Providing Mortgage Support to Transferring Employees in Today’s Housing Market

by | Jan 1, 2023 | News

As companies compete for talent, it’s important that your organization offers the right mortgage support to transferring employees. Whether it’s a new candidate or an existing employee, don’t lose talent because your organization isn’t offering the same or more support than your competitors. Given the current housing market conditions, it’s especially important to evaluate mortgage support so that contracts are not canceled.

According to a CNBC article, “Amid higher interest rates and a softening housing market, home buyers are continuing to back out of purchase contracts at an elevated rate. About 64,000 home-purchase agreements were canceled in August, according to a new report from Redfin. That’s equal to 15.2% of home contracts initiated during the month and similar to the 15.5% canceled in July. A year ago, the share was 12.1%.”

Rising interest rates could also have a negative impact on your transferees and their willingness or ability to relocate. When some employees are finally ready to go under contract and lock in their mortgage rates, the rates could be much higher than they were when they got pre-approved or when they received an accepted offer. This could also cause a canceled contract if the new rate is unaffordable.

“Data from the National Association of Realtors shows that housing affordability has plummeted by 29% over the last year – marking the steepest annual decline on record. The downturn is attributed to rapid mortgage rate and home price growth that has significantly quelled affordability. That’s because buyers of a median-priced home are now facing monthly mortgage payments that are more than $400 higher than they were in 2021,” according to a Business Insider article.

There are many ways that your organization can help transferring employees with mortgages. Below we’ve outlined a host of options that WHR Global (WHR) can facilitate through our preferred mortgage provider network.

Mortgage Interest Differential Assistance (MIDA)

MIDA helps employees when mortgage interest rates are high by easing the gap between current market rates and the lower rates that employees have on their current mortgage. This is not to be confused with a sliding scale (explained below), or a standard 1% loan origination/loan discount benefit because those benefits are applied regardless of the interest rate. The MIDA can be paid as a direct mortgage subsidy through the mortgage company. The MIDA benefit is determined by factoring the lower amount of either the transferee’s current outstanding loan balance (rounded up to the nearest $1,000) or the new mortgage amount. The difference between their current interest rate and the new (higher) mortgage interest rate, for similar products, (i.e., 30-year fixed rate to 30-year fixed rate), and multiplying the difference by the qualifying amount:

An Example from a WHR Supplier Partner, Rocket Mortgage

3.00% Old Interest Rate
5.00% New Interest Rate
2.00% Interest Rate Differential X $400,000 Current Loan Balance (Old Mortgage)
 
$8K is the yearly mortgage interest differential (.02 x $400K = $8K)

Payout Example
Year 1: $8K x 100% = $8K Total, or $666.66/month ($8K/12 = $666.66)

According to Rocket Mortgage, “The above is just an example. You can design the overall MIDA structure to what works best with your company culture and relocation program needs. For example, you can pay the full MIDA amount in year one only, adjust the percentages each year, or lengthen the term of the MIDA payment, etc.”

Interest-Based Mortgage Subsidy

This option slowly increases the transferee’s interest rate over time. Your organization pays the difference between the current note and the lower subsidized rate. Every year, the employee’s responsibility will increase by a 1% higher subsidized rate. This helps transferees transition into the higher mortgage payment. It can be applied toward principal and/or interest. If the subsidy is interest-based, your organization’s payout is dependent on the loan amount (which may be variable). To avoid this variable, some companies define a fixed dollar amount.

Dollar-Driven Mortgage Subsidy

When an employee is moving to a higher cost of living area (not due to higher interest rates), this option provides a pre-determined dollar amount based on the employee’s level. The amount can even be determined pre-move and pre-home selection. It can be applied 100% to principal and/or interest, based on the employer’s policy. It cannot exceed the monthly mortgage payment amount. Sometimes the subsidy is payable over a period of time that the employer chooses, 3 years, e.g. The payment is made directly to the mortgage company and applied against the employee’s mortgage payment.

Sliding Scale: Buying Down Points

A one-time expense used to permanently buy down the interest rate on a new home. This is especially helpful when interest rates are rising. Your organization will designate at what rate the scale starts and what mortgage discount points will be covered for each interval of the scale. Mortgage points are prepaid interest paid upfront in exchange for a lower interest rate and lower monthly payments.

Loan Discount Points (points) – Fees used to buy down the interest rate at the time of origination for the life of the loan. Points are calculated as a percentage of a loan amount. E.g., 1 point is 1% of the loan amount. One discount point does not equal a 1% reduction in interest rate. The value of a loan discount points is based on market conditions.

