With Allen Robinson, Managing Director and Founder of First Trust Mortgage
Podcast: Play in new window | Download
Steve talked with Allen Robinson, Founder and Managing Director of First Trust Mortgage, to get the latest scoop on home mortgage loans. Steve started off the conversation by noting that the benchmark 10-year Treasury rate has fallen to around 2%.
Current Mortgage Rates
Allen stated that current 30-year mortgage rates are running just under 4%—about 3.99% to be precise. He thinks those rates are a bit high, given where the 10-year Treasury rate is. But the possibly surprising reason for that is that many lenders are actually losing money on doing home loans, money that they have to make up from other services they provide, such as credit cards. The national average cost to lenders for a typical home mortgage loan runs about $8,300, which includes the cost of things such as client acquisition and loan servicing.
Allen expects rates to drop, as he projects the interest rate on the 10-year Treasury falling as low as 1.3%. While he agreed that rates may decline over the next year, Steve was more than a little skeptical of the idea of seeing the 10-year Treasury rate that low. He stated that would probably only happen in the event of a significant recession that would substantially curtail home buying altogether.
30-Year Mortgage Rate Vs 15-Year Mortgage Rate
There’s currently not as much of a differential between the 30-year mortgage rate and the 15-year mortgage rate as has typically been the case. At present, 15-year fixed rates are only about a quarter of a point lower than 30-year fixed rates, on average. Allen has even seen some instances where the 15-year rate was a bit higher than the 30-year rate.
Fixed rate mortgages make up the overwhelming bulk of the market. With rates so low, home buyers are anxious to lock them in and don’t want to take the risk involved with adjustable rate mortgages. Plus, the main advantage of adjustable rate mortgages has always been getting a substantially lower introductory rate, but that advantage has largely disappeared. Going with an adjustable rate mortgage in today’s market isn’t likely to get you more than a quarter point lower with your starting rate than you could get with a standard fixed rate mortgage.
Sub-Prime Mortgages Are Gone
The market that was flooded with sub-prime mortgages prior to the 2008 financial crisis is a thing of the past. There are virtually no more instances of people getting a mortgage without a job or adequate income. Allen explained the only way that happens these days is through short-term, hard equity loans. For example, someone might be able to get a one-year loan for half the value of a piece of property if they’re willing to pay an outrageously high rate like 10%.
The Online Home Loan
The process for getting a home mortgage has significantly changed with advanced technology. Allen explained that for someone who’s computerized (doing things like online banking), the process is now much simpler. For many people, there’s no more need to go down to the bank with a box full of paperwork. Lenders can easily check things like your W-2s and tax return information online. To illustrate this new state of lending, Allen offered the example of Quicken, which, despite being remote/online, has become the biggest lender in the country.
Of course, local lenders such as Allen’s First Trust Mortgage in Boca Raton still offer the advantage of being the experts on the local real estate market.
Steve pointed out that the lending system has also adapted to people with somewhat unconventional income, such as those who are self-employed, making it easier for them to get loans.
To get more information on current mortgage rates or buying a home, visit the First Trust Mortgage website.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: You know, interest rates have come down recently. Actually, the ten-year treasury which is the benchmark for a lot of things that we use money to borrow on or the borrowing rate is set on, I should say, is around 2%. So I was wondering what the mortgage market was doing, and I invited an old contributor to our program, Allen Robinson.
Allen is here, he’s a managing director and founder of First Trust Mortgage. He’s been a mortgage banker for 36 years, all of which has been in South Florida. And as I said, he used to be a frequent contributor to our program. So who knows best about mortgages than Allen Robinson? Hey, Allen, welcome back.
Allen Robinson: Hey, Steve.
Steve Pomeranz: All right, so we’re seeing this benchmark rate, this 10-year Treasury that we all watch is just hovering around a little over 2%. And that’s come down from the fourth quarter of 2018, where it got up to almost three-and-a-quarter, three-and-a-half percent, and people were freaking out. Market took a big dive.
So, let’s just start with the easy stuff. Like where’s your typical, conventional, 30-year mortgage rate today?
Allen Robinson: Typically, right now, Steve, for the good customer, somewhere around 3.99%, just slightly under four.
