Home lending ‘dragging itself off the canvas’
By Adam Smith | 12/07/2011 5:00:00 AM | 0 comments
New home lending could be seeing signs of revival following ABS figures showing two consecutive months of rises, the HIA has said.
Yesterday’s ABS data indicated a 5.7% increase in the number of loans for the construction or purchase of new housing. The result follows a 3.3% rise in April. HIA senior economist Andrew Harvey said the housing sector could be on the mend, though recovery is some time away.
“Hopefully new home lending is finally dragging itself off the canvas, although we need much more than today’s improvement to lift us from what is a chronically low level of new home lending,” Harvey commented.
Harvey said in spite of the positive result, new home lending in the first five months of 2011 is 15.7% lower than the same five month period last year.
“When we consider how important new home lending is as a leading indicator of residential building activity the overall profile does not bode well for home building levels in Australia. If the pre-GFC trend in new home lending had continued then we would be seeing lending in the order of 10,000 loans per month rather than the 6,000 or so loans we currently have,” Harvey claimed.
The REIA has expressed a much less optimistic outlook on the figures, claiming the trend increase of 0.1% in overall finance commitments show that the market has stagnated. It also lamented the decrease in the number of first home buyers as a proportion of housing commitments. First home buyer participation fell from 15.8% in April to 15.4% in May. REIA acting president Pamela Bennett said the low levels of first home buyer participation were a concern, and took aim at the government’s newly-detailed carbon tax and its potential effects on buyers looking to enter the market.
“With the impact on building costs of the just announced carbon tax expected to fall disproportionately on first home buyers, as the REIA continues to highlight, this group of buyers is edging closer towards endangered species status,” she said.
Rent growing below inflation
By Adam Smith | 12/07/2011 4:00:00 AM | 0 comments
Capital city rents have grown below inflation over the past year, RP Data has stated.
New figures from the company’s June quarter Rent Report show rental rates increased 2.9% nationally over the past 12 months, and 2.7% in capital cities. The growth is markedly slower than the five-year average annual growth in capital cities of 7% for houses and 7.9% for units. RP Data analyst Cameron Kusher said the trend of slow rental growth has been evident since 2008. Kusher said despite the slowdown, inactivity of first home buyers and an under-supply of new housing could lead to growing demand for rentals.
“This activity may be beneficial to investors who could see a boost in rental rates as vacancies tighten and fewer new dwellings continue to commence construction,” he commented.
Among the capital cities, Darwin is the most expensive in which to rent houses, with a media advertised rent of $520 per week. Canberra ranked as second-most expensive at $500 a week, followed by Sydney at $460 per week. Sydney ranked as the most expensive city for unit rentals at $450 a week, followed by Canberra at $430 a week.
RBA flags stable cash rate outlook
By Adam Smith | 6/07/2011 2:30:00 AM | 0 comments
The RBA has again left the cash rate untouched, and rates may stay on hold longer than previously expected.
At its July board meeting yesterday, the Reserve Bank indicated that slowing employment growth, modest credit demand and softening asset prices as reasons for a continued cash rate freeze. The Bank also noted that temporary price shocks from natural disasters earlier in the year are expected to dissipate, leaving inflation close to the Bank’s target range over the next 12 months.
Stevens conceded that recovery following this year’s floods and cyclones was proceeding slower than expected, and that growth for 2011 was now not expected to be as strong as earlier predicted.
However, the Bank has questioned whether moderate growth of global economies and inflationary pressures will continue. In a statement following the decision, RBA governor Glenn Stevens stated that a number of other countries have tightened monetary policy. Stevens pointed to Australia’s high terms of trade and growth in national incomes.
“Investment in the resources sector is picking up strongly in response to high levels of commodity prices and the outlook remains very positive. A number of service sectors are also expanding at a solid pace,” he said.
