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Rates Up and Wasted Fees



June 11, 2009 – Comments (0)

Mish has a post on the mortgage rates increasing.

It is a good read, but what I noticed is that people are paying $500 processing fee and that money is so easily lost if the paper work is just a little out.  Certainly people would be out if they were dependent on the lower rates.  

A couple years back lenders were letting anything slide, now they appear to be looking for excuses to kill any deal, especially with the recent spike in rates. If the appraisal and paperwork is not perfect, goodbye loan and goodbye $500 appraisal fee. Customers are not too happy to say the least.

Mish implies that banks do not learn as they are offering ARMs resets.  I tend to disagree.  It really depends on what the lending standards are overall.  If banks are letting people max their debt load to a 5 year ARMs I completely agree.  However, here in Canada you might describe our entire mortgage system as one that is the same as ARMs.  No one in Canada gets a rate guarantee for 30 years.  At best it is about 5 years, with the odd 7 and 10 year terms offered, but traditionally they have not been popular because unlike the US market, they have had risk built into them so they were about 2% more then say a 1 year term.

In Canada a standard mortgage starts with 25% down, not 20% down.  There is an upfront insurance that must be paid for mortgages with less then 25% down.  Canadian standards did decline and I do expect some problems for Canadian banks from the declining standard.  But unlike US banks, the short term of Canadian loans allows banks to limit losses in that they are not stuck in 30 years at unsustainable low rates and finding the spread between lending and deposits squeezing and even going negative.

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