Steve Pomeranz: You know, when I saw these numbers before we went on-air, I was kind of surprised that they were still what I think of as relatively high. Is it just that it’s taking a while for those market rates to filter down?
Allen Robinson: Yes and no. We think, as the providers to the customer, that we think the rates are too high, given where those treasuries are.
Steve Pomeranz: Yeah, yeah.
Allen Robinson: And we think the money lenders actually have inflated rates just so they can make more money on a temporary basis. Most of the big boys are still losing money by originating residential mortgages.
Steve Pomeranz: That blows my mind. I mean, they’re getting money at a certain rate, they’re borrowing it to lend it.
Allen Robinson: Yes.
Steve Pomeranz: Banking’s a great business.
Allen Robinson: Yes.
Steve Pomeranz: And then they get to kind of lend ten times as much as their equity, so it’s even a better business.
Allen Robinson: Yes.
Steve Pomeranz: But you’re saying that you’re seeing the way they’re pricing things is that their internal costs…they’re losing money for every loan, these big providers like these big banks, like Wells Fargo and Chase and all of those.
Allen Robinson: Yeah, the national average, Steve, is somewhere around 83 hundred dollars per deal. So what that takes into account is everything from client acquisition, right through secondary market when you sell the loan to the servicing, et cetera, et cetera. So it’s never been more expensive to close a loan.
Steve Pomeranz: Well, you can’t really stay in business very long if the business that you’re doing is losing money on every transaction.
Allen Robinson: They subsidize it through different divisions of the institution. So sometimes it comes from the marketing budget, sometimes it comes from the high-net-worth clients. It comes from somewhere, but in that cost center, in that bank, they’re losing money on those deals.
Steve Pomeranz: Yeah, when I worked for Chase in the early 1990s, it seemed like every division I came in contact with was losing money. And really, I was in the investment division, we were a new division so we were losing money. Then I saw the mortgage business, they were losing money. And I was thinking, “Man, those credit card divisions must really be raking it in.” And I guess that’s probably it.
Allen Robinson: Yeah, it changes cycle to cycle, but yes.
Steve Pomeranz: Yes, okay, the 30-year mortgage with what, 25% down, 20% down, is around 4% right now.
Allen Robinson: Correct.
Steve Pomeranz: And you see rates continuing to slide?
Allen Robinson: Yeah, we can see that Treasury getting down to 1.3, 1.35. We think there’s another…
Steve Pomeranz: Well, no, I mean if the Treasury stays the same, do you think that rates will come down?
Allen Robinson: We still think rates will come down. So we think those margins will change.
Steve Pomeranz: Yeah, there’s no way that the ten-year Treasury’s going to 1.3. That’s wishful thinking on your part.
Allen Robinson: A lot of the analysts on our side of the ledger think that, and they look around the world to see what’s going on or whatever. They also look to see what they think the Fed’s going to do given an election year’s coming up and a recession coming up, blah-blah-blah.
Steve Pomeranz: Yeah, I don’t know, there must be … I think they’re smoking something.
Allen Robinson: They could.
Steve Pomeranz: Because they’re in Colorado, aren’t they?
Allen Robinson: You never know.
Steve Pomeranz: Look, if the ten-year Treasury goes to 1.3, we got more serious problems than people getting mortgages. Maybe mortgage rates will be down, but people won’t be buying mortgages.
Allen Robinson: That’s correct.
Steve Pomeranz: All right, so let’s get down to the 15-year, conventional, 20% down or so.
Allen Robinson: Typically, you’ll find that there’s about a quarter percent difference between a 30-year fixed and a 15 -ear fixed. Those particular bond coupons aren’t trading quite that much right now, so it’s closer than it’s been in a while.
Steve Pomeranz: Yeah, so, normally, there’s a differential in the rate, toward the 15-year, favoring the 15-year.
Allen Robinson: Correct.
Steve Pomeranz: So you’re paying a lower rate. But, of course, your payment is higher because you’re compressing the amortization from 30 years to 15 years, so you’re going to pay more. But the rate is lower. But you’re saying in today’s world, the differential’s not that high.
