Bonds sold off again today, but this time in several distinct waves. The first wave occurred instantly as trading opened in the overnight session. 10yr yields jumped immediately from 4.02 to 4.08 as investors reacted to Powell’s 60 Minutes interview (which reiterated that strong econ data means the Fed is in no hurry to cut). Stronger econ data in Europe pushed EU yields higher, kicking off the 2nd wave of selling and taking 10s to 4.12. Then in U.S. hours, a broadly stronger ISM Services PMI kicked off the 3rd wave, taking yields over 4.16% by the 3pm CME close. With that, bonds are basically back in line with January’s highs unless you ask shorter-term bonds (more influenced by Fed Funds Rate expectations) which are the highest since the Dec 13th Fed announcement.
09:18 AM
Sharply weaker overnight, with losses out of the gate and additional weakness in Europe. 10yr up 10bps at 4.119. MBS down almost half a point in 5.5s and just over a quarter point in 6.0 coupons.
10:35 AM
Additional losses after ISM data. MBS down over half a point. 10yr yield up 13.2bps at 4.154.
02:05 PM
Weakest levels just before 11:30am. Sideways since then. MBS down almost half a point in 5.5 coupons and 10 ticks (.31) in 6.0 coupons). 10yr up 13.8bps at 4.16%
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Contradictions abound in respondents’ views The survey also found that 53% said the US economy will improve over the course of the next 12 months – a nearly 180-degree turn from the 51% that expected the economy in 2022 to deteriorate. Michael Minard (pictured), CEO/owner of Delta Media Group, spoke to Mortgage Professional America about … [Read more…]
The median annual salary for a paralegal is $59,200, according to the latest figures from the Bureau of Labor Statistics. But depending on where you live, your area of expertise, and your level of experience, you could make upwards of $121,110 or more a year.
A career as a paralegal can be a fulfilling choice for those interested in the law. While the job can be demanding and the hours sometimes long, it can also provide professional satisfaction and a chance to help others in your community.
What Are Paralegals?
A paralegal works under the supervision of a lawyer and performs supportive legal tasks. Administrative duties require a knowledge of the law, but you don’t have to have a law degree or a law license.
Paralegals are often responsible for the following tasks:
• Draft motions and pleadings for an attorney and file it with the court.
• Research cases. Paralegals research current and old legal cases to help discover relative precedents and understand past rulings.
• Interview clients and witnesses involved in a case.
• Communicate with clients throughout the phases of the legal process.
• Collect documents, client testimonials, and expert witnesses on behalf of the attorney.
• Draft reports and legal documents for cases.
• Factcheck legal filings and documents for accuracy.
• Gather supporting documents that a lawyer may use or file with the court.
• Coordinate cases, including their schedules and deadlines.
• Assist and support lawyers during trials.
Being a paralegal is not a job for antisocial people, as it typically involves being a liaison between clients, attorneys, investigators, witnesses, and court officials. 💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.
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How Much Do Starting Paralegals Make?
Whether they’re fresh out of school or have been working for several years, paralegals can be paid hourly or earn a yearly salary. A typical rate for a brand-new paralegal is $19.20 an hour or $55,332 a year.
An entry-level salary or hourly rate for a paralegal varies by work environment. Smaller firms and nonprofits tend to pay less, while bigger corporate law firms may offer more competitive pay.
Paralegals can specialize in certain areas, including litigation, real estate, divorce, intellectual property, immigration, and bankruptcy. Honing your skills in a particular area of the law could help position you for higher-paying opportunities.
No matter the size of your salary, it helps to keep a close eye on your finances and the progress you’re making toward your financial goals. Online tools like a money tracker app can help you create a budget, monitor your credit score, and more.
Recommended: Is a $100,000 Salary Good?
What Is the Average Paralegal Salary by State?
Like most jobs, the amount of money you can earn as a paralegal is impacted by geography. As the chart below shows, salaries in this field can fluctuate from state to state.
The Median Salary by State for a Paralegal in 2022
State
Median Salary
Alabama
$48,620
Alaska
$61,490
Arizona
$59,050
Arkansas
n/a
California
$69,790
Colorado
$65,010
Connecticut
$63,490
Delaware
$59,660
District of Columbia
$87,610
Florida
$52,190
Georgia
$51,420
Hawaii
$58,630
Idaho
$48,500
Illinois
$60,370
Indiana
$47,710
Iowa
$52,660
Kansas
$48,490
Kentucky
$48,810
Louisiana
$50,310
Maine
$54,710
Maryland
$58,760
Massachusetts
$63,360
Michigan
$58,780
Minnesota
$60,380
Mississippi
$43,590
Missouri
$55,410
Montana
$55,270
Nebraska
$50,610
Nevada
$61,180
New Hampshire
$50,960
New Jersey
$61,040
New Mexico
$48,320
New York
$62,730
North Carolina
$51,340
North Dakota
$48,740
Ohio
$50,580
Oklahoma
$48,490
Oregon
$63,980
Pennsylvania
$62,080
Rhode Island
n/a
South Carolina
$48,190
South Dakota
$54,100
Tennessee
$48,420
Texas
$56,310
Utah
$52,820
Vermont
$60,560
Virginia
$59,500
Washington
$69,260
West Virginia
$47,990
Wisconsin
$49,970
Wyoming
$52,000
Source: Bureau of Labor Statistics
Paralegal Job Considerations for Pay and Benefits
Thinking about becoming a paralegal? Consider the following:
• Areas of interest. Paralegals can work in any number of specialties: corporate law, patent law, health care, and more. Thinking about which field best suits your interest can help guide your training and job search.
• Career goals. Is career advancement and an annual pay raise important to you? Is having a flexible schedule a priority? Discuss your options with a hiring manager before accepting a position.
• Benefits. Many full-time and part-time paralegals are eligible for benefits, including, health, vision, and dental insurance, a 401(k), tuition assistance, and paid time off.
• Time and energy commitment. Some areas of law, like litigation, are more stressful than others and may require longer working hours.
Recommended: How to Create a Budget in 5 Steps
Pros and Cons of Being a Paralegal
Ultimately, deciding if becoming a paralegal is a good fit depends on your interests, skills, and goals. Like any profession, working as a paralegal has its positives and negatives:
Pros:
• Salary. Paralegals stand to earn excellent pay, especially if they train for specific roles. A courtroom presentation specialist, for instance, may earn between $67,500 and $125,000 a year.
• Job outlook. Paralegals are in high demand. According to the Bureau of Labor Statistics, jobs in the field are projected to grow 4% from 2022 to 2032.
• Variety of work. On any given day, a paralegal may juggle a number of cases and assorted tasks — from paperwork to writing motions to speaking with witnesses.
• Stimulating work. Creative problem-solving skills and analytical reasoning are put to use every day as a paralegal. The job also requires staying up-to-date on new and changing laws.
• No law school. Becoming a paralegal requires much less education than is demanded of lawyers. A bachelor’s degree in any field and completing an accredited paralegal program are often all that’s needed.
Cons:
• Long hours. Paralegals often work more than the traditional 40-hour week. As deadlines and court dates approach, you may find yourself working late nights and weekends.
• High stress. In addition to assisting lawyers with complex legal issues, paralegals may work closely with demanding clients.
