My Business Educations Articles

In the "olden" days, when someone wanted a mortgage loan they walked downtown to the neighborhood bank or savings and loan. If the bank had extra funds laying around and considered you a good credit risk, they would lend you the money for mortgage loans from their own funds. It doesn't generally work like that anymore. Most of the money for mortgage loans for home mortgage loans comes from three major institutions:

• Fannie Mae (FNMA: Federal National Mortgage Association)
  
• Freddie Mac (FHLMC: Federal Home Mortgage loan Mortgage Corporation)
  
• Ginnie Mae (GNMA: Government National Mortgage Association).
  

This is how it works now:
You talk to practically any lender and apply for a mortgage loan. They do all the processing and verifications and finally, you own the house and now you have a home mortgage loan and you make mortgage payments. You might be making payments to the company who originated your mortgage loan, or your mortgage loan might have been transferred to another institution.

The company you make your payments to very rarely owns your mortgage loan. They are the servicer of your mortgage. They are called the servicer because they are simply servicing your mortgage loan for the institution that does own it. You see, what happens behind the scenes is that your mortgage loan got packaged into a pool with a lot of other mortgage loans and sold off to one of the three institutions listed above. The servicer of your mortgage loan gets a monthly fee from the investor for processing payments and taking care of your mortgage loan. This fee is usually only 3/8ths of a percent or so, but the amount adds up. There are companies that service over billions of dollars of home mortgage loans. Three-eighths of a percent on a billion dollars is a tidy income.

In fact, mortgage servicing is where lenders make the real money for mortgage loans. The entire system of originating mortgages, including wholesale lenders, mortgage brokers and mortgage bankers is designed so that servicers get mortgage loans into their portfolio--hopefully at a break even level--but often at a loss. Mortgage servicing is where they make their profit. Once your mortgage loan has been packaged into a pool and sold to Fannie Mae, Freddie Mac, or Ginnie Mae, the lender gets additional funds so they can make more mortgage loans (to service in their portfolio) and sell to those institutions, so they can get more money for mortgage loans, and so on....

This is the cycle that allows institutions to lend you money for mortgage loans.
Remember the old song about shoveling coal all day long and just ending up another day older and deeper in debt. Not even being able to die because I "owe my soul to the company store". Today people have an opportunity to get out from under and they aren't taking it. About a year ago, lower mortgage rates allowed me to reduce my mortgage from 25 years remaining to 15 years remaining with the same monthly payment. Today I am looking at refinancing again. I will be able to reduce it to 10 years.

A 30-year mortgage at 5% mortgage rate will end up costing you almost twice the amount you borrow, over the life of the loan. While a 10 year mortgage at 5% will only cost you about 30% more than the amount borrowed. So in addition to eliminating the aggravation of a mortgage starting 20 years earlier you end up saving roughly 2/3 of the price of your house in additional payments! Don't increase the amount you borrowed unless you absolutely have to.

In most cases, when a mortgage loan officer locks in a mortgage rate, all borrowers provided documentation must be given to the lender within a week. This includes pay stubs; w-2 forms or other proof of employment and salary; bank account numbers, your latest bank statement, and your bank branch address; all loan and credit card account numbers, and the names and addresses of your creditors; and evidence such as canceled checks of your mortgage or rental payments.

Locks are available for varying lengths of time, from as brief as 10 days to as long as 120 days, with small increments in the mortgage rates from the shortest to the longest period. The briefest lock period is only used with mortgage loans that have already been approved. Usually such a loan can be handled within 10 days. Locks of 30 or 45 days are typically used when your mortgage loan officer has most of the information he or she needs and he or she has already begun processing your loan. Usually a competent loan office can complete the processing transaction in 30 days.

Locks longer than 30 or 45 days are usually used when there are external factors that may delay the mortgage loan closing. These may involve the need to sell an existing home before the new loan can close on the purchase of another home. On the other hand, they may include a delay in the completion of a new home that is under construction. Since long locks begin to involve greater costs in rates or points, the longer the lock that is contemplated, one should take a hard look at the market, at whether mortgage rates are remaining rather steady or are going up or down. If the market is declining, you may decide not to ask for a lock-in.

Everyone needs to play their own game, make their own decisions. You need to decide if mortgage rates are changing fast enough to warrant a lock-in mortgage loan rate or not. If they are, then decide for how long a period you need to lock a rate.

Hopefully, with well-considered decisions, your results will be rewarding!!!