Loan Market spokesperson Paul Smith said there was a strong case for the Reserve Bank to leave rates untouched for the remainder of the year. He pointed to recent ABS figures showing a 7.9% decline in dwelling approvals for May, and said consumer confidence was still shaky.
“Many analysts have forecasted inflationary pressures to ease off without any short-term rate rises. Right now people are very cautious about spending, but the RBA can go a long way to restore confidence by keeping rates down,” he commented.
Nervous borrowers flock to fixed rates
By Adam Smith | 4/07/2011 4:30:00 AM | 0 comments
Fixed rate popularity is again on the rise with the looming spectre of RBA rate hikes, Mortgage Choice data indicates.
Demand for fixed rate loans have reached their highest level since January, accounting for 12.33% of all approvals for the company. Mortgage Choice spokesperson Kristy Sheppard said the threat of RBA rate rises by year’s end has convinced a growing number of borrowers to seek interest rate security.
“Perhaps the constant speculation about interest rate rises in the latter half of 2011 and beyond convinced a higher number of borrowers to simply lock in their rate rather than feel their stomach churn with each piece of speculation,” Sheppard commented.
Westpac last week cut its fixed rate loans, dropping rates by 20 basis points on two and three year products and by 10 basis points for four through 12 year loans. Sheppard commented that the gap between fixed and variable products is narrowing.
“July’s figures will be interesting because over the past month we’ve seen several lenders reduce their fixed rates on home loans. Now, there’s one tenth of a percentage point between the average three-year fixed rate, traditionally the most popular with borrowers, and the average basic variable rate. We haven’t seen that close a comparison in some time,” she said.
In spite of the spike in fixed rate popularity, ongoing discount products retained their top ranking, accounting for 32.21% of approvals for Mortgage Choice. Standard variable rate loans were third-most popular at 24.59%.
Low-doc shouldn’t carry stigma: Bankwest
The Premium Select product now offers a 6.85% rate for loans below 75% LVR and 6.95% for loans from 75% to 95% LVR. The rate includes a life-of-loan discount, and the bank has said larger discounts are available for clients borrowing more than $750,000.
The bank has further announced it will replace its Easy Doc Home Loan with the reinstatement of its Low Doc product. The product will carry a 7.20% rate for loans up to 60% LVR. Bankwest head of specialist banking Ian Rakhit said the bank will also continue its no application fee offer until further notice. Rakhit said the move to revive the bank’s Low Doc product in place of its Easy Doc Home Loan was in response to broker feedback.
“We’ve always been good supporters of the low-doc and easy doc products. At one point we were writing 22% of all low-doc mortgages on the market. It’s a product that has particular resonance for customers, particularly those who go through brokers for finance,” Rakhit told Australian BrokerNews.
As many banks tighten lending criteria, Rakhit indicated a hole had been left in the market for lenders to appeal to self-employed borrowers.
“The reason we sharpened our pencil on this product is exactly that. We feel it’s an opportunity to take market share. It’s still good, quality borrowiing for us, and will increase our attractiveness for brokers for this type of product,” he remarked.
Rakhit also refused to shy away from the term low-doc. With many low-doc lenders now moving towards terms such as “specialised,” “non-conforming” or “self-employed,” Rakhit said there should be no shame or stigmatisation surrounding low-doc lending.
“If others wanted to move away from the name of the product, that’s of their own making. Low-doc reflects what it is. It’s for good. quality borrowers who have sizeable deposits or equity, but can’t show their income through traditional PAYG methods. I don’t see that it needs to be a stigmatised market or one that needs to be adversely viewed,” Rakhit said.
Westpac cuts fixed rates
By BN | 28/06/2011 2:30:00 AM | 0 commentsWestpac has cut interest rates on its fixed rate home loans by up to 20 basis points.
In a release to brokers, the bank said it was reducing rates for its Home and Investment Property Loan for two to 12 year fixed rates, effective today. The two and three year fixed rate products will see a 20 basis point decrease, while the four through 12 year products have been cut by 10 basis points. Westpac stated that the reduction gives them the leading rate among the majors for two and three year fixed loans.