• Lack of autonomy. When you’re a paralegal, you work directly under and are supervised by a licensed attorney. And since you are not certificated to practice law, you cannot advise your clients on legal matters or represent them in court.
💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.
The Takeaway
While the hours can be long and the environment sometimes stressful, being a paralegal can provide you with an opportunity to help others, stay intellectually stimulated, and earn a good salary. While the average paralegal salary is around $59,200 a year, you may be able to earn more depending on your experience, specialty, and location.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
With SoFi, you can keep tabs on how your money comes and goes.
FAQ
What is the highest-paying paralegal job?
One of the highest-paying paralegal jobs is a courtroom presentation specialist, which typically pays between $67,500 and $125,000 a year.
Do Paralegals make 100k a year?
Depending on how much experience you have, your area of expertise, and your employer, you could make $100,000 or more a year as a paralegal.
How much do paralegals make starting out?
When they’re just starting out, a paralegal earns an average of $19.20 an hour or $55,332 a year.
Photo credit: iStock/sturti
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The 30-year fixed mortgage rate surpassed the 7% mark on Monday on the heels of strong economic data and the Federal Reserve signaling that it will move carefully with any future cuts to interest rates.
The 30-year conforming fixed mortgage rate was at 7.04% on Mortgage News Daily and 6.91% on HousingWire’s Mortgage Rate Center.
It’s the first time since December that the average 30-year fixed rate has eclipsed 7%. Mortgage rates briefly exceeded 8% in October but had eased as investors gained confidence that the Fed was nearing the end of its phase of interest rate hikes.
Mortgage rates took a sharp turn following a blowout jobs report, which demonstrated that the U.S. labor market is posed to support broader economic growth. About 353,000 jobs were added in January, up from a revised rate of 333,000 in December.
Fed Chair Jerome Powell’s message that the central bank will move carefully on rate cuts, given in an interview with “60 Minutes” after last week’s Federal Open Market Committee (FOMC) meeting, is what sent mortgage rates higher on Monday.
“The prudent thing to do is … to just give it some time and see that the data confirm that inflation is moving down to 2% in a sustainable way,” Powell said in the interview that aired Sunday night.
“Growth is going on at a solid pace, the labor market is strong, 3.7% unemployment,” Powell said. “With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully. We want to see more evidence that inflation is moving sustainably down to 2%.”
After the most recent FOMC meeting on Feb. 1, Powell signaled that the central bank isn’t likely to cut interest rates in March as investors had hoped.
“In fact, Powell believes the Fed can wait until it sees more labor damage before cutting the Federal Funds Rate aggressively or moving toward a neutral policy stance, saying again that a March rate cut is ‘unlikely,’” Logan Mohtashami, lead analyst at HousingWire, wrote in commentary on Monday.
Mortgage rates track the yield on 10-year U.S. Treasurys, which move based on anticipation about the Fed’s actions, what the Fed actually does and how investors react. When Treasury yields go down, so do mortgage rates.
The 10-year Treasury yield rose to 4.16% as of Monday at 5 p.m. EST, up from 4.03% on Friday.
“Powell’s latest interview makes it clear: Nothing big will change over the next few months no matter what happens with inflation — the labor market hasn’t broken enough for the Federal Reserve to pivot,” Mohtashami wrote.
There was rampant speculation after the Federal Open Market Committee (FOMC) meeting last week about the timing and number of interest rate cuts this year. In a follow-up interview on 60 Minutes on Sunday, Federal Reserve Chairman Jerome Powell did not sound like someone who has pivoted.
In fact, Powell believes the Fed can wait until it sees more labor damage before cutting the Federal Funds Rate aggressively or moving toward a neutral policy stance, saying again that a March rate cut is “unlikely.”
In December, the Fed talked about three rate cuts in 2024 but some people made a case for four, five or even six rate cuts given a Fed pivot. However, for me it’s always been about the labor market and jobless claims data, and that data line hasn’t broken enough for the Fed to be more aggressive. For the Fed to cut rates in March, we would need weaker labor data, no matter how low inflation goes in the next report.
Here’s part of the interview on 60 Minutes that illustrates what I’m talking about:
Scott Pelley: But inflation has been falling steadily for 11 months. You’ve avoided a recession. Why not cut the rates now?
Jerome Powell: Well, we have a strong economy. Growth is going on at a solid pace, the labor market is strong, 3.7% unemployment. With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully. We want to see more evidence that inflation is moving sustainably down to 2%. We have some confidence in that, our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.
Notice the statement,“We feel like we can approach the question of when to begin to reduce interest rates carefully.” This is the old and slow part I have been discussing since the end of 2022. The Fed already has a restrictive policy and if the labor market was breaking today they would be cutting rates aggressively. However, instead of getting ahead of the curve and getting out of restrictive territory into neutral policy, they will take their time on this and stay restrictive for a bit longer.
This has been a theme of my work since 2022 and is why I favor labor data over inflation data at this stage. Back in 2022, the Fed discussed having the Fed Funds rate mirror three, six and 12-month PCE data. Today, PCE three-month and six-month inflation is running below 2%, headline 12-month PCE is running at 2.6%, core PCE 12-month is running at 2.9% and the Fed funds rate is over 5%.
With that kind of improvement in inflation, why is the Fed risking being restrictive with its policy? It’s because they will feel better about cutting rates when the labor market is breaking. The data line that will change everything is not more BLS jobs Friday reports like we just had, but the jobless claims data. It is simply too low for the Fed to pivot.
We are going to see rate cuts this year. The Fed believed that policy was too restrictive when the 10-year was near 5% and we had 8% mortgage rates, but they seem fine with mortgage rates between 6%-7.25% right now. Here’s another quote from the 60 Minutes interview:
Pelley: The next meeting around this table that will decide the direction of interest rates is in this coming March. Knowing what you know now, is a rate cut more likely or less likely at that time?
Powell: So, the broader situation is that the economy is strong, the labor market is strong, and inflation is coming down. And my colleagues and I are trying to pick the right point at which to begin to dial back our restrictive policy stance.
This clearly shows that the Fed hasn’t pivoted now, they just didn’t want their policy to be too restrictive. The last thing they want on their plate is a job-loss recession going into an election year after they hiked so high so fast.
Bond yields react
Let’s take a first glance at the bond market reaction to the interview. The 10-year yield headed higher after this interview went live, rising from 4.02% to 4.07%.
The 10-year yield is the key for housing in 2024. In my 2024 forecast, I set the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested.
This 10-year yield range means mortgage rates between 5.75%-7.25%, but this assumes spreads are still bad. The spreads have been improving this year so much that if we hit 4.25% on the 10-year yield, we won’t see 7.25% in mortgage rates.
Below is the chart of the 10-year yield since Feb. 1 and you can see the reaction after Powell talked on 60 minutes Sunday: yields went higher.
We are in the upper-end range of my 10-year yield forecast, and jobless claims are near the historical bottom of the post-COVID-19 recovery. My model is based more on claims data, so this looks about right.
What about housing?
Powell didn’t discuss housing at all in this interview and the Fed is in a kind of no-man’s land when talking about housing. The only silver lining I can say here for the housing market is that if the Fed didn’t talk about a 5% 10-year yield and 8% mortgage rates being too restrictive with Fed policy. We might be there today after the last jobs report! That’s the most positive spin I can take from the recent actions — that they know they were pushing the limits with the housing market.
