Improvements to Credit Scoring

Earlier this year, the three major credit bureaus (aka “credit reporting agencies” or “CRAs”), Experian, Equifax and Transunion, came to a settlement with the New York Attorney General impacting credit reporting. It is anticipated that the settlement will help some consumers improve their scores by 10-40 points. [Read more…]

Mortgage Insurance Deductible through 2014

You may have heard that last week, Congress passed and President Obama signed the 2014 Tax Increase Prevention Act. It has some good news for home owners who currently pay various forms of mortgage insurance. If you pay mortgage insurance, including private mortgage insurance (pmi), or VA, FHA or USDA forms of mortgage insurance during 2014,  you may be able to deduct that on your 2014 income taxes.

Before you get too excited, this act does not extend the mortgage insurance deduction past 2014.

So if you are paying any form of mortgage insurance, especially if it’s private mortgage insurance or FHA mortgage insurance, it still makes sense to see if you can eliminate or reduce your payment with a refinance as you will not be able to deduct your mortgage insurance during 2015 (as things currently stand).

If I can help you with your refi or home purchase on property located anywhere in Washington state, please contact me!


Why would a consumer work with a non-licensed Mortgage Originator?

Following the release of the QM and Ability to Repay rules from CFPB, I decided to try to read through the proposed Loan Originator Compensation rules. I found this pretty interesting. Instead of making additional regulations for Mortgage Originators who work at banks or credit unions, why not just make them subject to the SAFE Act and require them be licensed?

[Read more…]

CFPB’s Qualified Mortgage Rule and the Ability to Repay

Today the CFPB released the “ability-to-repay” and “qualified mortgage” rule which is set to go into effect next year on January 10, 2014. These new laws will require that lenders consider a borrowers ability to repay a mortgage.

[Read more…]

Happy New Year! Is your Loan Officer Legal?

Mortgage originators (also referred to as Loan Officers or MLOs) are required to be licensed with the NMLS unless they work for a depository bank or credit union, in which case they are only required to be “registered” (per the SAFE Act).

[Read more…]

My thoughts on NAR’s Pending Home Sales for April: Mortgage Guidelines are NOT “Excessively Tight”

This morning NAR released the Pending Home Sales report which revealed that "contract signings, dropped 11.6 percent in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit." Pending home sales is a forward indicator since it's reporting on contracts that are signed but not yet closed.

Lawrence Yun, NAR's Chief Economist states that part of reason for the larger than expected drop is due to how difficult it has become to obtain a mortgage. 

“No doubt the continuing excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow…We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings….” 

It's my experience that it's not that difficult to obtain a mortgage and underwriting guidelines are not "excessively tight".  The difference between qualifying for a mortgage now and pre-2007 is that borrowers must now prove (provide supporting documentation) that they meet program guidelines.  Stated income, low or no-doc loans are gone.  

  • Every penny of your down payment and funds for closing must be documented with complete bank statements (all pages) or other asset accounts being used.
  • Large deposits on your bank statements must be sourced (more documentation) to show where the funds came from.
  • Employment must be steady.  Buyers are not required to have been on the same job for the past two years…heck, they can be out of college (may count as employment) and there may be some unemployment periods…it needs to make sense and be documented.
  • Income must be steady.  If a potential borrower is not paid salary (hourly, commission, bonus, self-employed, etc.) they need to show they've received this type of income for the past two years.
  • Borrowers must be able to afford their home based on their income and debts. Some debts where payments are deferred, like student loans, are factored into your debt-to-income ratios…one day, you are going to have to make payments on it!  
  • Borrowers who take out new debts before funding (closing) of their loan, may find they no longer qualify for their mortgage.  Doesn't this make sense? Yes, home buyers may need new a washer and dryer…however if they're borderline with their credit or pushed with their qualifying ratios, they risk blowing up the purchase just before closing due to "LQI".  Home buyers need to make sure they honestly reflect the loan application from the start of the transaction to finish.

Okay, I'll admit that credit scoring has become tougher. Pre-2007, a person with 600 credit scores (or lower) could qualify for a mortgage.  Now you pretty much need a mid-credit score of 630 or higher for most loan programs.  And their are price hits (risked based pricing) that are factored into interest rates based on loan to value and credit scores.  Credit scores are reflective and borrowers can work on improving their credit scores (and should).  

Income is also scrutinized more than before with 4506Ts being required on every transaction. If your income is higher on your loan application than what you claim on your tax returns, be prepared…you'll be providing additional documentation (tax returns) even if you're paid a salary and your income may be adjusted lower.