Example

Let’s say the current market interest rates on a 30-year fixed rate loan is 5.25%, the transferee would be eligible for 1 loan discount point based on the example sliding scale below based on $400K loan amount: 

  • 0% – 4.99% = 0 pts
  • 5% – 5.49% = 1 pts = $4K
  • 50% – 5.99% = 1.5 pts = $6K

Buying Down Points Example on a $200K loan

0 points (4.5% APR*)
1 point (4.25% APR*)
2 points (4% APR*)
Costs per Point(s)
$0
$2000
$4000
Employee's Monthly Payment
$1,013.37
$983.88
$954.83
Total Employee Savings on a 30-year loan
N/A
$10,616.40
$21,074.40

Other Possible Ways to Help the Transferee

$3K credit: Employer to cover the closing, or the credit could be used for escrow, or used to buy down the interest rate.

“It’s so important to provide the right benefits to transferees, including mortgage support. As an organization, you don’t want to lose a valuable employee or a potential new candidate to another company.”

Ben Koceja

Client Services Manager, WHR Global (WHR)

As a Relocation Management Company, WHR can provide your employees with our pre-approved network of mortgage providers.

Contact Us!

Taking the “Surprise” out of Relocation Pricing

by | Feb 11, 2016 | News

Businesses are created to make money. This is true of relocation management companies (RMCs) and the resources they utilize. We are pretty confident that your firm has been structured for bringing in revenue to be distributed to owners, stockholders, and employees alike, but how is money made in relocation?

One of WHR Group’s operating principles is to truly communicate with clients while one of our corporate goals is to reduce relocation expenses. The information presented in this paper should take some of the mystery out of the often difficult discussion of relocation pricing and further explore how fees charged by RMCs and their vendors may affect the cost of relocation.

There should never be a surprise when you review a relocation invoice, which is why the following list of common fees will help you better understand and negotiate a reasonable contract for relocation services. While fees vary from company to company, they are, in general, similar across all RMCs.

corporate relocation
Service Fee
The cost charged by an RMC for overall program administration, including salaries, overhead, and profit. Historically, and still true today, additional fees may be charged, such as the following:

Initiation Fee

Appraisal Service Fee

Resale Fee

Equity Funding Fee

It is very important to understand what additional fees may be incurred if not included in the service fee. Be sure to ask to see an invoice that illustrates all costs associated with a move.

Referral Fees
For ages, these fees have been captured by various entities. Originally, real estate agents collected fees by referring buyers to each other throughout the country. This income was used to offset relocation department budgets. Eventually, RMCs felt they were the procuring cause of the home’s sale and demanded that those fees be given to them, which, in effect, added to their bottom line.

Corporations—that pay all the costs of relocation—felt they were entitled to these fees. For instance, on a $400,000 property, the referral income can be an estimated $4,200. Multiply that amount by two when there is also a purchase transaction involved, and a total fee of $8,400 can be collected. This reflects a 35% referral fee, which is reasonable in the relocation industry.

Some RMCs charge as much as a 50% referral fee, oftentimes resulting in diminished quality in the agent chosen and, ultimately, poor overall performance.

Zero Fee
This term generally means there will be no service fee charged in the administration of the move. However, all referral fees collected will be realized by the RMC. The adherence to strict listing guidelines is imperative for this fee structure to survive.
On an $800,000 property, the fee earned is $16,800. On a $150,000 property, the RMC still earns $3,150. Thus, there is seldom a “zero fee.”
Fixed Fee
Generally found in government contracts, this type of fee reflects the expected operating costs in the resale of the property and includes the costs found in servicing the move.

Commonly, these fees could be in excess of 30% of the appraised value of the property, but the client bears no risk in the home sale. In this fee structure, gain or loss in value is borne by the RMC.

Non-compliance Fee
These are additional fees that may be charged when the property does not meet the stipulations of the client relocation policy or RMC contract. In addition, when demands are made by an employee (and granted by the client) that are not consistent with the policy, fees may be incurred. These exceptions may allow an RMC to charge supplementary fees that do not conform to its normal fee structure and can be substantial.
Takeover, Cancellation, or Extended Market Time Fees
These fees are self-explanatory and are often hidden in small print in service contracts.
Mark-Up Fees
Seldom discussed but often collected, RMCs will charge the client one fee and pay the vendor another.

As an example, an appraisal is invoiced to the client for $600, but the payment is made to the appraiser for $500. The additional $100 in revenue provides profit for the RMC but, as a consequence, may result in poor performance of the actual appraisal process. Multiply this type of activity times the many and varied delivery transactions involved in each move, and the returns may be huge for the RMC but cause the client and employee to suffer.

Direct Costs
These are costs directly associated with the home purchase process. Take all the costs associated with acquisition, marketing, maintenance, resale, and closing of a property and divide into the appraised value of the property. The result will be the direct cost percentage.