Remember, most recessions start with losing residential construction jobs so they’re mindful of this reality in an election year.
At this point of the cycle, if you want an idea on rate cuts, the 2-year yield is the best place to go. I will stand firm on getting no more than three rate cuts in 2024 unless jobless claims get to 323,000 on a four-week moving average. Unfortunately, if the Fed hasn’t pivoted by then it will be too late. Right now, the 2-year yield is rising from recent lows, making more aggressive rate cut forecasts unlikely.
Like the 10-year, the chart of the 2-year yield below shows a strong reaction to the 60 Minutes interview.
Powell’s latest interview makes it clear: Nothing big will change over the next few months no matter what happens with inflation — the labor market hasn’t broken enough for the Federal Reserve to pivot.
Purchasing a home can be a daunting task, especially for first-time homebuyers. There is often a great deal of pressure to find a home that meets your preferences and is in good condition, as well as obtaining approval for a mortgage. Even those with experience in real estate may feel overwhelmed by the process.
Plus, even if you find the home of your dreams, you still have to put in an offer and hope that it’s accepted with no competition from other buyers.
Luckily, there’s a way to not only stand out from other home buyers, but also to expedite your mortgage approval process. By getting preapproved for a mortgage before you even put in an offer on a home, you can significantly increase your chances of having your offer selected.
The Basics of Mortgage Preapproval
A mortgage preapproval refers to a letter from your lender indicating that you meet the standards for a mortgage loan within a certain price range.
The lender has thoroughly reviewed your credit history, income, and other financial indicators and put them through the automated underwriting system. Mortgage preapprovals are typically valid between 60 and 90 days.
Why Mortgage Preapproval Matters for Homebuyers
There are a couple of benefits to getting preapproved in advance of viewing houses. One of the most significant factors is that it strengthens your offer when bidding on a home that you love.
Many deals fall through because of financing issues, even after the seller accepts an offer. If you have a preapproval letter to submit as well, the seller knows that the deal is more likely to close by accepting your offer than someone else’s.
Furthermore, real estate agents typically want to see that you’ve been preapproved before they show you houses. They don’t want to waste their time showing clients houses if they cannot buy a home.
Mortgage Preapproval Letter
Getting a mortgage preapproval letter also gives you a chance to see how large of a home loan you’ll be approved for, helping to narrow down your home search to the suitable price range.
You’ll also find out what types of home loans you qualify for, whether it be a conventional, FHA, VA, or other type of mortgage. Some of these loans have certain restrictions on the type of property you can purchase and what condition it must be in. Some also require a certain down payment percentage.
The content of a preapproval letter may vary depending on the lender. Generally, the letter includes details such as the purchase price, loan program, interest rate, origination fees, loan amount, down payment amount, expiration date, and property address. This letter is typically included with an offer to purchase a new home.
Private Mortgage Insurance
If your down payment is less than 20%, you’ll likely have to pay private mortgage insurance (PMI), which is also based on the loan amount. Getting preapproved helps you financially prepare for the full cost of your new home and your monthly mortgage payment.
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Once you determine your target loan amount, you’ll know what your monthly principal, interest, and mortgage payments will look like. When you know that, you can then look at individual properties to determine how much property tax and even homeowner’s insurance you’ll need to tack on to each month’s payment.
You need to consider all of your fees before finalizing your maximum home price. Otherwise, you could be unpleasantly surprised when you get your first mortgage bill.
Getting Ready for Mortgage Preapproval
Before you talk to a lender about getting preapproved for a mortgage, the best thing to do is to check both your credit report and credit score.
Get Your Free Credit Report
You can access your credit reports from each of the three credit bureaus for free once every twelve months. So get started a few months before you’ll be house hunting to give yourself time to address any issues.
Dispute Negative Inaccuracies
You might have outdated information lingering on your credit report or even incorrect items. The dispute process can take some time. You want to make sure your credit score is as strong as possible. That way, you can get approved and get the best mortgage rates possible when the time comes.
Check Your Credit Score
There are a couple of free websites like Credit Karma that provide you with access to your credit score. It might not be the same credit score your lender will use, but it still lets you know what ballpark you’re in. If your credit score is lower than you’d like to see, you have time to make some quick fixes.
For example, you can get a higher credit card limit to decrease your credit utilization ratio or pay down extra debt to lower your debt-to-income ratio. A little planning can help strengthen your chances for preapproval before you even contact a lender.
How to Get Preapproved for a Mortgage
When you’re ready to start the mortgage preapproval process, the loan officer will ask you for several pieces of information. You will need to provide income tax returns from the past two years, pay stubs to verify your employment and gross monthly income, and bank statements.
You’ll also have to provide your Social Security number and sign a form giving the lender permission to perform a hard inquiry on your credit report.
At that time, the lender will also perform a credit check and review your credit score to use in the evaluation process. Because underwriting systems are now automated, you can get preapproved in a matter of minutes.
Possible Outcomes
When the underwriting process is completed, you’ll either receive one of four responses.
Here’s what they are and what they mean:
Approved: your initial mortgage preapproval has gone through with no conditions.
Approved with conditions: you must complete additional steps before getting approved (for example, providing extra income verification to the lender.)
Suspended: you must answer additional questions before the underwriter determines whether you’re approved.
Declined: your application did not get approved.
Many mortgage lenders state that it’s actually quite rare to be preapproved for a mortgage with no conditions on your first attempt. So, don’t be disheartened if this happens to you—you’re in good company!
Even a suspended application isn’t the end of the road. And if the lender declines your mortgage preapproval, make sure to ask them why so that you can take targeted steps to improve the weak areas in your application.
Mortgage Prequalification vs. Preapproval: Clarifying the Differences
When you first contact a lender about qualifying for a mortgage, you’ll probably discuss your basic financial picture to help you determine how much of a loan you’re likely to get approved for.
Mortgage Prequalification
This is referred to as prequalification for a home loan. The mortgage lender doesn’t access your credit report or request financial documentation. Instead, they give you an idea of loans you’d qualify for based on the information you provide.
If you provide false information, your mortgage application will definitely fall apart in the underwriting process, so it’s important to be honest and as accurate as possible. Otherwise, it’s a waste of your time. Getting prequalified is a smart move to inform yourself of your mortgage options, but it’s not strong enough to submit with an offer on a house.
Mortgage Preapproval
On the other hand, getting preapproved for a mortgage prove to sellers that you’ve already been through the preliminary underwriting process, and your financing is likely to go through all the way.
In this instance, you submit all necessary financial documentation to your lender. Not only does it strengthen your offer when you find a home you like, but it also speeds up the next steps in the mortgage process so that you can close more quickly.
Choosing the Right Mortgage Lender
Getting a prequalification before a preapproval may seem like an unnecessary step, but it’s a great way to interview the lender as much as they’re interviewing you.
At the end of the day, mortgage lenders compete for your business, so don’t just choose the first one who gives you a prequalification or preapproval. There are several factors to consider before you make this critical decision. You should speak to multiple lenders and compare interest rates and loan options to find the best one for your financial situation.
Comparing Interest Rates
Start with an interest rate comparison. You should be able to get quotes based on your basic financial information without the lender performing a hard pull on your credit report.
