THIS MORNINGS QUICK LOOK
- TOUR DE MTG FINANCE – 10 Yr Note Vs 30 Yr Fixed Spread
- PRODUCT HIGHLIGHT – One Time Close Construction
- MARKETING – What Did You Accomplish This Week?
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Tour De Mortgage Finance Learn Something New Everyday About Your Industry
10 Yr Note Vs 30 Yr Fixed Spread
We have all heard that 30 and 15 Yr Mortgage rates go in step with the 10 Yr Treasury Note because they are two of the most secure bond purchases that you can make in the world and mortgages payoff in a similar time frame that the 10 Yr Note is held so it is just a competing financial product.
But it is also important to understand the spread between the two. That just means if you compare what the 10 Yr Note is paying investors which at the time of this writing (yesterday morning) is 3.67% rate of return to the 30 Yr Fixed Average mortgage rate which is 6.7% with a 90 BPS discount then the difference is 3.03% which is a HUGE spread for competing financial products.
As a comparison on January 6th of this year the 10 Yr Yield was 1.04% and the average 30 Yr Fixed Rate was 3.04%. That spread is 2%.
Therefore, investors are requiring 1% more rate of return to buy mortgage bonds than they did in January and 1% is a very large sum of money when you deal in the financials that they deal in.
Part of that is Quantitative Tightening which is where the Fed stops buying Treasuries as well as Mortgage Bonds and leaves it more up to the market to set the spread. This means that mortgage rates are increasing in rate more than the 10 Yr Treasury Bond is.
You buy these type bonds for a couple major reasons. Security of getting your investment and a place to put money when there is turmoil in the world or a recession of course where your money will make less in the equities (stock) market.
The U.S. Treasury Bond is the safest investment in the world because it is backed by the full faith of the U.S. Govt. The Mortgage Backed Securities are also backed by the U.S. Govt but not by the full faith of because they are just in control of the agencies so the treasury is technically more secure.
With rates rising so high all investors know that if a recession hits combined with inflation under control we will see lower rates which means a massive refinancing of originated loans during this time period which is bad for their investments longevity and that is the other reason we must pay more to get their money.
Good table conversation with realtors to show you know your stuff.
Product & Guideline Highlight Knowledge That Gives You An Edge Over Your Competition
ONE TIME CLOSE CONSTRUCTION
This is likely one of the most common questions I get from potential and existing clients and we do have this product but I want to give a few important must knows if you are going to attempt this product.
One Time Close is not an easy loan to understand. The underwriting on the borrower is very similar but you must understand how budgets, project approvals, draws and subject to appraisals work and what is required. Never attempt to do a one time closing if you have never done one and you are only doing it because someone asked if you can. It is not worth your reputation nor your time.
IF you want to build this in to your company profile and get good at this product and learn and understand it for future loans and you have access to builders then this is a fantastic product to learn but it is not easy.
The rule of thumb especially for Flagstar Bank is you always want builders who bring you buyers and not buyers who bring you builders. Builder approval is fairly involved and we typically want to see a minimum of 6 – 8 houses built in the last few years so they need to be fairly active. Experience and credentials are the #1 reason for construction loans not closing. We do not allow self build or Uncle Bubba who knows how to build a house to be a builder which we get a lot of requests for.
Assuming you have above the number one perk or selling point against two time closes which are most community banks is the following.
Let’s say the 30 Yr Fixed rate mortgage at time of locking a construction loan is 6%. If you are doing a conforming loan amount then the rate you would quote is 6% plus a .75% add-on to rate which would give them a forever 30 yr fixed one time close of 6.75%. At time of close rate will not change and the .75% is just a 12 month locking hedge for us since we cannot sell the loan for 12 months down the road.
BUT, here is the kicker and it is cool. At time of Certificate of Occupancy we will allow the borrower to float down to current 60 day lock. For example if the day they locked their loan pre-build was 6% as stated above not including the .75 add on and lets say the current rate at time of Certificate of Occupancy is 6% on a 60 day lock then we will allow them to float down to the 6% current market with no add-on because we will be selling that loan soon.
It is a no lose situation for the borrower. Rates get better they win. Rates get worse they are in a 30 Yr Fixed Rate Mortgage.
WE OFFER THE FOLLOWING
Primary Conforming 89.99% LTV – 720 Score
Primary Conforming 80% LTV – 700 Score
Second Home Conforming 80% LTV – 720 Score
Primary Jumbo 70% – 85% Depending on Loan Amount
Second Home Jumbo 50% – 75% Depending on Loan amount
Up to 3 Million on Jumbo Primary
HUGE NOTE: I DO KNOW COMPETITORS CHARGE A BUILDER FEE OR SOMETHING LIKE THAT ON TOP OF DRAW AND OTHER FEES. WE DO NOT CHARGE A “BUILDER FEE” TYPE ITEM WHICH I HEAR IS EXTREMELY HIGH.
We do not offer FHA, VA or USDA Construction Financing
If you have experience and a builder I would love to chat.
If you have no experience and want to learn I will help you but not before you read in full detail our entire construction lending documents. 99% of what you need to know is in there.
Can you tell I am not a fan of inexperienced 1 time construction applications : )
I promise you it will not go well.
But, the right LO and company and the right builder we do a fantastic job.
Marketing Ideas And Opportunites Little Things That Can Make A Big Impact
WHAT DID YOU ACCOMPLISH THIS WEEK?
We always want to say we were crazy busy this week because we handled personal stuff, maintained clients, was available for everyone to help accomplish what they were doing and I am just tired.
Now, other than surviving did you actually accomplish anything this week? Do you feel good about your progress as a person, your business, your personal life or did you just maintain your current level of keeping the balance of the world in check.
You have more time now than you have had in a very long time and what have you done with that time?
I ask this because I have been crazy slammed this entire week. My business is increasing for some reason and I am assuming I am pricing a little better or our underwriters are underwriting better or something but thank you.
But guess what! I have not done crapola this week. T-Mobile consumed 6 hours of my life this past week transferring over 4 phones. Fantastic deals over there by the way so well worth it but dang! My email inbox was very busy, my mom needed help, my kids had questions, my role as Condo Mayor had interruptions and all of my goals for the week went down the tube.
I did my job completely, I was here for clients, I worked files and did everything a good AE or LO in your case should do and I was BUSY but I got nothing what I really wanted to accomplish done.
BUT, it is only Wednesday morning as I write this and I assure you I will be back on target today, right now, this day because I am re-instating the HECK YEAH or HECK NO philosophy.
Every choice I need to make the rest of this week is if I am asked to do something that does not contribute to my own or my family goals for this week and the answer is not a loud HECK YEAH then the answer is no.
I have lived by this philosophy for many years and it does wonders. A couple you kind of like asks you for dinner if its not heck yeah then say no. If you are asked to attend a meeting if not a heck yeah then its no. Wanna go out for lunch if not a heck yeah then no. Only do in your life what you would respond with a heck yeah to and you will filter out so much of your life.
I am not saying ignore kids or family or people but if the request is not a heck yeah then why are you doing it? If your business goals are important the only way to accomplish them is by saying no to the things that do not matter and trivial in nature.
Try it today. Nothing today should be done unless it is a heck yeah. Side note – Yes you still have to do your job but the things that interrupt your day is what you are looking to replace.