A Westpac spokesperson told Australian BrokerNews the move to slash fixed rates was due to an easing of the bank’s cost of funds for fixed rate products She said that uncertainty surrounding future RBA rate decisions could lead some consumers to consider locking in their rates.
“Given the current environment of uncertainty surrounding the future direction of RBA moves, it is a good time for customers to consider fixing all or a portion of their loan. Therefore, brokers should consider their clients’ financial situations and provide appropriate advice for their clients considering the option to fix their loan,” she commented.
Saving the lost generation
Economic stability and a genuine need have spurred several lenders to launch high-LVR products. Could these save or sink potential first homebuyers?
There needs to be a new acronym. We’ve got YUPPIEs, otherwise known as young, upwardly-mobile professionals, and then there are DINKs – double income no kids – but what do you call life-long renters – people on professional wages that still can’t afford to buy property in Australia’s capital cities?
Paul Ryan, CEO and founder of Opportune Home Loans calls them “a lost generation”. “There are a number of consumers out there who have good disposable incomes yet they are unable to save because they are paying high rents, and unfortunately have given up on the dream,” he says.
The risk-averse climate of the GFC forced many lenders to step back from high-LVR products, but recently the market has seen a number of players launch new products suited to this segment of the population. Could these products be the answer that potential first homebuyers are looking for?
Signs of improvement
QBE LMI chief executive Ian Graham has heralded the LVR recovery, noting that lenders were showing “encouraging” signs of increasing their LVRs. “Conditions are improving,” he says. “I would say that some lenders who had limits are now stepping back up, and returning to 95%.”
There has certainly been a lot of evidence to back that statement. Non-banks have been rolling out new products with LVRs up to 95% in their droves.Resimac’s Hemisphere Financial Solutions was the first to plunge back into the high-LVR space, launching a 95% product back in April. Resimac’s head of product and marketing Frank Knez noted at the time that “a loan requiring only 5% deposit is not widely available among other lenders and we are looking forward to the impact of this new product enhancement”.
Knez acknowledges that Hemisphere launched the 95% LVR loan earlier in the year to target first homebuyers who invariably find it challenging to raise a large deposit. “Other lenders have since entered this space and in time will be followed by the banks,” he says. “This will be driven by a need to offer a home loan solution for all borrower segments. Non-bank lenders will, however, continue to lead the way in offering products to niche segments such as first homebuyers and self-employed borrowers.”
According to Knez, the product has been in much demand.
“With the percentage of new loans to first homebuyers continuing to decline, it shows that this segment is not being catered to from an industry perspective. Our participation in the recent Sydney Home Buyer and Property Investor Show provided validation for the need for higher LVR loans, as many potential first homebuyers voiced their struggle to accumulate a large enough deposit.” Other lenders looking to cater to this market have mimicked Hemisphere’s foray into the high-LVR space.
A rash of high-LVR products erupted onto the scene in August when, within a month, Provident Capital, Adelaide Bank, National Mortgage Company, Iden Group and Homeloans all announced their own 95% loans. Steve Sampson, Provident Capital’s head of lending distribution, says high-LVR products are “definitely back”, noting that increased economic stability and confidence is fuelling their return.
“LVRs were reduced at a time when the Australian economy was looking critical and it was thought that we may slip into a recession with high unemployment rates. You might remember that unemployment was predicted to hit 10%. That never happened and, as such, cash from the stimulus package (including FHOG) and confidence in employment kept the economy in a buoyant state. Residential property values didn’t slump as predicted, interest rates stayed relatively low and affordability levels have kept pace.”