Furthermore, consider how much money the lender says you can afford. They don’t know how much your other bills are or how much you’re comfortable spending.
If they try to pressure you into a loan amount that seems like it would be too expensive based on the monthly payments, they may not have your best interests at heart. A good lender wants to make sure you can afford your payments every month and is transparent about costs beyond your principal and interest.
Mortgage Rate Lock Float Down
You can also ask lenders what kind of perks they offer. For example, some give their clients one free float down before closing. This means, if interest rates have dropped since you locked in your rate, you can get that lower rate without having to pay any additional fees or points.
Others offer discounts on closing costs to clients in public service professions, such as teachers, police officers, and firefighters. Even if a particular lender doesn’t offer any of these services, you can reference another one that does to negotiate your own special deal.
Mortgage Preapproval Checklist
Check your credit report and credit score.
Find a trustworthy lender.
Get prequalified to find out what types of loans you’re eligible for.
Gather financial documentation, such as pay stubs, bank statements, W-2s, and income tax returns from the last two years.
Apply for a preapproval letter to seriously begin your home search.
Frequently Asked Questions
What factors are considered for mortgage preapproval?
Lenders will take a look at your credit score and verify your employment and income. They will also consider your debt-to-income ratio (DTI), which is the percentage of your monthly income that goes towards paying off debts.
To get a mortgage, it is generally advisable to have a DTI of 50% or lower. The required DTI for a loan may vary depending on the type of loan you are seeking.
Why should I get preapproved by more than one lender?
By applying to multiple lenders, you can compare interest rates and fees to find the deal with the most favorable terms. This can save you a lot of money over the life of the loan.
To find a mortgage that works for your financial situation, you should do your research and weigh all of your options.
Can I get preapproved for a mortgage online?
Yes, it is possible to get preapproved for a mortgage online. Many lenders allow you to provide your financial information and documentation through the lender’s website or over the phone.
You will typically need to provide the lender with information such as your monthly income, monthly debts, and credit history. After reviewing this information, the lender will determine how much they are willing to lend you and provide you with a preapproval letter.
Does mortgage preapproval guarantee a loan?
No, getting preapproved for a mortgage does not guarantee that you will receive a loan. The lender will still need to evaluate the property you are interested in buying and your financial information at the time of the loan application.
How much house can I afford?
There are several factors to consider when determining how much house you can afford, including your income, debts, down payment, and the type of mortgage you can qualify for. A general rule of thumb is to aim for a home that costs no more than three to five times your annual household income.
To calculate how much you can afford, you’ll need to consider your debt-to-income ratio (DTI). This is a measure of how much of your income goes towards paying off debts. Lenders typically look for a DTI of 50% or lower when determining how much you can borrow.
You’ll also need to consider your down payment and the type of mortgage you qualify for. A larger down payment can help you qualify for a better mortgage rate, and a shorter loan term (such as a 15-year mortgage) can also lower your monthly payments.
It’s a good idea to work with a lender to get a more detailed assessment of how much you can afford. They can help you understand your options and guide you towards a mortgage that works for your budget.
Can I get preapproved for a mortgage with bad credit?
It may be more difficult to get mortgage preapproval with bad credit, but it is not impossible. Some lenders may require a higher down payment or charge a higher interest rate for borrowers with lower credit scores.
I did a recent interview regarding predatory lending. I thought I’d share it here to offer a better insight as to what predatory lending is, and how it can affect you and your family.
1. How would you define predatory lending in the mortgage industry?
Predatory lending is a very subjective term, which makes it hard to define, and even harder to control. To some, it may involve charging too much to complete a mortgage application, while others may define it as doctoring forms to qualify an applicant for a loan. It also involves more cut and dry practices such as deceiving borrowers by failing to include all associated costs upfront, forging documentation, or simply leaving out important documents such as the Hud-1 or the Good Faith Estimate. Either way, what’s clear is that predatory lending usually involves unethical practices.
2. Is it a big problem? Why or why not?
Personally, I think it’s a huge problem. Much of the current state of affairs in the mortgage industry can be blamed on predatory lending to some extent, whether it was manipulating figures to qualify a borrower, or simply sticking a borrower into an option-arm they would later default on after mortgage payments reset. Many households nationwide have been shattered by some form of predatory lending.
3. What are the consequences or the problems that a borrower can face if they get a mortgage with a predatory lender?
Clearly the biggest consequence is a borrower losing his or her home. If a borrower was misinformed during the loan process and later found out they were unable to afford payments, the result could be devastating. As a result of loose lending practices over the past few years, many homeowners across the nation are facing payment default and foreclosure, and the problem could get worse in the near future. Even if affected homeowners are able to stay afloat, many were overcharged thousands of dollars which can impact other areas of their life and makes things a lot more difficult financially.
4. What are factors that consumers should consider when choosing a mortgage lender?
Typically, choosing a large, well-known bank or lender will help homeowners avoid much of the predatory lending problem, although even the big guys exhibit their own form of predatory lending, perhaps to a lesser extent. I think the key is educating homeowners about the process before they embark upon the loan process. Any bank or lender can overcharge you or throw you for a loop. It’s up to the borrower to educate themselves to ensure they make informed decisions and avoid the typical traps inexperienced borrowers fall into.
5. Should they go with an institution that they already have borrowed money from such as a bank or credit union for instance?
Previous relationships can be a positive for several reasons, including peace of mind, familiarity with the process and employees, and perhaps even better pricing. Many banks and lenders offer a discount to borrowers based on the level of relationship already established. And it’s always wise to consider your current bank along with all other potential financing options.
6. Is there any particular “profile” of a predatory lender? If so, what it is?
–Is it the lender that is “bad” or the loan products that they offer?
The scary thing about predatory lending is how loosely it can be defined. Sometimes it’s the lender, and sometimes it’s the products they sell. And it may be one of those or a combination of things that make it “predatory”. Loan programs themselves are fairly objective in their nature, but salespeople can highlight certain aspects while leaving out others. This type of omission is another form of predatory lending. Of course you may also encounter a completely evil bank or mortgage broker that exists simply to overcharge, defraud, and misinform you. But again, it can be case by case, with some homeowners being affected more than others. For example, minorities have been said to be more impacted by predatory lending.
7. Why is it important for a prospective borrower to choose the “right” lender?
Obtaining a mortgage is likely the largest financial transaction a consumer will make in their life, so making the right decision is crucial. Most people comparison shop when looking at televisions or cell phones, so the attention should be ten fold when shopping for a mortgage. Just as you’d buy your TV or phone from a reputable merchant, the same carries over to mortgage. You want someone you can trust, who you can contact if anything goes wrong, and someone you think will steer you in the right direction. Predatory lending can happen at any company, so it’s not only the company, but the individual you ultimately work with. Take your time to select and “interview” the person who will handle your loan.
8. What tips can you offer buyers who want to find a good mortgage, HELOC or other housing-loan product?
My recommendation is to self-educate. While you may be able to shop around and find an “honest lender” or the “best broker”, education will ultimately help consumers make the right decisions, obtain the best mortgage rates, and pay the lowest fees. You’d be surprised how much you can learn simply by reading blogs or opening up the newspaper each morning. Mortgage is a hot subject and there is certainly no shortage of information. The more you know, the more you can negotiate, and the more you’ll save!