If the appraised value of the property is $250,000, and the direct costs driven by the RMC total $45,000, the direct costs are 18 percent. Sometimes, RMCs will exclude some of the costs above and call them “indirect costs.”

It is important to truly understand all the costs associated with relocation transactions and be able to compare apples to apples when benchmarking. Be sure to ask for which of these fees you are (or are and don’t know it yet) being charged.

A Deep Dive into Program Transparency

by | Nov 12, 2015 | News

Transparency is a key component in understanding how the third-party supply chain is being compensated for services related to moving your employees.

employee relocation

Transferring human capital is an expensive proposition, especially considering the status level of employees being moved—typically key leaders and future leaders of an organization. Plus, the majority of these employees are going to sell their largest investment: Their home. That’s a lot of dollars riding on the fate of a successful move experience.

Providing a reliable, professional relocation experience is of the utmost importance when transitioning top talent from one city to another. It is only common sense that a relocation provider utilize the absolute best third parties in assisting with moves—such as top-performing real estate brokers, appraisers, home inspectors, and household goods movers.

We recognize that referral fees exist in leveraging these third parties, but to what extent are these suppliers being pushed for higher fees in exchange for business?

Transparency in Relocation

As an example, one large relocation provider just implemented a minimum 40% referral fee on real estate brokers. Implementing high fees can be a short-term win for the relocation provider, but do the best real estate agents even want or desire this business? Not likely, as agents want business that doesn’t continuously erode their margins.

As another example, if your organization provides a Guaranteed Buyout, then you know appraisers are used in determining the value of an employee’s home. A common approach for some relocation providers (that you may not be aware of) is to add service fees on top of the appraiser fee, or pay a fee where the lead appraiser has to leverage a “rookie” to perform the valuation. This often occurs when the fee the relocation provider is willing to pay is simply too low. An employee’s home is likely his or her single largest investment, so wouldn’t you want a lead appraiser to perform the valuation and pay the full fee for his services?

Third-party relationships are critical to get right—not only for transferring employees whose new career positions ride on successful move experiences, but also for the employer in the event properties needs to be sold out of inventory.

These are just some reasons why transparent pricing should matter to your relocation program. There is nothing wrong with referral fees, but having an understanding of what level of professional and satisfactory service you and your top talent receive is, ultimately, reliant upon what is being charged.

You would be well served in knowing the fees being charged and understanding the potential implications of high fees: Low service and potentially failed relocations.

Is Your Relocation Management Company Transparent?

by | Oct 8, 2015 | News

Cost transparency. Every relocation company promises transparent pricing and fees, but how do you know your current provider is disclosing all costs and revenue streams to you?
relocation management company, relocation management companies

According to Worldwide ERC® data, relocation assistance is the single most expensive HR benefit a company can provide to its employees. This means it’s critical for you to understand the associated fees, along with knowing potential revenue opportunities, so you can evaluate the return and be the expert on your company’s relocation investment.

You need to work with a relocation provider that discloses all operating costs. This ensures you are focusing on the total expenditure and can take advantage of any potential revenue opportunities. It also prevents mismanagement of your relocation program, making sure your provider’s fee structure doesn’t result in lost productivity from your talent.

Here are 4 ways to tell if your relocation provider is being transparent about your relocation program’s costs.

1. Ask About Your Relocation Program’s Referral Fee Structure

Do you collect referral fees on departure and destination home sales, or does your service provider?

And has your provider disclosed what they are collecting, or offered a share in these fees?

2. Ask About Hidden Fees

Are there mark-ups added to third-party services?

For example, does your provider collect a commission from household goods moves? Do appraiser fees come through as a direct pass-through expense, or is there a mark-up?

What about other expenses, such as destination service providers, title companies, and so on?

3. Ask About Other Revenue Sources

Are there connections to other third-party services where referrals or rebates are offered, unbeknownst to you?

4. Ask If Your Provider has Affiliations

Relocation providers with affiliations (or formal partnerships with select real estate brokerages, appraisal companies, temporary housing firms, and so on) may try to tout these partnerships as beneficial for you and your transferees. While these providers may have conducted extensive due diligence to make sure they were partnering with suppliers at a mutually beneficial discount, it doesn’t mean there aren’t better options for you and your employees to consider outside of these affiliations.

As an independent company, WHR Group does not operate under affiliations or formal partnerships with third-party relocation suppliers. This means our clients have choice when it comes to suppliers and a better opportunity of finding suppliers with higher service or lower cost than affiliates currently provide.

Take these four items into consideration when evaluating your current relocation provider’s business and especially before you enter into future contracts.