Mortgage Perks for the Wealthy

Two things come to mind when the name Mark Zuckerberg comes up. First, we have Facebook. Second, Zuckerberg is rich. In fact, he is a billionaire. So guess what the mortgage on his Palo Alto home in California is like. After refinancing, the rate Zuckerberg got was 1.05%. Yes, 1.05%. Surely that’s not a rate someone without substantial wealth can get.

Last week, in an article published by MarketWatch, AnnaMaria Andriotis highlighted perks that certain banks are using to lure wealthy homebuyers, and called it “the high-end version of a free toaster for opening a bank account.”

Wealthy property buyers can easily fork up cash to pay for their homes, but why pay everything at once when you can get a nice rate, especially when you’re rich and banks are enticing you with discounts on these mortgage rates, closing costs and "points," which you can pay upfront to obtain an even lower rate.

Of course rates like Zuckerberg’s 1.05% are not for everyone. It’s a rate for the billionaires. Not every wealthy person may have a billion dollars sitting in their bank account, but let’s say you have a quarter of a million dollars. That is quite a bit of money right? Enough for your kid’s four year private college education, and if you’re a Bank of America customer with at least $250,000 in the bank, that’s enough to give you a 0.5 percentage point discount on the so called “points” paid toward mortgages for attaining a lower rate.

Moreover, if you’re a millionaire and a Wells Fargo customer, you’re entitled to mortgage rate discounts as well. Closing costs can be reduced for Chase Private clients with assets between half a million to five million dollars in assets.

No doubt a lower rate can save you quite some money. Andriotis cited that just by reducing the mortgage rate a quarter of a percentage point from 4.05% (the average rate on large private mortgages) to 3.8% would save the borrower over $70,000 for a $1.5 million, 30 year mortgage.

Because of the attractiveness of some of these perks and the potential savings low rates entail, the “jumbo loan business has increased.” By targeting the rich, banks are essentially price discriminating. Wealthy borrowers are being offered rates and perks a normal person can’t get. Truth is, wealthy borrowers have a lower default risk as compared to less wealthy clients. And just like the way insurance works, the higher the risk, the more expensive the insurance and vice versa.

Nonetheless, Andriotis mentioned some very good points to consider before signing up for these bank perks in order to obtain a iscounted mortgage rate.

First, for those planning to keep their homes for a long time, for retirement, for their grandchildren, or for whatever reasons, skipping out on a discount in closing costs may lead to even more savings. The general idea is that a lower closing cost may translate into a higher mortgage rate, which in the long run is a bad idea.

Second, for those with substantial asset, leverage that fact and shop around for the best deal. All banks want wealthy customers.

Third, for those with cash, buying a home outright will help save on interest, but make sure to have some cash on hand in case of emergencies. The cost of borrowing money is not cheaper than paying mortgage interest, especially if you’re really in need of it.

See mortgage rates where you live.

Mortgage Reduction Programs and Mortgage Settlements Giving Rise to Dramatic Increase in Mortgage Scams

There are many mortgage-related scams out there to watch out for. Do you know how to avoid becoming a victim?

Whenever there is a chance to seize an opportunity, you can bet the scammers will be there to take it. And that’s exactly what happened within just a short time after the federal government put the latest $25 billion mortgage settlement in place to help struggling homeowners. This settlement, which was reached earlier this year, makes some of the nation’s biggest banks be more proactive in their approach to help homeowners who need help with their payments.

In Alabama, for example, many of the homeowners who are struggling to make their payments have been receiving phone calls from people who are trying to scam them out of their hard earned money. The person making the phone calls promises the homeowner that they can receive cash payments from the settlement as long as they would give the routing number from their bank account.

Struggling homeowners in Illinois have been receiving similar phone calls and requests. The homeowners were receiving phone calls from people telling them that they did indeed qualify for a settlement amount from their lender. They only thing they were required to do was to pay a huge upfront fee for processing in order to get that settlement money.

But one of the more astounding stories comes from California, one of the hardest hit states in terms of foreclosures and troubled mortgage borrowers. According to The Washington Post, the Attorney General of California – Kamala Harris - received a phone call that told her she could receive some financial compensation from the settlement as well.