9. Does the shopping approach for a mortgage change when someone is looking for their first mortgage as opposed to a mortgage that isn’t their first home purchase?
I’m sure consumers would take into consideration their past experiences when shopping for a second mortgage, and so on. Anything that went wrong the first time around should be examined and ultimately adjusted to ensure things go smoothly the next time. Again, it really comes down to the borrower and their willingness to take the time to learn about the process and understand how things work. If they do take a moment to educate themselves, their second experience should be much better, and that will be evident in pricing and fees.
10. Is finding a lender online any different than shopping in person?
There are unscrupulous lenders on and offline, just as there are with any business. The key is research, referrals, and education. Make sure you know who you’re working with, how they operate, who you can get in contact with, and so on. Some people may be turned off to the idea of working with someone remotely, while others may have no problem with it. I think it’s highly important to be able to get in contact with whomever it is you choose to work with when handling a complicated mortgage transaction. If you aren’t able to, you may panic.
11. What do’s and dont’s should consumers follow?
It’s tough to generalize here, but I can recommend a few tips. Make sure you’re working with a reputable company. As I mentioned earlier, get referrals, contact information, and meet face to face if possible. Get everything in writing and make sure you understand every detail before signing and moving on. Don’t let anyone rush you or intimidate you. Again, this comes back to being educated on the subject. If the loan process makes sense to you, you won’t be afraid to ask questions or make objections when necessary. If you’re not sure of something, don’t sign. Homeowners need to approach the process more confidently, and confidence is a byproduct of education.
12. Based on what the blog says, you worked in the mortgage industry. Can you offer any industry perspective that can help consumers?
–Such as are lenders commission fueled, does a lender try to get a borrower to borrow a higher loan amount, etc.
I learned a lot about the mortgage industry over the years, but one insight I could walk away with is that everyone is in the industry is there to make big money. And many people are looking for a quick buck. Remember, banks and lenders are in the business of getting loans funded, and whether you get a good deal or not is really of little consequence. Employees at companies large and small will push whatever program is in their best interest.
Some loan programs tend to carry higher commissions, so you better bet they’ll be the first ones you see. Decide what program works for you before meeting with a bank, broker, loan officer, or lender. Otherwise you’ll likely see programs that fit their personal agenda. The option-arms are a good example of this. They had the highest payouts in the industry, and as a result were sold aggressively nationwide. These are the same loans that have caused homeowners everywhere to miss payments and face foreclosure.
13. What resources can people use to help them sort out how to find a lender?
When seeking out a bank, lender, or broker to work with, I would recommend a great deal of prior research. As I mentioned with comparison shopping, a mortgage is likely the largest purchase of your life, so make sure you take the time to make an educated and thoughtful decision. The people representing you control your destiny, and people with bad intentions will do whatever it takes to make the most money at your expense. Search online, consult with friends, family, and co-workers, and find out what did or didn’t work for them. Read the newspaper, magazines, and online publications to see who’s in good standing and who has seen better days.
14. Would you say the foreclosure rate is high or low right now? Does the quality of lenders people are choosing have something to do with that?
Current data would suggest that foreclosures are at a high right now, and that has a lot to do with loose lending practices, not necessarily the quality of lenders out there. The mortgage industry really got out of control, with lenders offering ridiculous programs such as “No Doc” loans to 100% financing that didn’t require income, assets, or employment verification, and 100% option arms that allowed borrowers to qualify for million-dollar homes when they could barely afford to pay rent. Now a good deal of these homeowners are in too deep, with many missing their mortgage payments and facing foreclosure. You can blame the lenders who offered them such risky programs, but you also have to look at the homeowners. Most people knew they were getting more home than they could afford, but looked the other way and hoped for the best.
15. Any common myths that borrowers fall into or misconceptions that they have about lenders or looking for one?
There are a ton of myths, lies, and inaccuracies out there because the mortgage industry is a huge mix of seasoned veterans, get rich quick junkies, and newbies. You could be misinformed as to how a mortgage program works, or be told that your credit score isn’t high enough to qualify for a loan. You may also be informed that your particular loan scenario is more complicated than it actually is, resulting in a much higher interest rate.
Unfortunately, if you don’t educate yourself about mortgage, knowing what’s accurate and what’s just hot air will be hard to distinguish. Sure there may be lenders and brokers out there looking to build a long-term relationship, but it’s better to be vigilant to ensure you come out on the winning end. Little things can make a huge impact in the mortgage industry and the choices we make during the loan process can make or break us as homeowners. Your credit score may be a few points shy of qualifying for a loan, or you may send in the wrong document and jeopardize your loan entirely.
Mistakes happen, but we can minimize risk if we take the time to learn about the process and leave plenty of time to prepare. Remember, buying or refinancing a property is a major financial decision, and one that requires a great deal of time, research, and attention.
Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes
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Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes
By: Rob Chrisman
Wed, Jan 31 2024, 10:56 AM
I could tell that my cat Myrtle was miffed. Not only had the work on her “2024 Vision Board Statement” languished, but either there was no line-caught halibut in her bowl, or the laser pointer’s battery was dead. It turned out that it was neither. Instead, it was news that the CFPB was not meeting its goals. the Office of Inspector General of the Federal Reserve Board released a report assessing the CFPB’s process for conducting enforcement investigations and making two recommendations. First, noting that the CFPB has not met its stated goal to file or settle 65 percent of its enforcement actions within two years, the OIG recommended that the CFPB Office of Enforcement incorporates the timing expectations for key steps in the enforcement process into the tracking and monitoring of matters. The OIG also recommended improvements to enforcement staff training on document maintenance and retention requirements for the CFPB’s matter management system. The report states that the recommendations were accepted by the CFPB, with a follow-up to ensure full implementation. Today’s Commentary podcast can be found here and this week’s is sponsored by Calque. With The Trade-In Mortgage powered by Calque, lenders help their clients negotiate a lower purchase price, reduce their interest payments, and eliminate PMI. Hear an interview with Broker Action Coalition’s Katie Sweeney on her transition from leading the Association of Independent Mortgage Experts (AIME) to leading the Broker Action Coalition and the Political Action Committee that she started with AIME.
Lender and Broker Software, Products, and Services
Are you looking to source new third-party originators (TPOs) for your wholesale and/or correspondent channels in 2024? If so, be sure to start by considering important factors such as production volume, branch total, number of loan officers, and product types. While it can be overwhelming to manage all these factors, Optimal Blue’s Comergence Prospect Marketing solution makes it easy. As the most comprehensive prospect marketing and data analysis tool in the industry, Comergence simplifies how you research the marketplace, understand client volume and trends, identify and develop new business opportunities, and empower your field sales staff. Plus, production numbers are updated every week. Contact Optimal Blue to take the first step toward more effective TPO sourcing with Comergence Prospect Marketing.
Make your general ledger profitable and run your business more efficiently with Loan Vision and LV-PAM. Instead of “staying alive until ‘25”, with Loan Vision, a software built BY the mortgage industry FOR the mortgage industry, you can “produce more in 24!” Customers on Loan Vision see improvements of 30 precent+ decrease in days to close the books, 20 percent+ reduction in accounting headcount, complete LOS to G/L automation, and improved reporting and visibility. Interested in learning how Loan Vision can help you run a more efficient and profitable company? Contact Carl Wooloff to schedule a call today.