Here's where Congress may really muck up the housing recovery, especially in light of this report:

  • Lowering the conforming loan limits, which is scheduled to happen on October 1, 2011.  In the Seattle area, the current conforming loan limit is $567,500.  Effective October 1, 2011, it's set to roll back to $506,000 meaning that loan amounts of $506,001 or higher will be "jumbo" non-conforming.  Jumbo loans have much tougher guidelines and higher rates which does mean that fewer people will qualify for higher priced homes.  Loan limits are also set to be reduced for FHA and VA loans after September 30, 2011.  By the way, 2012 loan limits may be even lower!
  • Increasing the minimum down payment for FHA loans from 3.5% to 5%. Congress is working on this right now and it's been tossed around by our government for quite a while.  Does having 1.5% more "skin" in the game really make a more responsible borrower?  I don't think so.  I would rather see that a borrower have that 1.5% in their savings than invested as down payment (where they do not have access to it should they have an emergency) in a home.

People can still get a mortgage today.  It bothers me that NAR and others are painting that mortgages are too tough to obtain…painting an inaccurate picture does not help the housing market either.  Today's buyer needs to be prepared to provide plenty of paperwork to support they actually qualify for the mortgage by showing they earn what they say, have the funds for closing and are employed.  What's wrong with that?

If you are considering buying a home, I do recommend meeting with a local licensed mortgage professional as early as possible to start on the prequalification process.  If your next home is located anywhere in Washington State, I'm happy to help you!  

PS: I still believe that it would tremendously help the housing markets recover IF home owners who want to refinance and who qualify based on credit, income and employment are allowed to without an appraisal…very similar to an FHA streamline refi. This would allow people who want to stay in their homes and who qualify, to be able to take advantage of today's lower rates and not cause them to be punished due to lower appraised values.

Can Your Mortgage Originator Legally Take a Loan Application Next Week?

You may want to check with your preferred mortgage originator to make sure they have fully renewed their license for 2011.  If they have not, or if they started the process late and are waiting for their 2011 license from DFI, they might not be able to legally take a loan application next week.

Some mortgage originators are not required to be licensed.  Thanks to Congress, the SAFE Act allows mortgage originators who work for credit unions or depository banks (like Wells Fargo, Chase and Bank of America) to only be registered.  It's unfortunate that our elected officials did not create the SAFE Act to have the same standards for any mortgage originator who takes a residential loan application.

Washington State Mortgage Originators who are required to be licensed should check on DFI's website to make sure they have met all the steps required to originate loans in 2011.   If certain steps are missing, including the renewal being approved, DFI has it clearly flagged as "needed".  Some mortgage originators have yet to pay for their renewal fees which will also prevent them from taking a loan application as a licensed mortgage originator as of January 1, 2011.


I am fully licensed to originate mortgages for homes located in Washington State.  I received my 2011 license from DFI in mid-November.  

From DFI:

"As of [Dec. 22, 2010] 59% of Washington MLOs successfully renewed and have been issued their 2011 license.  This percent represents 4,381 individuals who will be working as MLOs come January 1st."

Note:  MLO = Mortgage Loan Originator. 

If you find your mortgage originator has not completed the steps to be NMLS licensed in 2011, it's possible that they may have decided to work for an institution that is not required to be licensed (depository bank or credit union) or perhaps they simply procrastinated.   If you find they're not fully approved to take an application in 2011 per this list, you may want to ask them directly what their plans are for the new year. 

Mortgage Originators (MLOs) who allow their license to expire may have to go through additional steps to renew and may be subject to additional fees. 

If you are a Washington State Mortgage Originator - do double check DFI's list to make sure you have everything set for 2011.

Live from WAMP’s Annual Award Luncheon: VIBE

I'm going to do my best to blog "live" from WAMP's Annual Award's Luncheon at SeaTac.  I all ready lost my first post…so this may be a little etchy.  I will be updating this post throughout the day.   The room consists of half brokers and half correspondents (based on a show of hands).  It's truly great to see this gathering of mortgage professionals who care about their profession.

Deb Bortner of DFI just finished addressing the Mortgage Call Report which will be required of all licensees.  She added that DFI is obtaining software that will allow them to have access to every loan originated if the mortgage company uses a compatible LOS.  Currently Encompass is ready and Calyx and Byte should be ready by spring.   They will use this data to determine who they feel requires a more indepth review.

Regarding credit reports being pulled on licensed mortgage originators.  Deb Bortner says they're "looking for deadbeats".   Transunion is the credit vendor being used and will not allow DFI to share a copy of the report with the LO.  If the LO's credit score is higher (specific score not mentioned), they will not review the entire report.  Otherwise, credit reports are being reviewed for "general financial fitness and honesty".   If a LO has $100,000 in liens or judgements, they will not be allowed to have a license.  DFI is essentially making underwriting decisions reviewing Licensed Washington State Loan Originators as to who is qualified or no longer qualified to originate mortgages based on their credit report.

Deb Bortner strongly recommends that LO's who are required to be licensed (LO's who work for banks or credit unions are not licensed) – DON'T DELAY!  Your renewal and/or license may not be processed in time if you wait too long.

