Rates:
30 yr conforming 6.25%
30 yr jumbo 6.625%
7/1 jumbo 5.75%
OR Vet 5.5%
OR Bond FHA 5.75%
There is still a lot of volitlity in the market place. The rates down a little off of this weeks high. We are still expecting the Fed and ECB will lead the way to higher rates in the future, we don't look for any central bank to begin tightening until later this year. The action in the bond market yesterday and today is taking back a lot of the selling that was instigated by the view last week the Fed was about to move.
In this week's installment on Good Faith Estimates (GFE) I am going discuss my take - and that's my take only - on Annual Percentage Rate or APR. First of all, I think that the APR, even though it's a regulatory requirement, is a terrible way to compare loan programs. APR's are very difficult, if not impossible, to calculate without a computer. In fact, I don't know anyone in our business who can calculate an APR by using only a calculator. I have been in this business for almost 30 years and, although I learned how to a long time ago, I can't calculate one without my processing software program. I would say that most in our business don't truly understand what goes into the calculation and how it relates to the Truth-In-Lending form. To me, though, it doesn't matter. The last two previous Weekly Updates clearly explained how a borrower should compare GFE's and not once did I mention APR's. I think that most in our industry understand that the APR disclosure needs to change but getting a consensus on how it should change has been very difficult to accomplish.
A couple of problems with the APR. As I previously mentioned, if most don't understand how then APR is calculated, then how can they tell if it is accurate and what changes it? The APR takes certain costs and fees charged on a loan (Prepaid Finance Charges) and includes these certain charges into an amount called Finance Charges (which also includes the interest paid on the loan over it's term). These Prepaid Finance Charges are removed from the loan amount with the remainder being labeled the Amount Financed. Then the Finance Charges are calculated back into the Amount Financed and you get your APR. Sound confusing? You betcha! There are things that will change the APR. Prepaid interest can change the APR - which means that the date the transaction closes will change it. What we estimate for some third party fees (escrow charges) will change it. I do primarily purchase transactions. If the seller contributes money to the buyer's closing costs, this will change the APR. I just ran one scenario where the seller paid most of the buyer's closing costs (this happens frequently) and the APR came back lower than the actual interest rate. That's because the seller paid an amount in excess of the prepaid finance charges - part of the closing costs aren't considered Prepaid Finance Charges.
YOUR THOUGHTS?
I agree with you 100%. I tell my customers that the APR is pretty much a fiticious number that the government makes me give them. If they want a better idea of who is offering a better deal, compare the Good Faith Estimates side by side and the interest rate that you can lock into today! Then you'll know who is offering the better deal!
Bob Mitchell
ValueList Real Estate Services, Inc.
Bob- true true..thank you for the comment!
Bob,
Good stuff. I understand your point because most consumers don't know what to ask other than what they think they are supposed to ask like what the rate is and even sometimes what the APR is on some occasions. When ever I ask a client to articulate or expand on what is important about the rate or APR to them, that is usually when things get interesting.
From there I would say about 95% of the time, they really don't know how to go "deeper" in their thoughts. I almost feel bad and typically bail them out right away by telling them that more time than not, most people really don't know why that is "important" to them.
To me this discussion always comes back to, "are you trying to be a professional advisor or a transaction based application taker?" This whole discussion of APR and rates and fees is not something I spend time doing. This is something that is explained in our client packet, our FAQ DVD, or our website that if the client really wants, they can research it more there.
For me to spend time talking about something so meaningless to my client is a waste of my time and the clients time to put it bluntly. I can't imagine a top attorney or CPA in town spending 10 minutes of their 45 minute consult trying to explain their billable hours, rate and how its calculated and billed. I know if I was coming to consult with a professional for something very important affecting my family and finances, I wouldn't want to waste time on the minutia.
Some people on here may view their practice or business vision a little differently and feel this is a bit over the top but if you expect to be treated like a professional and respected like one, then your actions and words need to align with your business practices.
Be Blessed!
Travis
Travis- I agree with your thoughts. Thank you for the post!