HELOCs, AVMs, PCRs… when it comes to home equity lending and its corresponding appraisal solutions, it can start to look like alphabet soup. Thankfully, Class Valuation put together your one-stop shop for all home equity appraisal solutions, specifically for brokers. The Home Equity Playbook by Class Valuation is a must-have guide for navigating the intricacies of home equity valuations. It provides essential insights and detailed explanations, ensuring you’re equipped with the knowledge necessary for accurate and efficient appraisals. This guide is more than just a resource; it’s a roadmap to understanding various appraisal methodologies and their use cases in HELOC lending. When you download the playbook, you’ll find everything you need to know about AVMs, evals and more, including what they are, what they’re used for, and how Class’ solutions may differ from others. You’ll find that navigating home equity appraisal solutions is no longer a daunting task, but a streamlined, manageable process. Download it here.
Want to make it easy for your borrowers to opt out of pre-screened credit offers to keep them from being bombarded by your competition when their credit is pulled? Your POS can do that. Well, maybe not yours, but LiteSpeed by LenderLogix can!
You need more than just a license to make money as a Loan Officer, but you probably already knew that. For starters, you’ll need to know three things to be successful: how to talk to your clients, how to process a loan application and how to seal the deal. At Madison Chase Academy we teach Loan Officers how to become successful in a short period of time. There are so many mistakes to avoid and I’m here to teach you how to do things the right way… the first time! 6 Months to 6 Figures. I will walk you through exactly what is necessary for you to build a profitable Loan Officer business. For more information contact Tanya Blanchard (770-851-9334).
Fannie and Freddie Updates
When a lender originates a conventional loan, the usual next step is to sell it to Freddie Mac or Fannie Mae, and retain the servicing, sell it to them and sell the servicing, or sell the loan servicing released. Or the servicing can be sold in bulk transactions later. Who’s buying the servicing that many lenders are selling to stay afloat? Well, among others, AmeriHome, Pennymac, Carrington, Newrez, and… Planet Home. During 2023, Planet Financial Group, LLC, parent of national mortgage lender and servicer Planet Home Lending, LLC and Planet Management Group, LLC, Owned Mortgage Servicing Rights (OMSR) portfolio rose to $92.48 billion at yearend 2023, up 47 percent from yearend 2022. 2023 origination volume hit $25 billion, down only 5 percent versus 2022. The company reached and estimated #2 government correspondent lender and the #3 correspondent lender overall, and acquired $14 billion of MSR’s through bulk and Co-Issue channels.
Planet’s servicing portfolio ended 2023 at $104.69 billion, up 42 percent from $73.64 billion in December 2022. At yearend, Planet was the 9th largest Ginnie Mae servicer, according to Inside Mortgage Finance data. Sub-servicing volume ended the year at $10.95 billion overall, up 68 percent from $6.5 billion at yearend 2022. Planet’s residential origination volume ended at $25 billion, down just 5 percent from 2022. Correspondent volume held steady in 2023, ending at $23.78 billion, off 1 percent from 2022 volume. Planet’s correspondent market share rose from 4.2 percent at yearend 2022 to 6.4 percent at Q3 2023, according to the latest data available from Inside Mortgage Finance. At yearend 2023, Planet was the #3 correspondent lender, up from #5 at yearend 2022 and the #2 government correspondent lender, up from #3, according to data from Refinitiv.
On January 23, Freddie Mac and Fannie Mae (the “Enterprises”) announced an updated Single-Family Social MBS and Corporate Debt Bonds Framework, and updates to mortgage-backed securities (“MBS”) disclosures. As part of the framework updates, the Enterprises will rename the Social Index to the “Mission Index” in February. Additionally, Fannie Mae will update the formulation of the index in February, and Freddie Mac will update the formulation of the index in May. The Mission Index offers MBS investors insights into the Enterprises’ mission-oriented lending initiatives, enabling investors to allocate capital towards those activities. The revised Mission Index will apply to pools issued by Fannie Mae starting in March and for Freddie Mac starting in June.
The updated frameworks define criteria beginning in June for the Enterprises’ mortgage collateral that may be pooled, issued, and labeled “Social MBS.” That label is applied when the Mission Index score of the underlying pool exceeds a specified threshold. The Enterprises also announced they plan to provide impact reporting annually beginning in 2025, “which will help the market understand the associated impact of the loans underlying their investments.”
Fannie Mae is implementing two enhancements for the HomeReady® mortgage product. For creditworthy very low-income purchase (VLIP) borrowers, Fannie’s Mae is offering a new temporary $2,500 credit for use towards down payment and closing costs. Along with this enhancement for borrowers, lenders who take HomeReady product commitments in Pricing & Execution-Whole Loan® (PE-Whole Loan®) can now reduce hedging costs and lock in margins with an enhanced best-efforts commitment. Fannie Mae Lender Letter (LL-2024-01).
Fannie Mae’s Press Release announced Single-Family Social Bond Framework. The updated Social Bond Framework describes the Fannie Mae mortgage collateral eligible to be pooled, issued, and labeled as Single-Family “Social MBS.”
Fannie Mae posted the January Appraiser Quality Monitoring (AQM) list.
Leverage key learnings and observations from calibrations to enhance your quality control (QC) program. This Fannie Mae Quality Insider features opportunities and tips aggregated from QC calibration exercises across a larger segment of lenders.
Freddie Mac published Guide Bulletin 2023-24 announced several changes, including updates to 10-day PCV types and occupancy requirements for a cash-out refinance to require all borrowers to occupy the mortgaged premises if occupied as a primary residence. See AmeriHome Mortgage Announcement Number 20240109-CL for more information.
Capital Markets
Credit conditions loosened as Treasury yields and mortgage rates decreased, so businesses and individuals are taking advantage of the borrowing opportunity. The Wall Street Journal has examined eight charts that detail the state of credit, from an increase in corporate bond issuance and consumer borrowing to a decrease in secured bond issuance. Despite long-standing concerns about a recession, some indicators suggest the economy and credit markets are at the beginning of a cycle of growth! Of course, with too much growth comes higher rates.
In supply and demand news, the Treasury Department has pared its borrowing estimate for the first quarter to $760 billion from the $816 billion projected in October. “Experts” had predicted the opposite, but Treasury officials say less borrowing is needed because of improving fiscal flows and higher-than-expected cash on hand.
Speaking of predictions that did not come to fruition, the U.S. economy is healthier than what economists expected a year ago. But some Federal Reserve officials emphasize a need for caution as they determine how to proceed with monetary policy. Per Fed Governor Waller, “Inflation of 2 percent is our goal. But that goal cannot be achieved for just a moment in time. It must be sustained.”
With the items above as a backdrop, in news of interest to the mortgage market, the latest home price data from S&P/Case-Shiller for November was another reminder that affordability remains challenging for home buyers. Despite the U.S. National and 20-City Composite Indexes recording their first month-over-month declines since January 2023, November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with the National Composite rising 5.1 percent and the 10-city index rising 6.2 percent. Rates falling around 100 basis points since October could support further annual gains in home prices.