Loan Originator Compensation with Patrick Palmer with Pinnacle Capital and Gary Szymanski with Flagstar Bank.  "What we think we know…."

After April 1, 2011, mortgage originators can only be paid by the borrower or the lender — no blending of the two.  This means that mortgages can only be priced with points or without points: if a borrower wanted a loan priced with a half point, they will not be able to.  

For example, based on the scenario below, the borrower would not be allowed to have the rate of 4.125% since compensation would be coming from the them and the lender.   It doesn't matter that the loan originator would be compensated the same with every scenario.

  • 4.00% priced with 1 point paid by the borrower with zero rebate from the lender.
  • 4.125% priced 0.5% point paid by the borrower with 0.5 pts paid by the lender.
  • 4.25% priced with 0 points paid by the borrower with 0 points paid by lender

The presenters are showing that there is confusion and different opinions on how compensation for LO's will be next spring.  

Brian Chappelle with Potomac Partners in Washington D.C. has examples of compensation.


The Good Faith Estimate – Present and Future with Andrew Fay, HUD Supervisory Investigative Coordinator and David Friend, HUD Compliance Coordinator via Skype.  (Laura Gipe was not able to participate).  

What HUD's looking for:

Required uses of affiliates – should not be in block 3.  Looking for affiliated business disclosure form.

A credit union rep refused to give Andrew Fay of HUD a GFE unless he paid $100 for underwriting and credit report!  (Obviously not knowing who they were dealing with!) Only a credit report can be charged for GFE.   You must give a GFE on a refi if requested (and 6 points of info provided) - you cannot use "not knowing the address" as a reason to now issue.

When re-issuing a Good Faith Estimate you must make sure you have the "changed circumstance" well documented–especially if it's borrower requested.

Q: Why must we include excise tax and owners title insurance on the GFE?

A: The GFE is a form that is intended to be uniform across the country.  Some states have different laws, regulations regarding excise/transfer tax.  If exclusively assessed to the seller, then some states exempt.   There is no exemption allowed for non-disclosure of the owners policy even if there's a contractual agreement that the seller pays.

Q:  Why have a disclosure document not have a signature line on the GFE?

A:  Because it binding of the LO, not the borrower.   Andrew suggests that borrowers can sign the GFE but you cannot add additional lines–they can sign the top above their names on page 1.   David says additional disclosure form signed by borrower to prove receipt is acceptable.

More answers…and tidbits.

The GFE must detail all fees that are charged to the borrower, even if the lender is paying them.   

The HUD-1 is no longer a disbursement document.  HUD says it's intended to be a disclosure document. 

An in-house appraisal goes in Block 1 and an outside appraisal is to be disclosed in Block 3 of the Good Faith Estimate…"sometimes a LO may wind up having to eat an appraisal fee" ($500 approx)… "they may want to disclose the appraisal fee in both blocks 1 and 3 but then risk looking not so competitive with their GFE".

Dodd Frank Act passed in July transfers the RESPA function over to the new bureau next July.  The statute specially requires the GFE, RESPA and TILA forms must be combined into one document (how many pages??) by July 2012.

Property taxes are not shown on the GFE because HUD feels that the new GFE was intended to only show fees charged by the lender in association with the loan (that conflicts with excise tax and the owners policy IMO)…HUD states that the property taxes are the buyers responsibility with or without the mortgage loan.

If a HUD examiner finds that a "changed circumstance" is not valid or lacks documentation, the GFE that was issued with invalid changed circumstances will be "tossed out".   Documentation is key.

Under the RESPA regulation, the LO is also bound by the TERMS of the loan–not just the terms! (Section 5 of RESPA).   A mortgage originator issued a GFE based on a 30 year fixed rate when it should have been prepared for a 5/1 ARM.  The mortgage company is now holding that mortgage a 30 year fixed with a rate for a 5/1 ARM due to the mis-disclosure.   HUD says the LO checked "no" on all boxes stating as the the loan being fixed and at settlement/closing, received an ARM Note. 

If you issue a GFE with a TBD address, receipt of an address (or once a property is identified) does not constitute a "changed circumstance" where fees may be adjusted for the actual property.  (This is why LO's WILL NOT issue a GFE on a "preapproval" until there is a property identified.

If a LO has to use a different lender after a GFE is issued, they're still bound by the GFE–it's not a "changed circumstance".

Deb Bortner of DFI asks HUD regarding getting the SAFE rules out.   Will HUD issue them or will it be sent to CFFB?  Reply is "We can't answer…that's another department in HUD".

GFE's must be re-issed at the time of lock–this is a qualified "changed circumstance".

Andrew Fay says that there is nothing wrong with issuing multiple GFEs showing different scenarios…the borrower can chose which GFE they prefer.

HUD encourages you to sign up for their RESPA Roundup Newsletter by emailing

Note:  I had to leave after HUD's presentation so this wraps up my "live" post.  Thanks for reading!