
A no-cost mortgage (NCM) is one on which all lender fees are waived, and (subject to the possible exceptions described below) other fees are paid by the lender. The quid pro quo is a relatively high interest rate, which makes the NCM costly for borrowers who expect to have their mortgage a long time. But if the borrower has limited cash, avoiding an upfront cash drain may be much more compelling than the higher interest cost spread over many years.
No-cost mortgages have one feature that I like a lot. Because lenders offering NCMs pay for services obtained from third-parties, such as title companies and appraisers, they have an incentive to find the service providers offering the lowest price. When borrowers pay for these services, which is most of the time, lenders generally accept high prices that make the service providers beholden to them.
The relative simplicity of a mortgage with only one price dimension is also attractive. In principle, it should make price-shopping much easier. Unfortunately, ambiguity about which costs are covered and which aren’t can nullify this benefit.
“There were a total of 43,000 completed foreclosure in February, CoreLogic said today. This was 15 percent fewer than in February 2013 when foreclosures numbered 51,000. It was also 7,000 fewer foreclosures than in January 2014, a decrease of 13.1 percent. The company said that since the financial crisis began in September 2008, there have been approximately 4.9 million completed foreclosures nationally. “
“A strong point of support for the GSEs and the mortgage markets, Fannie and Freddie are the only entities in the country willing to purchase 20 and 30 year fixed rate mortgages, their elimination would have meaningful impacts on the mortgage markets. The monthly cost of owning a home would rise and the size of the market itself would shrink.”