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YOUR MORTGAGE : Making the Most Out of the Keen Competition in the Loan Market

October 02, 1994|ELLEN JAMES MARTIN | SPECIAL TO THE TIMES

Does $722 billion in loans sound like a lot for America's mortgage industry to make this year?

Well, it's not if you compare it with 1993. That's when the industry surpassed the $1-trillion mark for the first time in its history.

Indeed, this year's drop-off in loan applications has made many lenders hungrier than ever for business. And that appetite should help home buyers searching for good service and fair terms on a home mortgage, says David Lereah, chief economist for the Mortgage Bankers Assn. of America.

"Mortgage lending is a fiercely competitive market now. Everyone is competing for a piece of the shrinking pie," Lereah said.

What caused this steep decline in business? The run-up in rates--which began last February--is responsible. Low rates brought mortgage refinance applications to record levels last year. But this year, now that rates have risen, the refinance market is all but dead.

"Refi mania is over," Lereah said.

To be sure, higher rates are bad news for home buyers. But as with most clouds, there's a silver lining to this one. Fierce competition can work to the advantage of the savvy mortgage borrower.

"It always pays to shop. But it really pays to shop now," Lereah stressed.

Here are pointers on how to make the most of the current mortgage market:

--Seek out a lender with plenty of time for you.

Last year, when many lenders had more business than they could handle, their phone lines were jammed, said Mary Ann Bocchetti, who makes loans through Prudential Home Mortgage Inc.

"With the refi boom on, there was no time in the day for all the appointments people wanted to make," Bocchetti said.

This year is a study in contrasts.

Loan officers should not only take your calls now, but also give you generous amounts of their time to go over the wide array of loan options available--helping you select the right one for you.

It's also smart to learn your borrowing limits before you set out to shop for a house, Bocchetti said. A good loan officer should spend at least an hour on this initial interview, she said.

The best days of the week to get all your questions answered at the lender's office are Wednesdays, Thursdays and Fridays, when loan officers typically have the most free time, Bocchetti recommended.

--Ask for a low down payment loan if you're short on cash.

Traditionally, lenders like a down payment equal to at least 5% to 20% of the appraised value of the property. But some lenders are now willing to make loans with as little as 3% down.

First-time buyers, immigrants, minorities and those in the low-to-moderate income range are among those eligible for 3% down plans under new national programs. But even if you're not in one of those categories, you may be able to get a 3% down loan in the current lending climate, Lereah said.

--Ask your lender for a waiver of fees.

In pursuit of business, some lenders are now willing to waive closing costs associated with a loan application--such as fees for appraisals, credit reports and underwriting services, noted Sanjay Babbar, a Citibank mortgage consultant.

"There are a lot of gimmicks out there now to attract the home buyer," Babbar said.

Besides a waiver of fees, you may be able to get free "payment insurance" on your mortgage. Some lenders are giving away policies that promise to make your home loan payments for as long as six months--should you lose your job, said Lereah, the economist.

--Request rapid loan processing if that would help you.

With so much loan processing being done by computer nowadays, it's reasonable to ask that your mortgage close within 30 days after application. That's a big improvement on the 60 to 90 days it once took to process a loan.

Do you wish to move swiftly on your home purchase? Today, an aggressive lending firm should meet your desire--so long as you cooperate in providing the documents it needs to do the loan, Lereah says.

--Ask for decent loan terms even if your credit is partially blemished.

During the refinance surge, many busy lenders didn't want to be bothered by customers with credit flaws. Those with significant blemishes in their credit histories were often referred to "B," "C" or "D" level lenders who demanded that they pay mortgage rates as much as 2 to 3 percentage points above the prevailing market.

But, as Lereah noted, these days more mainstream mortgage lenders are putting down the welcome mat for those with mixed credit histories.

Can you show that, despite a poor credit history, you've been faithfully making your payments in recent months? Then now could be the time to find an "A" level lender willing to make you a market-rate loan.

--Look for a lender you think will stay in business.

Before the year is out, fully 20% of those in the mortgage field are expected to lose their jobs, Lereah predicted.

Dealing with a mortgage company that fails before you close your loan could put a big dent in your home purchase plans, cautioned Matt Garagusi, a loan consultant for Great Western Mortgage Corp.

And at this point many young mortgage firms are expected to perish, according to Garagusi.

"A lot of small shops that crept into the market during the last two years are creeping out just as fast," he said.

Distributed by Universal Press Syndicate.

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