Archives for March 2008

Fiduciary Duties for Mortgage Brokers

Last Friday, Governor Gregoire signed SB 6381 into law giving fiduciary duties to mortgage brokers.  This new law does not apply to loan originators who work for bank-mortgage companies (like WaMU, Countrywide, Wells Fargo, Chase, Bank of America, etc).   

Here are some of the highlights of what the law spells out for loan originators who work for mortgage brokers:

  • A mortgage broker must act in the borrowers best interest and in the utmost good faith towards the borrower
  • A mortgage broker shall not accept, provide, or charge any undisclosed compensation or realize any undisclosed remuneration that inures to the benefit of the mortgage broker on an expenditure made for the borrower.
  • A mortgage broker must carry out all lawful instructions provided by the borrower. 
  • A mortgage broker must disclose to the borrower all material facts of which the mortgage broker has knowledge that might reasonably affect the borrowers rights, interest or ability to receive the borrower’s intended benefit from the residential mortgage loan.  
  • A mortgage broker must provide an accounting to the borrower for all money…received from the borrower.

All of the above seems pretty straight forward to me and SHOULD all ready be happening when consumers work with a mortgage professional.  I have always put my clients best interest first–above mine.   The next two points are more surprising:

  • A mortgage broker may contract for  or collect a fee for services rendered if the fee is disclosed to the borrower in advance of the provision of those services. 

This will allow mortgage brokers to charge a fee for consultation, credit repair, working on preapprovals.  This could change how a Washington State mortgage broker is paid and how much they charge in origination.    

  • The fiduciary duty in this section does not require a mortgage broker to offer or obtain access to loan products and services other than those that are available to the mortgage broker at the time of the transaction.

I see this last point as a conflict with the entire bill.  What if the best loan for a consumer is FHA or VA and the mortgage broker does not have those loans available so they shoe-horn them into a loan they do have access to?  How is that acting in the clients best interest?  The other side of the coin is that if a mortgage broker has never provided a certain product (such as FHA or VA mortgages); how would they know if the consumer would be better off with these loans?

Note to Consumers and Real Estate Agents:  If you are a first time home buyer, have credit scores below 700 or are putting less than 20% down; ask your mortgage broker if they are able to provide FHA financing.  Those who have served our country should ask if VA financing is available

Jillayne Schlicke wrote an interesting post on this earlier this month at Rain City Guide.   This law is yet another reason why consumers may want to select a loan originator classified as a licensed loan originator working for a mortgage broker over a loan originator who works for mortgage-bank.

Happy Easter

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The egg hunts will be wet this beautiful Easter morning on which my cherry trees are finally beginning to blossom.   Happy Easter from our family to yours.

It’s Official: Zero Down is Gone

Iceage_2Unless you’re eligible for VA financing within the conforming loan limits, 100% LTV financing (aka "zero down") is no longer available in the conforming mortgage markets.   

The following products are extinct:

  • Fannie Mae Flex 100
  • Freddie Mac 100
  • My Community Mortgage 100
  • Home Possible 100

If you are short on down payment with credit scores below 680, you should consider FHA financing, which is not as credit score sensitive as conventional programs.  Fannie Mae Flex 97 is still available as well as Home Possible 97.  Both conforming programs allow for 3% down.

Home buyers should also plan on having "reserves" after closing.  The amount of reserves may vary depending on the program from 2 – 6 months of proposed mortgage payments for owner occupied when it’s said and done.   Real estate agents, your first time home buyers may need help with closing costs from Sellers…if they’re willing…in order to meet the reserve account conditions. 

We’re rolling back the underwriting guidelines…not all the way back to the ice age…but close!

If you’re considering buying a home or refinancing, meet with your Mortgage Professional sooner than later so you have time review your credit and consider your options.

The Bottomless Mortgage Junkmail Bag

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Here’s a new one for you from the Mortgage Porter Junk Mail Bag.  This gem arrived to us in a hand addressed envelope about the size of a greeting card with real postage stamps but no return address.  What a personal touch. 

But wait…there’s more!  When you open the envelope it appears as though someone has cared enough about you to send you a newspaper article and there is a written sticky note that says:

"Robert, Try this it works!  I just got two months no bills! [signed] J."

Wow, who is this "J"?  Their name is no where on the envelope and there’s no business card included.   The newspaper article is front and back (with a faux-ad of a hottie on both sides) appearing to be an interview of someone in the mortgage/credit repair profession.   The "professional" being interviewed is here to save the day…the article never really says how but invites you to visit a website which I’m not going to promote here. 

The website would leave you to believe this fella is on your side to fight the bad mortgage companies, credit counselors…he’s going to teach you every trick in the book after you sign a non-disclosure statement so his "methods can stay secret from the general public".   

The entire campaign is aimed at people who are in trouble financially either from an ARM adjusting or from too much debt.  It’s predatory.  Do you remember just a few weeks ago what I said about loan originators who use "skip two months payments" as a ploy to get your business?

I have an issue whenever anyone uses "trickery" to obtain business.  Especially when it’s as important as the financing of your home.   This "article" does state "ADVERTISEMENT" in small print on the top of both sides…but it would be easy to miss.  Especially if you’re in a tough position with your mortgage or debts and you’ve received this mail from someone who cares enough to take the time to hand address a note to you. 

I truly believe that those who must resort to doing this type of deceptive marketing is because their business practice is such that they do not have returning or referring clients. 

Please don’t ever select your mortgage professional by the junk you receive in the mail.   