Provident Capital’s 95% LVR loan is targeted at owner-occupiers. The product includes LMI fee capitalisation and a line of credit-secured Visa facility with a limit of up to $20,000. There is also an unsecured Visa facility of $10,000 available to all borrowers. Sampson acknowledged that Provident Capital’s current funding supported its move into the high-LVR space. “Our funding is backed by lenders mortgage insurers who seem to be supporting the confidence in the market. With new housing starts being the lowest since WWII, and our population increasing and in need of a further 1.92 million dwellings in the next 10 years, it would seem like a safe bet to support the move.”
According to Sampson, potential borrowers are afraid that if they do not move soon they will be priced out of the market and paying high rents indeterminably. However, while Provident Capital is getting plenty of enquiries on its 95% LVR product, he says the lender is not considering going any higher, or back to 100% lending.
Homeloans Ltd also relaxed its lending criteria to allow 95% LVR ratios for the first time in 18 months last August. Homeloans’ new 95% LVR policy applied to its MoniPower full-doc loans of up to $750,000 in certain locations, and was made available to owner-occupied homes, including new properties and construction loans. MoniPower’s variable rate starts at 6.91%, and is a 100% offset home loan, which also offsets interest on fixed rates and has no monthly or annual fees. Approved applicants also have access to a Visa card with a secured limit of $20,000 or $10,000 unsecured.
Tony Carn, general manager of third party distribution, says the non-bank returned to the 95% LVR lending market because of the increasing appetite driven largely by “a higher level of comfort around the stability and future direction of the residential property market in what are considered market-stable locations”. He adds: “I know there is much debate surrounding price levels in the Australian housing market, but there is sound evidence that indicates that our price-to-income ratios in capital cities are very much in line with comparable locations in other developed countries. In many areas we are seeing a trend of housing demand exceeding supply, and this is considered by many as unlikely to reverse.”
A return of high-LVR products also has significant implications for brokers, Carn adds.
“It is clear that the size of the market accessible to brokers has contracted significantly in the past two to three years. Accessibility to 95% lending has been available in more recent times, but only through certain distribution channels such as existing bank customers, or selected brokers that met certain criteria with a lender. Homeloans has worked very hard to position itself as a refreshing alternative, and the ability to offer 95% lending plus LMI now allows brokers a greater choice of solutions for their clients. It also allows brokers to access new segments of the market as well. First homebuyers are an obvious opportunity. While the government has been offering generous incentives to them, access to credit at high LVRs have to an extent stifled such initiatives. So there are many borrowers who now have access to higher LVR finance.”
Non-banks are not the only lenders to relax LVRs in recent times. Adelaide Bank confirmed it would be launching a 95% LVR product for owner-occupiers from August. Damian Percy, general manager of third party lending, says the decision was largely in response to demand. “Having reduced our maximum LVR to 90% during the GFC, with economic certainty improving and first homebuyers under-serviced, we felt it appropriate to bring back the 95% limit. That said, we have done so only for owner-occupiers, and we require a significant servicing buffer to reduce the risk of new borrowers over-committing.”
According to Percy, a return to the high-LVR space from a greater number of lenders is inevitable.
“Initial moves down were largely in response to both tightening liquidity and concerns around home prices given what was happening in the US and elsewhere. With conditions improving, a qualified return to the higher LVR space makes sense.” However, he adds that many lenders will be applying new restrictions. “Responsible lending obligations will, I believe, mean more lenders will take our approach and have a more conservative approach at higher LVRs and for first-time borrowers. This may be achieved through high serviceability requirements, credit scoring or various other mechanisms.”
While response to the launch of Adelaide’s 95% product has been good, Percy says the lender is taking a cautious attitude.“The response has been extremely positive, though taking the approach we have around serviceability has meant that we propose to lend less to people than perhaps others have in the past or would now. We can live with that.”
Above and beyond?
Opportune’s Ryan argues that while 95% loans are a step in the right direction, they may not go far enough in helping renters make the leap onto the property ladder. “Even with a 95% LVR, we’re still asking first homebuyers to come up with a deposit of $25,000 and that’s without getting into fees and stamp duty,” he says. “There is a generation of potential first homebuyers out there who are earning good incomes, but are struggling to save while paying rent.”