Allen Robinson: Correct. And getting less, and we talked before about the 30-some-odd different things that go into determining a rate. Yesterday I looked at a rate where the 15-year was actually more expensive than the 30-year, given the loan level adjustments for the rate.
Steve Pomeranz: Loan level adjustments?
Allen Robinson: Everything costs you or gets you something. So loan to value matters, credit score matters, type of property matters. And when the computer puts all those factors in, the 15-year rate was more expensive.
Steve Pomeranz: Can you still get a mortgage without income?
Allen Robinson: Yes.
Steve Pomeranz: I mean, without a job?
Allen Robinson: No.
Steve Pomeranz: I mean, there’s retired people who have income from their portfolios. I’m not talking about that.
Allen Robinson: Okay.
Steve Pomeranz: I’m going back to ’06.
Allen Robinson: No, there’s no income, no asset, no ratio, no dock, no.
Steve Pomeranz: The fog, the mirror, there’s none of that?
Allen Robinson: No, the only person that would get that back to the different channels of business would be on the hard equity side.
Steve Pomeranz: Meaning?
Allen Robinson: Where you put 30% down, you pay a 10% interest rate, two or three points.
Steve Pomeranz: The guy around the corner.
Allen Robinson: You wink-wink, say it’s your investment property, you’re not going to live there, things like that.
Steve Pomeranz: Those are basically short-term loans.
Allen Robinson: Yes, typically a year or less.
Steve Pomeranz: Right, and you can pay up to about 10% or something on that, generally.
Allen Robinson: Correct. Interest-only…
Steve Pomeranz: It’s not the loan shark, but it’s just kind of a person to person transaction. You need money fast, you can’t to the bank, that’s too complicated or whatever reason. You go to somebody who will lend you half of what the value of the home is. Let’s say, for a year, and they’ll charge you 10%.
Allen Robinson: Correct.
Steve Pomeranz: That’s a different channel, as you call it.
Allen Robinson: Yes.
Steve Pomeranz: What about those loans that are adjustable loans?
Allen Robinson: Hardly any adjustables are happening right now, Steve, with the exception of the jumbo-business, and that’s few and far between. The rates are just so good.
Steve Pomeranz: You mean the 7-1s, like the rate is fixed for seven years and then it starts to become variable afterwards, annually. Or the 5-1s, those are not popular or they’re not available?
Allen Robinson: They are available, there’s just not enough margin for the customer to say, “Why should I take that risk if you’re only going to get a quarter percent difference or three-eighths of a percent difference?”
Steve Pomeranz: Yeah, and common sense though, it’s been wrong, would be that rates can only go up.
Allen Robinson: Correct.
Steve Pomeranz: Because they’re so low, so why take the risk that in five or seven years, rates will be higher, when you can lock in the rates today, yeah.
Allen Robinson: And if you go back, you talked about it before. 15 years ago when those pay option arms were out there, the rates were wonderful forever, still are wonderful. But what happened now, with history, is that the 10 or 15-year adjustment is now happening. The people owe more money than what they had borrowed, the amortization now is at 15 years versus 30 years, and their payment goes up by 40%.
Steve Pomeranz: Oh, that’s a killer. Well, that’s what starts recessions. That’s what started the housing crisis to a large degree.
Allen Robinson: That’s why we’re thinking there is a recession coming in 2020.
Steve Pomeranz: Well, that’s how you get to 1.3% ten-year rates.
Allen Robinson: And two or three fed reductions, right?
Steve Pomeranz: Okay, never mind. Really quickly, how easy is it to get a loan these days?
Allen Robinson: Steve, it’s never been easier and it’s never been harder at the same time.
Steve Pomeranz: Your hair is a lot grayer.
Allen Robinson: You know, you said the 36 years which is scary, but I would tell you that the person who is perfect, who is totally organized, who is totally automated, who is on their game, they know passwords, usernames, they’re wired…
Steve Pomeranz: Mm-hmm (affirmative).
Allen Robinson: It’s never been easier for them to get a loan. They can walk in and press buttons and I’m done. There’s not a lot of those people.
Steve Pomeranz: Yeah.
Allen Robinson: The majority of us don’t know our usernames and passwords.
Steve Pomeranz: You still need your tax returns?
Allen Robinson: Maybe.