Today’s highlight is the FOMC statement followed by the post-meeting press conference with Chair Powell, but the economic calendar kicked off with mortgage applications decreasing 7.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 26. Last week’s results included an adjustment to account for the MLK holiday. Prior to the Fed, we’ve also received ADP employment for January (107k, much lower than expected), and the Q4 employment cost index. Later today brings the Quarterly Refunding announcement, then January Chicago PMI. No change in the fed funds target rate range is expected with the release of the latest FOMC policy statement, but the market will be eager to hear if there is any softening in the hawkish rhetoric. We begin the day with Agency MBS prices better by .125-.250, the 10-year yielding 4.01 after closing yesterday at 4.06 percent, and the 2-year at 4.30.
Employment, and Transitions
Stronghill Capital, LLC, an Austin, TX-based Wholesale and Correspondent lender, is hiring across the country! If you’re a relationship-focused Account Executive with experience in Non-QM and Investor Financing, including multi-family and mixed-use properties, we’d love to speak with you! Stronghill’s Account Executives enjoy open territories, multi-channel opportunities to work with clients as correspondents or brokers, and consistent communication and collaboration with the Executive Leadership team. Stronghill Capital is a non-bank, balance-sheet lender specializing in commercial and investment property loans. We can help your clients meet their needs. If you’re looking to join a rapidly-growing, dynamic organization with a focused commitment to growth and expansion in Non-QM, reach out to our SVP of Sales, Matt Brammer, or 440.382.3183 to learn more.
Cenlar FSB announced the promotion of several senior leaders and the appointment of one Vice President: Owen Amster, to Vice President and Controller, Nick Brett, to Senior Vice President of Client Management, Mike Day, to Vice President of Executive Client Management, Trevor Friel, to Vice President of Workforce Management, and Rena Madia, to Vice President of Customer Interaction. Heidi Carter is now the Vice President, Business Information Officer, serving as the dedicated Business Information Officer (BIO) lead for our corporate functions across the enterprise.
Dark Matter Technologies announced that Tony Fox as its chief of client engagement responsible for directing the company’s account management and client success teams and will report to Sean Dugan, chief revenue officer at Dark Matter.
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Mortgage industry analysts have been watching and waiting to see what the Federal Reserve will do—or say—next about rate cuts. They’re hedging their bets that the Fed will cut rates this year and, as an indirect result, mortgage rates will fall, too, and help revive the housing market.
Watch for coverage of today’s Fed meeting in RISMedia’s Daily News tomorrow.
Economic data plays a key role in the Fed’s timing, though. A key performance metric Fed officials and economists watch is the personal consumption expenditures (PCE) price index, which measures core inflation. PCE inflation (excluding food and energy costs) rose 0.2% in December from November’s 0.1%, and increased 2.9% from a year ago, according to data released Friday from the U.S. Commerce Department.
The annual rate of core inflation in December fell from 3.2%. That’s the lowest annual rate in nearly three years. Additionally, gross domestic product (GDP) grew at a pace of 3.3% in the fourth quarter, surpassing market expectations.
These strong economic readings pushed the 10-year Treasury yield, which mortgage rates tend to track, up to 4.14% on Friday before flattening later in the day.
Fed officials have hinted in recent speeches that cooling inflation supports the case for rate cuts—but at a more measured pace than before.
As for how those cuts will drive mortgage rates, expect “slow and steady declines,” likely in the latter half of the year, said Odeta Kushi, deputy chief economist with First American Financial.
“The Fed wants to see the long and variable lags of monetary policy so they can make their way through the economy before deciding on any rate cuts,” Kushi told RISMedia, noting that anything can happen between now and the end of the year to change the Fed’s stance. “I think that the Fed has emphasized that the path to rate cuts is highly uncertain, and they’re going to take a sort of data-driven, cautious approach.”
Several Fed officials have signaled a more cautious approach to rate cuts, dimming investors’ hopes of quick action.
During a virtual speech to the Brookings Institution on Jan. 16, Federal Reserve Governor Christopher Waller said he believes the Fed’s restrictive monetary policy is “set properly” to bring down core inflation closer to the Fed’s target of 2%. However, Waller isn’t in a rush to cut rates until inflation not only reaches the Fed target rate, but stays there for a prolonged period.
“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” Waller said in his speech. “In many previous cycles, which began after shocks to the economy either threatened or caused a recession, the FOMC cut rates reactively and did so quickly and often by large amounts.
“This cycle, however, with economic activity and labor markets in good shape and inflation coming down gradually to 2 percent, I see no reason to move as quickly or cut as rapidly as in the past.”
It didn’t take long for the markets to react to Waller’s comments. The 10-year Treasury yield jumped sharply after his speech by about 30 basis points since late December and is currently hovering near 4.1% after reaching a recent low at about 3.8%.
In separate remarks earlier this month, Fed Governor Michelle Bowman, who tends to be more hawkish, said a sustained march toward the 2% inflation goal will make it more likely to lower rates to prevent the Fed’s monetary policy from being too restrictive.
“In my view, we are not yet at that point. And important upside inflation risks remain,” Bowman said in her remarks, adding that she was still willing to raise the Fed funds rate in the future if inflation stalls or ticks up again. “Restoring price stability is essential for achieving maximum employment and stable prices over the longer run.”
Mortgage industry looks to rate cuts to help spur loan activity
2023 was a painful year for housing. As mortgage rates soared near the 8% mark, existing-home sales cratered to their lowest level last year (4.09 million) since 1995 even as median home prices reached a record high of $389,800, according to data from the National Association of Realtors.
Hobbled by anemic loan originations and next-to-no refinance activity, mortgage lenders aggressively cut staff last year (especially back-office positions like underwriters and loan processors). Others merged with bigger players with strong cash positions. And some lenders threw in the towel altogether, closing up shop.
“Our data shows that your typical independent mortgage banker trimmed their employee count by more than 40% from the peak in 2021 to the most recent data points,” Mike Fratantoni, chief economist with the Mortgage Bankers Association, said in an interview with RISMedia.
Fratantoni said mortgage volume will be somewhat higher in 2024 in tandem with higher sales of new and existing homes. However, potential homebuyers—especially those with the headwind of having record-low mortgage rates—may be hesitant to make a move until rates hit a certain sweet spot.
“As we get to the low (6% range) at the end of this year and below 6% next year…that’s going to be enough to get people’s attention,” Fratantoni said.
Melissa Cohn, regional vice president of William Raveis Mortgage, points to a Fed rate cut as being a positive signal to potential homebuyers of an improving market. However, Cohn added that a notable drop in mortgage rates will likely push home prices higher due to higher demand, so buyers shouldn’t stay on the sidelines too long.
Around half of Americans have a life insurance policy. Financial advisors recommend having life insurance coverage that’s 10 to 15 times the amount of the insured’s annual income.
But additional insurance may be recommended to cover costs such as outstanding debt, children’s college education costs, or lifetime support of a disabled family member. Perhaps it’s no surprise that about one in five people who have insurance think they don’t have enough.
Getting to that life insurance protection point may be made easier by purchasing multiple life insurance policies. How many life insurance policies can a person have? There is no legal limit, and each person has unique life insurance needs, which will influence the number of life insurance policies held. There are also upsides and downsides to buying multiple insurance policies.
Why Have Multiple Insurance Policies?
Time is a big influencer on having multiple life insurance policies. For instance, a financial consumer may still have a whole life insurance policy that was taken out in childhood.