According to Ryan, there is a place for 100% loans, however, he argues that such products require different lending criteria. He suggests changing the lending criteria for the 100% home loan to include an increased margin over the interest rate to determine how much a first homebuyer can borrow. For instance, instead of using a 1.5– 2% serviceability calculator, a 3% margin could be used.
“This will limit the amount of the 100% home loan,” he says. “If you calculate the existing margin of 2%, a borrower on $80,000 can borrow approximately $500,000. However, if you apply a 3% margin, the maximum amount is about $457,000. If you applied a 4% buffer, then it would reduce even further. You could then make it a part of the structure of the 100% home loan so that the borrower’s repayments in the first two years had to be in line with the interest rate plus a margin of 3– 4%. So, if the interest rate was 7% and their serviceability was calculated at 3% over the interest rate, then their monthly repayments would be calculated at 10%.
“This then allows the borrower to pay more off the loan in the first two years and create equity in the property more quickly, and they would feel comfortable because of the serviceability rule the lenders applied to their calculations.”
But not all lenders are in a rush to return to the high-LVR space. Mortgage Ezy general manager Garry Driscoll says he doesn’t foresee high-LVR products being a major part of his business going forward.
“If you look at the loss ratios on loans greater than 90% compared to less than 90%, you will see why some funders are reluctant to return to the space. There is definitely a demand for this product, in particular first homebuyers looking for construction finance, but this is really a specialised area.”
Driscoll foresees mainstream lenders moving back to this space “if they can see a dollar there” but he adds there will be a price for risk factored into the high LVRs in the same way as LMIs price for risk, especially for loans above 90%. “The interest rate charged on a high LVR will be greater than low LVRs, and a good tipping point for this would be at 90%.”
According to Driscoll, with the responsible lending provisions of the NCCP, funders will need to be more thorough in their assessment of borrowers’ capacity to repay and this will be even more so in the high-LVR area. “The attitude of some of the banks in the past of playing a numbers game will not continue and all loans will need to be assessed on their individual merits, and justification of the decision will be on file for any future audit. Mortgage managers have been doing this for years so it will not be a major change for them. However, the same may not be said for some of the banks.” Driscoll adds that all lenders have a role to play in this process so that borrowers do not over-commit themselves. “First homebuyers tend to be optimistic and push the boundaries very hard as they strive for the extra bedroom or the pool, and it is therefore important that they allow for the extra expenses that crop up as part and parcel of home ownership, and then budget accordingly.”
While Resi’s CEO Lisa Montgomery has been largely supportive of 95% loans, she is not an advocate of 100%-plus products. “As soon as you start borrowing more than the property – particularly in a market where we’re seeing some prices plateau – it isn’t healthy.” Montgomery argues that borrowers “need some skin in the game” particularly when we don’t know what’s going to happen in the property market.
As far as 95% loans go though, Montgomery says most lenders are a lot older and wiser post-GFC, and product innovation is taking into account the need for greater checks and balances.
The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey* for the week ending June 7, 2011.
The Refinance Index ticked up noticeably in the last week, from 2475 to 2883, the highest reading since November 2010. This is bittersweet as it finally showed some linear connection between falling rates and refi demand…only to have rates rise this week. Even so, the last time rates fell from 5.0 to 4.5 as they have in 2011, readings around 3000 on the refi index represented the LOW END, moving over 5000 on the index by the time rates hit the same reported level as they did last week.
Plain and Simple: The same historically low rates are producing only a little more than half the refi demand as last fall, providing a stark picture of the current lending environment.
The Purchase Index was fairly uneventful last week. Although it rose from 182.9 to 191.1, that puts it right in line with a majority of previous weeks. In fact, 2 out of every 3 weeks since March have been within 5 points of 190. Pretty darn stagnant. With the exception of the horrible levels under 170 in the summer of 2010, we’re sideways at the lowest levels in the history of MBA’s reporting with a clear pivot point around 210 separating past and present.
