What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.
Rate news summary
From Freddie Mac’s weekly survey: The 30-year fixed rate averaged 3.56%, up 7 basis points from last week’s near-three-year low. The 15-year fixed rate averaged 3.9%, up 9 basis points from last week.
The Mortgage Bankers Association reported a 2% increase in loan application volume from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $292 higher than this week’s payment of $2,191.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 15-year FHA (up to $431,250 in the Inland Empire, up to $484,350 in Los Angeles and Orange counties) at 3.0%, a 30-year FHA at 3.375%, a 15-year conventional at 3.125%, a 30-year conventional at 3.50%, a 30-year FHA high-balance ($484,351 to $726,525 in L.A. and Orange counties) at 3.50%, a 15-year conventional high-balance (also $484,351 to $726,525) at 3.375%, a 30-year conventional high-balance at 3.875%, a 15-year jumbo (over $726,525) at 4.625% and a 30-year jumbo is at 4.25%.
What I think: Should predatory lending rules apply when consumers borrower against their homes to invest in their business or buy a rental property? Should lenders be able to skirt caps on interest rates, points and fees when a mortgage is for “a business purpose?”
Those are some of the issues hashed out before a Los Angeles administrative law judge earlier this year after the California Department of Real Estate, or DRE, fined an Irvine-based private loan broker and suspended his real estate license 90 days unless he met certain terms and conditions.
Last week, the issue came to a head when the lender and DRE reached an out-of-court settlement overturning the fine and suspension.
The case touches on the rare issue of “business purpose” loans, when borrowers use their own homes as collateral “to finance their dreams,” as one of the law firms in the case put it.
But this obscure case could have outsized implications by allowing “fog the mirror” mortgages if the loan is for “a business purpose.”
At issue is a $65,000 second mortgage on a borrowers’ principal dwelling arranged by KS Capital Inc. and its CEO, Babak Kashani. The borrower used the loan to write a book about her Hollywood experience, according to court documents.
Following an audit, DRE accused KS Capital and Kashani of violating the California High Cost Law, a 2002 statute meant to shield consumers from losing their principal dwellings by limiting mortgage rates and costs.
The DRE argued – and an administrative law judge agreed — that even though this was a business purpose loan, the High Cost Law applied because it was made on the borrower’s principal dwelling.
Since the law is meant to protect consumers from losing their homes, it applies even for business purpose loans, the judge ruled.
KS Capital and Kashani sued DRE in L.A. County Superior Court on May 30, arguing that interpretation isn’t supported by the law.
Last week, the DRE settled, filing a motion to dismiss the case against KS Capital and Kashani.
“It’s a big event for the DRE to go off the reservation and decide to apply this predatory lending terminology,” said David Herzer, president of the California Mortgage Association, an association of private-money or hard-money lenders.
From queries I’ve made, the consensus is relatively few owner-occupied business purpose loans have been made. Most mortgage originators and lenders stayed away from owner-occupied hard money loans for borrowers who could not otherwise qualify for a business purpose mortgage.
So, now there is a bright line lifting consumer protections against unlimited points, high rates, balloon payments and prepayment penalties for every financially desperate borrower who can’t get a mortgage through institutional channels. Such loans now are possible so long as he or she provides a business purpose.
Talk about a double-edged sword.
Yes, it’s a free country and you should be able to take any risks you want, including tapping your equity to help your business or buy a rental.
But there is so much money to be made by every lender licensed in California (not just the private money lenders).
Count California as ground zero for the next mortgage meltdown.
Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.