As the policyholder grows up and has a family, they may decide to take out a second life insurance policy to cover those financial dependents.
Or, an existing life insurance policy holder may need additional coverage for specific needs. Consider a homeowner with a family and a home mortgage. The homeowner may need a second life insurance policy to cover the mortgage owed on the home in the event he or she passes away.
Even smaller expenses can trigger the need for an extra life insurance policy. For example, the head of a household might consider buying an extra life insurance policy to cover the cost of funeral expenses, so the grieving family will have one less thing to worry about.
Recommended: 8 Popular Types of Life Insurance for Any Age
How Multiple Life Insurance Policies May Work
Since buying a home or starting a family has such a big impact on a family’s finances, adding more life insurance is certainly understandable.
In that context, adding extra life insurance in the form of an additional policy may make good sense. Using a policyholder with a mortgage and a family as an example, here’s how having multiple life insurance policies might work.
Term Life Policy: Enough life insurance to cover the cost of a home mortgage in the event the policyholder passes away.
Let’s say the head of household needs to cover a $300,000 mortgage. They buy a $300,000 term life insurance policy that expires in 30 years, when presumably the mortgage will be paid off.
If, in the event the policyholder dies sometime during those 30 years, the term life insurance policy pays $300,000, which the family can use to pay off the mortgage and remain in the home. If the policyholder is still alive after the 30-year term ends, the term life insurance contract ends with no more premiums owed on the policy, but no death benefit either.
Additional Term Life Policy
The head of household wants to leave his or her family in good financial shape after passing on. That means not only covering the costs of a mortgage, but also household bills, health care expenses, and the cost of college education for the children. A 20-year policy for $200,000 might ensure the family’s ability to cover necessary expenses, should the policyholder die during the policy term.
In the above example, the policyholder “doubles up” by purchasing one term life insurance policy to cover mortgage protection, so the family can continue living in the home without fear of having to cover mortgage costs and a separate term life policy meant to cover basic household and life expenses .
Life Insurance Laddering
Another approach is buying three life insurance policies and possibly paying less than a large single life insurance policy might cost.
The strategy is called “laddering.” Instead of buying one large life insurance policy for $1 million, for example, the policyholder might buy three smaller, term life insurance policies that equal $1 million, each for a different term. For example:
• A 10-year term life policy for $500,000 worth of coverage. • A 20-year term life policy for $300,000 worth of coverage. • A 30-year term life policy for $200,000 worth of coverage.
By stacking, or laddering, life insurance policies over different timetables, the policyholder is getting the exact financial coverage he or she needs at different stages of their life.
The laddering concept could give the policyholder some financial leverage with their insurance strategy. Typically, as a policyholder grows older, the need for life insurance declines, as the mortgage is paid down and children are grown and financially responsible for themselves.
Note that each person’s insurance cost will be different based on age, gender, health, hobbies, and other factors, so laddering may not be the right choice for everyone.
Pros and Cons of Having Multiple Life Insurance Policies
A person’s unique coverage needs will influence any decision to expand a current policy, add a new life insurance policy, or simply keep their current life insurance as it currently stands.
Pros:
Adding to a group life policy. Those with group life insurance subsidized by their employers may not have adequate financial protection. Coverage through an employer may not follow the employee, either, so if a person changes jobs, typically that coverage will no longer be in effect. Buying additional coverage could give a policyholder the life insurance protection they need.
Providing extra protection for life stages. Big “life stages” events like buying a home, having children, or launching a business may increase the need for more life insurance. As more value is added to a person’s net worth, the need for adequate life insurance to ensure their family is protected after they’re gone increases. An extra life insurance policy may provide that extra cushion of financial support. Term life insurance places a limit on the policy’s length based on insurance protection needs
Curbing risk. It doesn’t happen often, but insurance companies can go out of business. While an extra life insurance policy might add another layer of financial protection in the event of this worst-case scenario, consumers do have some protection through insurance guaranty associations. These guaranty associations provide benefits to policyholders and beneficiaries of policyholders in the case of an insurance company becoming insolvent. Insurance companies are legally required to join guaranty associations in the states where they do business.
Cons:
Coverage denial. Applying for multiple life insurance policies may signal companies that you’re attempting to purchase more life insurance than you actually need.
Insurance companies can and do share encrypted customer data, including the existence of multiple life insurance applications, via an industry organization known as the Medical Information Bureau (MIB).
Insurance providers rely on the MIB to ensure they’re not providing more life insurance coverage to a consumer than is necessary. Thus, having two or more life insurance applications under consideration by different companies could draw attention and end up in a denial of coverage based on a consumer’s intent to purchase more life insurance coverage than is necessary. Generally, during a life insurance interview, insurance companies will ask about other coverage an applicant already has in force or has pending. This double checking is to make sure a person will not be overinsured. The MIB also helps prevent fraud by proposed insureds because the MIB includes previous denials that could be left off of an application.
More complex record keeping. Multiple policies means multiple payments and more paperwork to keep track of. A missed payment could mean termination of a policy. For people who have a difficult time keeping track of household records and payments, multiple policies may not be a good idea. It can be easier to manage everything if all policies are through the same insurer.
Possible increasing premiums. Want to keep the cost of life insurance in check? Premiums are generally less expensive for young, healthy people. Purchasing one larger policy at a relatively young age may cost less overall.
Alternative to Having Multiple Policies
One possible strategy for maximizing life insurance benefits without taking out multiple policies is the use of insurance riders, which can add benefits to a policy without having to take out a new one. An insurance rider is supplementary coverage to an existing policy.
Some examples of riders are conversion of an addition of long-term care insurance to a basic life policy or accidental death and dismemberment for someone with a particularly dangerous job or hobby.
Policies may include conversion privileges, but riders can extend the amount of time the policyholder can convert. The cost of an insurance rider varies depending on the type of rider and the insurer. Each person’s insurance needs will determine which, if any, rider is necessary, and if the cost is affordable to them.
Recommended: What Is Life Insurance and How Does It Work?
The Takeaway
By purchasing multiple life insurance policies, policyholders can have extra coverage that pays out on a specific debt, like a mortgage payment, after the policyholder passes away. Additionally, multiple policies can help consumers get the exact life insurance coverage they need — when they need it most.
If you’re shopping for life insurance, SoFi has partnered with Ethos to offer competitive life insurance policies that are quick to set up and easy to understand. You can apply in just minutes and get an instant decision. As your circumstances change, you can easily change or cancel your policy with no fees and no hassles.
Complete an application and get your quote in just minutes.
Social Finance Life Insurance Agency, LLC (SoFi Agency) does not issue or underwrite insurance. SoFi Agency is compensated by Ethos for each issued term life application submitted.
The policies offered are from Ethos Technologies Inc. Coverage and pricing is subject to eligibility and underwriting criteria. Ethos Technologies Inc. (Ethos) operates in some states as Ethos Life Insurance Services. CA license #0L28949; AR license #100164629. Ethos offers policies issued by the carriers listed at www.ethoslife.com/carriers. Products and their features may not be available in all states. To help avoid requiring a medical exam, the Ethos application asks certain health and lifestyle questions.
SoFi Agency does not guarantee the services of any insurance company. Once you reach Ethos, SoFi is not involved and has no control over the products or services involved.
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