Happy Birthday, Rain City Guide!

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Rain City Guide turned three today…I’m a proud contributor to this stellar Seattle real estate blog.  I left a comment congratulating Dustin Luther on this accomplishment and asked if we are a toddler now.       Jay Thompson replied

Think dog years. 3 years for a real estate blog is an eternity…

How true!  Happy Birthday, Rain City Guide.

? of the Day: Could you tell me when the increase in conforming loan limits will go into effect?

I was emailed this question today:

Could you tell me when the increase in conforming loan limits will go into effect?

Believe it or not, the temporary increase in conforming loan limits is in effect.  In fact, it’s retro-active to July 2007.  Why?  This is so that Fannie and Freddie can provide some relief to Wall Street by being able to purchase loans over the true conforming limit of $417,000.   Investors have lost their appetite for jumbo mortgages, regardless of how great the borrower is, these loans did not have Fannie or Freddie’s backing.  Now that they will, we should hopefully see some relief as far as lower rates from lenders for jumbo mortgages.   The higher rates we have been seeing lately with non-conforming (jumbo) mortgages was to try to sweeten the pot on Wall Street. 

Lenders are being slow coming out with their pricing.   The first one I wrote about came out swinging with some very high "hits" to price.  I’m now beginning to see others just starting to appear with better pricing.  As more lenders enter the conforming-jumbo and fha-jumbo markets (i.e. competition), we may see rates improve.

Stay tuned!  I’ll be posting rates tomorrow.

Private Mortgage Insurance helps Home Owners at Risk

Yesterday I attended the "Fannie Mae Back to Basics Road Show".  I was really hoping to get some clarity and "insider nitty gritty" but left feeling a bit underwhelmed.  The information that was covered was (I guess as the title says) the "basics" which every Loan Originator SHOULD KNOW and Fannie Mae guideline changes which have all ready been announced and I’ve all ready written about

I did learn something new, however…and it’s really a big "duh".   There was a panel of reps from various private mortgage insurance companies who were covering their many guideline changes as well.   One rep brought up the point that private mortgage insurance companies actually work with home owners who are facing foreclosure (of course the home owner must currently have pmi in order to have this assistance).  Private mortgage insurance may be required when a mortgage has a greater loan to value than 80%.  It protects the lender against loss (such as foreclosure).   It only makes sense (this is my personal "duh" part) that a pmi company would want to try to avoid a loss (an insured mortgage going into foreclosure).   Private mortgage insurance companies have loss mitigation departments, including mortgage loan counselors, to help home owners who have pmi and are in trouble with their mortgage payments.

From MGIC’s website:

Helping you maintain your dream of homeownership is our commitment here at MGIC. As the mortgage insurer of your mortgage loan, we work closely with your lender to resolve delinquencies, which could result in losses for MGIC, the lender and you.

If you are having difficulties meeting your monthly mortgage payment and you have private mortgage insurance, contact your mortgage company AND the private mortgage insurance company who insured your mortgage.

Here are some links (I’ll update with more pmi resources as I locate them).

MGIC Home Owners Assistance

PMI Home Preservation

A Good Faith Estimate is Not a Commitment

It’s very important to know that when you receive a Good Faith Estimate from any loan originator, it is not an offer nor is it a commitment to lend.  It concerns me when I’m dealing with a rate shopper (especially in a volatile market where rates may drastically change 3-5 times a day) and they are going to select who handles their mortgage transaction by the good faith estimate.  Here’s a quote from an email I recently received that prompted me to write this post:

"We do appreciate all your kind attention and the fine offer you made to us."

This couple had contacted for the past few months while shopping for homes requesting good faith estimates.  I appreciate that they were upfront with me by letting me know they were receiving quotes from someone else as well.  Depending on the day (actually the time of the day) the quote was prepared, they may have actually selected a lender who is quoting a higher rate than I would have.   Fact is, I only provided them good faith estimates when they requested them; I never provided them any "offers" or "commitments".

A Good Faith Estimate is a detailed interest rate quote for that moment (unless the LO doesn’t track the markets and is simply going off the morning "rate sheets") with the closing costs associated with that rate.  I’m actually considering adding a time/stamp to my GFE’s when I send them just because rates are changing that often (for better or worse) in this climate.

A Good Faith Estimate is not a guarantee of interest rate or closing costs.   In fact, the rate may all ready be different, or the cost to obtain the rate (higher or lower) by the time it’s been created and delivered to the borrower.  Make sure you receive a Lock Commitment from your lender and ask them to guarantee their closing costs.  As a matter of fact, certain situations may cause your rate or closing costs to change from the lock and/or good faith estimate, such as:

  • Appraised value – LTV (higher or lower than estimated)
  • Change in employment
  • Credit scores not what estimated prior to quote.
  • Closing time extended beyond the lock period.

If we have a change to cost (perhaps the appraisal cost less or the LTV is lower than expected changing the loan amount or cost for the rate) I will provide an updated Good Faith Estimate.

My last little bit of advise for you is (if you’re still insisting on shopping lenders by rate) to see if your lender offers a one time interest rate "float down" should the rate improve by more than 0.125%.   This provides you with a ceiling that your rate will never go higher than "x" and allows you to receive the benefit of a lower rate should they improve more than 0.125%.

Just because you have received a GFE from a lender, does not mean that you are qualifed for the mortgage.   It really just means that the lender is quoting this rate with those closing costs on that moment of the day.  Rates are a moving target, and without a lock–it’s just a quote.