With vulnerable homeowners and the billions of dollars available in government aid, it is a perfect combination for scammers who know how to take advantage of people who are in need. And the more money that is available and the more vulnerable homeowners there are, the more creative the scams get. As a result, both state and federal officials have made an effort to help curb these types of crimes. For one thing, they have created task forces and put more investigators on the job to help catch the people who are involved in the scams. In some of the hardest hit states, including Nevada, California and Florida, officials have even held informational meetings and seminars to help disseminate information that will educate the public about the various types of scams and what to look for in a scam so they can tell the difference between a really good con job and the real thing. But despite all of those efforts, there are still many fraudsters who get through the cracks and continue to con people.

Patrick Madigan, an assistant Iowa attorney general, has helped officials in his state come up with plans to curb mortgage-related scams. However, according to him, it becomes “like a game of Whac-a-Mole.” He went on to say that once you get one fraud under control, several more pop up that must be taken care of.

Here is how serious the problem is: In the last three years, the Justice Department of the United States has filed almost 1,500 cases involving mortgage fraud. That includes about 3,000 defendants, according to an agent from the department. In those same three years, the prosecutions for mortgage fraudsters increased by more than 90 percent.

You do not have to be a victim, though. According to the FBI website, you can take some steps to avoid mortgage fraud. If you get phone calls, emails or letters from people or companies that say they can eliminate your mortgage debt for an upfront fee, it is definitely a scam. Also, never sign over the deed to your home – even “temporarily” – to anyone who claims they can help you with your mortgage payments. The best thing to do is speak directly with your lender and they can tell you if you qualify for any financial help from the recent settlement or if you have other options.

Speaking directly with your mortgage lender or identifying a new mortgage lender in your area to remortgage in the course of seeking remediation for your old mortgage is often the best way to seek appropriate advice.  Identify a new mortgage lender that is lending in your location here.

Don’t let your vulnerability cloud your judgment. Make good and well-informed decisions when it comes to something as important as your mortgage.

Are Mortgage Fees Going Up in Your State?

Mortgage fees in five states are expected to increase and be passed down to new mortgage borrowers. Is your state one of them?

A proposal that was released this week by the Federal Housing Finance Agency would increase mortgage fees for mortgage borrowers in several states. The proposal, if implemented, would impact five states – New York, Florida, New Jersey, Connecticut and Illinois – and it would only apply to the mortgages that are secured by Fannie Mae and Freddie Mac.

The five states that the new proposal would impact are those states where it takes the longest to foreclose on a home. The decision was based on the length of time that it takes for the Federal Housing Finance Agency (FHFA) to take back the title to a home along with the costs of legal fees, property taxes and other expenses that the ban. According to the Wall Street Journal, there is a simple logic behind the new proposal – the longer it takes for a lender to foreclose on a home and retain ownership, the higher the fees are going to be. These are the five states where the average total carrying costs for homes are much greater than those of the national average. As a result, these create more costs for taxpayers and for Freddie and Fannie.

According to officials in these five states, one of the reasons that it takes longer for a foreclosure to occur is because many of the banks that made the deals with home buyers dismissed established foreclosure practices and, as a result, ran into problems with loan documents and “red tape.” The “robo signing” scandal that occurred two years ago in which some of the banks had used incomplete or faulty paperwork to make the foreclosure process quicker was one example. These issues caused the courts to virtually shut down the foreclosure process in some states.

Some representatives in Congress aren’t happy about the new proposal, though. Brad Miller of North Carolina said that this new legislation was nothing more than “bullying states that are protecting homeowners from foreclosure abuses.” He stated that the five states where it takes the longest to process foreclosures are simply doing their due diligence in making sure that the foreclosure process is done correctly so the “robo signing” disaster doesn’t occur again.

Fannie and Freddie are planning to increase the fees on mortgages in these five states by as little as 0.15 percent to as much as 0.3 percent of the loan amount. In terms of monthly payments, for a $200,000 mortgage on a 30-year fixed rate term, it could cost the buyer between $3.50 and $7 per month if these fees are enacted. This might not seem like a large amount, but it will be an unprecedented move in the industry as state-level mortgage prices could become the norm.

Do you think states should be singled out for added fees based on the amount of time it takes to foreclose on a property? Or is that going to be a signal to other states to expedite the foreclosure process, which could lead to more robo signing like problems?

Compare mortgage rates and fees where you live here.