The Federal Reserve Bank is the central bank of the United States and arguably the most powerful financial institution in the world! The Federal Reserve Board meets every 6 weeks (their next meeting is May 2nd and 3rd) to evaluate and promote the stability of our financial system and minimize economic risks. Their main goals are to:
The biggest weapon the Federal Reserve has is to set and manage fixed interest rates, which in turn expand or contract the economy. The Fed has increased short-term interest rates called “The Federal Funds Rate” 8 times since March of 2022. It’s easy to forget that the Fed was holding interest rates at close to zero in the first quarter of 2022.
The ripple effects of the rapid interest rate increases are far-reaching! Some current bank CD rates, fixed annuity rates, car loans, student loans, and mortgage rates have doubled in the past 12 months! The changes have occurred so quickly that many consumers and advisors have had problems keeping track of what is going on.
That being said, I had heard about upcoming new mortgage pricing model changes in May, so I decided to interview loan expert Sal Tomaselli, President and Founder of Queens-based Professional Mortgage Solutions Inc., to get into specifics to share with my “Financial Wave” readers. Here is what Sal had to say:
Closing costs are an unavoidable part of the mortgage process. But as of May, some of those costs may change and even increase for some homebuyers and refinancers. This is due to recent changes made by the Federal Housing Finance Agency to its pricing framework, which will affect the upfront fees that come with conventional mortgages, but not FHA, VA, or USDA loans.
If you are considering a conventional loan for your home purchase or refinance this year, here is what the changes mean for you:
1) Higher-credit borrowers may see more variance in fees.
Previously, borrowers with credit scores over 740 saw the same pricing. Now there will be added brackets with varying fees for those with scores between 750 and 759, 760 and 779, and 780 or higher.
2) Lower credit borrowers won’t be penalized as harshly.
With the old pricing arrangement, borrowers with a score of 639 or lower, paid fees as high as 3.75%. The new structure reduces the maximum fee to 2.875%.
3) Cash-out refinancing may get more expensive.
The highest fee for cash-out refinances was previously 2.125%, but it will now exceed 5% for some borrowers.
4) Buying a multi-unit property might be less expensive.
The fees for purchasing a two- to four-unit property range from 0.0375% to 0.625% under the new pricing model, whereas previously the fees were 1% across the board.
The new fees can be complex, and they vary based on the size of the loan, your credit score, and your down payment. If you’re curious about the fees you can expect for your upcoming purchase or refinance, don’t hesitate to get in touch.
I was also pleasantly surprised to learn that Sal’s mortgage business model has similarities to my insurance practice. Sal is an independent broker, meaning he has 35 lenders instead of 1 or 2. Just like insurance, an independent broker will always have a better feel for a rapidly changing market because they track the movement in rates and product types across numerous companies.
With 35 options, Sal has a mix of traditional loan options and then “niche companies” to place business with when there are higher risks, such as a buyer of a multiple family dwelling that will not be living there. When the landlord doesn’t live in the building/house, there is less control and more risk of tenants not paying their rent, which can trigger mortgage defaults.
Sal clearly explains key factors such as credits scores, number of units and loan to value which he considers when assessing risk, and where he should place the loan. For example, a $500,000 property with a $250,000 down payment is much less risky than a $50,000 down payment.
Professional Mortgage Solutions Inc. is located at 62-81 Woodhaven Boulevard Rego Park, New York 11374. Sal can be reached at 718-457-4290.
Buying a home or an investment property is one of, if not, the biggest expenses that one will incur in their lifetime. These decisions are critical and what is also critical is utilizing the advice of savvy experienced brokers who have your best interest in mind! For more information, feel free to reach out to me at Rob@InsuranceDoctor.us.