Excerpts from the Release…
The Market Composite Index, a measure of mortgage loan application volume, increased 13.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 24.5 percent compared with the previous week, which included Memorial Day. The Refinance Index increased 16.5 percent from the previous week. The seasonally adjusted Purchase Index increased 4.5 percent from one week earlier. The unadjusted Purchase Index increased 14.2 percent compared with the previous week and was 6.1 percent higher than the same week one year ago.
“Mortgage rates have declined for 8 of the past 9 weeks. Coming off of the Memorial Day holiday, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “The volume of refinance applications still remains 28 percent below levels seen at that time, as borrowers with an incentive to refinance remain constrained from doing so by lack of equity in their homes.”
The four week moving average for the seasonally adjusted Market Index is up 2.4 percent. The four week moving average is up 0.3 percent for the seasonally adjusted Purchase Index, while this average is up 3.1 percent for the Refinance Index.
The refinance share of mortgage activity increased to 70.0 percent of total applications from 67.3 percent the previous week. This is the highest refinance share since January 21, 2011. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 6.1 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.51 percent from 4.54 percent, with points increasing to 1.05 from 0.94 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year average rate since November 19, 2010. The effective rate also decreased from last week.
The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 3.67 percent, while points also remained unchanged at 1.06 (including the origination fee) for 80 percent LTV loans. This is the lowest 15-year average contract rate since November 5, 2010. The effective rate increased from last week.
*The MBA’s loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (may boost consumer spending. It also allows debtors to pay down personal liabilities faster. A trend of declining purchase applications implies home buyer demand is shrinking.
We’d still describe this current weakness as the longer term rates rally taking a “breather” after two months of strong improvements. Perhaps it’s more appropriate to say that the term “breather” still applies given the periodic pull-backs normally seen during extended rallies. Although recent losses don’t necessarily break the longer term positive trends, it’s certainly enough to make one question those positive trends.
CURRENT MARKET: The “Best Execution” conventional 30-year fixed mortgage rate is still 4.50%, but only barely. Some lenders may be quoting 4.50% with increased closing costs in the form of origination fees. This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs. On FHA/VA 30 year fixed “Best Execution” is 4.25%. 15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be “Best-Execution” depending on your individual scenario.
PREVIOUS GUIDANCE: With “The Wall” now torn down a path has been paved for mortgage rates to continue on the path toward more improvements. An extended rally will not come without setbacks though. Short-term corrections are possible. That means borrowers working on a shorter lock/float timeline should remain defensive of their current quotes. While the rally has indeed stalled, we still feel that intermediate to longer-term scenarios are justified in floating. But we caution, with the politics of money and banking taking center stage into the summer months, your main goal is to protect new, lower rate quotes from unexpected market fluctuations. Stay-tuned for further developments….
CURRENT GUIDANCE: No sooner has the wall been torn down than the big bad financial markets are trying to scare lenders into building it back up. Certainly, anything can happen, and while it’s possible that rates move right back to the higher levels seen before “The Wall” came down, the current level of weakness is consistent with past examples of the “short-term corrections” we’ve warned against. The past few days provide an example of how quickly these corrections can happen and hopefully illustrate why we normally urge defensive stances even as rates improve. There’s an exceptional amount of risk involved in banking on continuation of the longer term rally, but recent weakness in rates hasn’t ruled it out. Still, short-term scenarios beware. It’s not uncommon for these “breathers” to last a few weeks.
What MUST be considered BEFORE one thinks about capitalizing on a rates rally?
1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might ot rally as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?
“Best Execution” is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%. When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their “breakeven analysis” on your permanent rate buy down costs.
Important Mortgage Rate Disclaimer: The “Best Execution” loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the “perfect borrower” category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. “No point” loan doesn’t mean “no cost” loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don’t forget the fiscal frisking that comes along with the underwriting process.