Should new mortgage banking relationships be fair and equal? Or, all about the money?
Citibank’s website calls it relationship pricing. Move $50,000 to Citibank, and CitiMortgage will knock 0.125% off your new mortgage rate. Move $1 million dollars over, and they will knock off one-half point.
The Citi wealth subsidy amounts to nearly $99,000 of mortgage interest savings, assuming a $1 million fixed-rate mortgage going from 3.5% to 3%.Jackpot!
Most large banks have similar “move your money over” incentives for rich folks.
How long do you need to keep it there? Well, maybe a day after loan funding? Big bank loan officers have all told me that rich man’s or woman’s mortgage discount is permanent, regardless of the amount of time you keep your deposits or investments on hand.
What about the lower-wealth Black borrowers? Tell me! Show me!
Neither Citi nor Chase Bank responded to my multiple requests.
Wells Fargo provided information on several of its initiatives to address low-income borrowers and underserved homeownership over the past several years. One program specifically expanded homeownership to 60,500 African American families since 2017.
Bank of America launched Community Homeownership Commitment in April 2019. While not specifically for Black homeownership, it offers affordable homeownership opportunities like down payment assistance up to $10,000 and lender closing cost credits up to $7,500.
Here is a fair idea: How about the big banks match the total dollar amount of interest rate reductions wealthy borrowers received over, say, the last five years to lower-wealth Black mortgage borrowers who didn’t get these discounts?
Now, that’s commitment!
What about Fannie Mae and Freddie Mac?
Veterans Affairs Loans and Federal Housing Administration loans require either zero down payment or a minimum 3.5% down, respectively.
Fannie and Freddie reward borrowers handsomely for that higher down payment. If you put 40% down and you have a 679 middle FICO score, there are no pricing add-ons. If that same borrower puts 10% down, his mortgage interest rate can be 1.25% higher.
How badly do you think that hurts affordability? By charging that much more, F & F are creating more risk on low-wealth Blacks by increasing the monthly mortgage nut.
In this day of automation and bulk sales, should it really cost 5% or 6% in realty commissions to sell a house? Have you looked at an escrow settlement statement recently? It’s an explosion of a la carte costs and price ads compared to yesteryear.
We are talking about thousands of dollars in fees for the privilege of a real estate transaction. Title insurance? It’s like a license to print money, especially on a refinance where there is almost zero risk to the title insurance company.
Look at high earning mortgage loan originators. Talk about compensation fixing!
The 2010 Dodd-Frank law gave originators the legal authority to never haggle again when it comes to lender paid compensation. The company sets the originator compensation. The originator must earn the same percentage of compensation regardless of loan features, loan type or loan size.
If the originator earns 1%, then he or she receives $1,000 on a $100,000 loan amount and comparably $10,000 on a $1 million dollar loan. If the borrower wants the originator to kick in, well, that’s just too bad. The law says so.
But the company has the discretion to discount on a one-off situation. For example, say a borrower wants an originator to price match another lenders’ loan estimate.
The company can discount so long as this does not directly affect the originator’s compensation, according to Roger Fendelman, managing member of law firm Garris Horn. Certainly, these exceptions happen much more when it comes to large loan amounts.
The solution to create more affordability for Black borrowers is laissez faire.
Get rid of inflexible compensation requirements. Allow title insurance premiums to be negotiated. How far down do you think Costco could drive overall settlement costs by offering a high-volume settlement packaging deal that includes realty agent, mortgage, title insurance and settlement services?
Do you think that might help Black borrowers along with everyone else?
Jeff Lazerson - Mortgage Columnist since 2011