Steve Pomeranz: Maybe. Bank statements?
Allen Robinson: Possibly.
Steve Pomeranz: W2?
Allen Robinson: Maybe.
Steve Pomeranz: What do you mean?
Allen Robinson: Well, here’s where technology came in. And the first thing that happens is back to the environment is that I’ll say to you, “Steve, do you do online banking?” You say yes.
Steve Pomeranz: Yes.
Allen Robinson: I say, “Great, I’m going to send you an invitation, and when I send you that invitation, it’s going to allow you to access your bank statements. Don’t send me any of them, give it permission. It will give me your average deposit, how much money’s in the account, I’m done.”
Same thing with IRS transcripts. Do you file tax returns? Yes. I get a 4506-T, I verify your transcripts, I don’t need tax returns. You work for IBM? W2s.
Steve Pomeranz: Got it. All right, so when I said, “Do you need those things?” You still need those things, but you don’t need me to give you paper copies and stacks and folders and things like that? Or even upload them because you can now get access directly to the bank accounts?
Allen Robinson: Correct. The automation’s there.
Steve Pomeranz: Okay, that’s fine.
Allen Robinson: But there is a segment, there is a channel, back to what you and I called sub-prime years ago, is now called non-prime.
Steve Pomeranz: I love that, non-prime.
Allen Robinson: You come in, you say, “Allen, look, I don’t pay all my taxes. I make ten dollars, I write off nine dollars, I pay a dollar’s worth of tax. But I really make five dollars.” Do you put that money through your bank account? Yes. I have a program … And I don’t mean “I” when I say, I, the industry, has a bank statement program.
Steve Pomeranz: Yeah.
Allen Robinson: Even though you don’t pay taxes on the money, if you put ten grand in your bank, you take ten grand out, I could under-write based on ten grand.
Steve Pomeranz: Okay.
Allen Robinson: So there’s asset depletion. You got a million dollars in the bank, I can assume you take out X amount of dollars a month, I can do your loan for you.
Steve Pomeranz: Well, that’s actually a big improvement.
Allen Robinson: Yes.
Steve Pomeranz: Because there was a time when the system couldn’t cope with this idea that people, not everybody has a W2 income. You’re self-employed, your income is variable, it’s this and that. But it’s still income, you’re still living, you’ve still got your IRS app or whatever, your 401K. You’re living a normal life, but it’s not conventional.
Allen Robinson: Correct.
Steve Pomeranz: Okay, but that’s changed. So the technology has come a long way, I guess you’re saying.
Allen Robinson: Yeah, it’s never been better. And as long as the users know how to use it, being the loan officer, the processors on the writers, it’s never been easier.
Steve Pomeranz: So if I can’t supply my passwords, and this online capability, what, are you coming to my house?
Allen Robinson: Either or. The industry’s really made a committed effort because look at Quicken, for example. They came in the industry ten years ago, we never thought that they would be around, they’re the biggest lender in the country and they’re remote.
Steve Pomeranz: Yeah.
Allen Robinson: So they have no choice. You better do it their way, or you’re not their customer. On the local level with most mortgage brokers, mortgage bankers, direct lenders, you say, “Customer, where are you at?” You a computer or you’re not? Your printer doesn’t have ink or it does. You haven’t been on your Wells Fargo bank account recently, come on in or we’ll come to your house.
Steve Pomeranz: Right, gotcha.
Allen Robinson: That’s where our advantage is over the virtual lenders, is that we can be local and be the expert.
Steve Pomeranz: Gotcha. We’re out of time, but I think we’ve learned a lot about the mortgage industry, especially we know where rates are, and how some of the behind-the-scenes thinking goes. My guest is Allen Robinson, managing director and founder of First Trust Mortgage, and he can be found at borrowsmart.biz. Thanks, Allen.
Allen Robinson: Thanks, Steve.
Steve Pomeranz: To hear this and any interview again, or if you have a question about what we’ve just discussed, visit our website at stevepomeranz.com to join the conversation. By the way, we love to get your questions so don’t hesitate, we will answer them, we promise.
And while you’re there, sign up for a weekly update that includes all of our upcoming live events and important topics that we cover on this show every single week into your inbox. That’s stevepomeranz.com.
