Archives for February 2010

Dawn’s Army is doing The Big Climb for the Leukemia and Lymphoma Society

Bigclimb My husband and step-son will be marching up 69 floors of the Columbia Tower on Sunday, March 21, 2010.   They're doing this as part of the team proudly called Dawn's Army to raise funds for the Leukemia and Lymphoma Societyalong with friends, family and Dawn Appel's former co-workers at The Talon Group.

This is not the first time this team has assembled for their friend, Dawn Appel.  Dawn has been battling Acute Lymphocytic Leukemia long enough for this to be the third annual climb by her friends.

The Columbia Tower is located in down town Seattle and many will climb (some race) 1,311 steps for this worthy cause in just a few weeks. 

Please click here if you can make a donation–every bit helps!

Thank you.

How Much Should I Pay for an Adjusted Origination Charge

I love reading how people found Mortgage Porter via search engines.  Apparently someone has been doing some research on how much their adjusted origination charge "should" be.  The new 2010 Good Faith Estimate was designed by HUD with the intent that consumers would be able to shop mortgages using a more meaningful document.  The 2010 GFE is suppose to be an easier tool for home buyers and those considering refinancing to make educated decisions about their mortgage. 

What HUD and mortgage rate shoppers alike cannot control is how often mortgage rates change…just as with the pre-2010 good faith estimate, if you are selecting your largest debt (your mortgage) on your largest asset (your home) by interest rate alone, you're doing so with a moving target.  The 2010 GFE does provide the consumer with some protection as to how much certain closing costs may change, it cannot and does not protect the consumer against unlocked rate changes depending on what the mortgage originator uses for an expiration period on the GFE in the "important dates" section.

What also has not changed is how mortgage rates are priced.  Home buyers and home owners interested in refinancing still have the option of having their mortgage priced with or without points or origination fees.  They simply need to communicate this to the mortgage originator.  Lower closing cost tends to equal a higher interest rate (typically, but not always, 1% of the loan amount tends to pencil out to 0.25% in interest rate).  Mortgage rate shoppers will still need to compare interest rate to closing costs keeping in mind that the rate shown on the GFE may no longer be available by the time they select a mortgage lender.

The 2010 Good Faith Estimate includes additional fees than just the origination on the "adjusted origination charges".  The fees reflected in this section may include:

  • loan origination fees
  • discount points
  • processing/admin fees
  • underwriting fees
  • funding fees
  • doc prep
  • wire fees
  • other misc. lender fees charged by the lender when originating a mortgage

For example, if a mortgage originator provides an estimate priced with zero origination or discount points, the adjusted origination charges may still show fees if they have an underwriting or funding fee (any fees listed above).  You can request the mortgage originator provide you with an itemized list of fees when reviewing an estimate. 

When reviewing the 2010 GFE make sure that you're also factoring in the lock period the mortgage originator is using (the shorter the lock period, the less expensive your rate will be).  Obtaining a rate quote based on a 15 day lock looks great and is useless if your transaction is closing in 30 days.  (Refer to the "important dates" section on page one of the GFE).

Don't forget, if your mortgage originator won't provide you with a good faith estimate on your home located in Washington State, I will.  Many LOs are reluctant to issue the 2010 GFE because of the liabilities associated with guaranteeing closing costs.

Second Opinions on Good Faith Estimates

Update August 15, 2010:  Since 2010, HUD has created a new GFE and rate shoppers may find a challenging time obtaining an estimate from a mortgage originator without meeting what HUD constitutes an application.  Many mortgage originators are issuing "rate quote work sheets" with a Good Faith Estimate to follow once the 6 points of information (application including a credit report).

EDITORS NOTE:  This is another personal favorite article that I wrote at Rain City Guide.  Since I'm taking a few days off from blogging, I thought I'd share it with my Mortgage Porter readers.   To read the original post including the comments, please visit Rain City Guide.  With the changes to the Good Faith Estimate that have happened in 2010, this post is as relevant as ever.

A few weeks ago, one of the Realtors I work with, Suzy Seller, contacted me to see if I could help her client with an out-of-state mortgage.   Ima Rusty (names are changed to protect the innocent), was moving to Arizona to retire and perhaps see the sun.   Ima had gone to her “local bank mortgage company” since they had provided her mortgage for her home in Washington, for her financing on her new home.    For some reason, Ima was not feeling very confident with her lender after two weeks into the transaction.

Since I stick to lending in Washington State, I offered to review Ima’s good faith estimate for her.   The rate was fine and the closing costs all seemed in line…everything looked great until I noticed that on the Federal Truth In Lending, the box that states there “may be a prepay” was checked.    According to Ima, their credit is perfect.   She was completely unaware of a prepayment penalty.   After I encouraged her to contact the Loan Originator to ask if there is indeed a prepayment penalty.  Maybe the box was marked in error?  Here’s what Ima told me:

I was able to speak with our loan officer and arrange for the documents to be changed to reflect appropriate changes to allow prepayment of up to 20% of the loan amount within a 12 month period without penalty or fees thereby reducing the monthly payment.  I am satisfied that we’ve covered the areas which were of major concern and as far as I can see, we’re “good to go”.

He bamboozled her into thinking she did not have a true prepayment penalty.  He did not make any changes to her documentation…this is a boiler plate prepayment penalty.   I proposed one last question for her.   “What if you decide to sell the property next year”.   After all, what if after the Rusty’s move to AZ, they miss our rain and our four seasons?   That’s when she discovered that the prepayment penalty was for three years

Ima Rusty decides this is a bad deal.   After confronting the Loan Originator, the Rusty’s decide they want out.   The Loan Originator was unwilling to waive or reprice the loan without the prepayment penalty.   I have a hard time believing this was their only option.  Especially since the prepayment penalty was not explained (it was disclosed…only by sneaking it on the TIL) to the Rustys upfront.

I often review Good Faith Estimates to check on the rate, closing costs and prepayment penalties.   When a rate looks too good to be true (something I cannot come near offering), I encourage the borrower to see if they can lock it in and to have the LO provide a written lock confirmation.    I also advise borrowers to see if the Loan Originator will guarantee the closing costs (Section 800) on the good faith estimate.  A consumer should bring their Good Faith Estimate to their signing appointment to compare the closing costs with those on the HUD-1 Settlement Statement.   If a Loan Originator starts back peddling when asked these questions, I suggest that the borrower should do the same. 

Second opinions on Good Faith Estimates are FREE and any Mortgage Professional should be happy to provide this without running your credit.   

By the way, Ima Rusty use to work for an attorney…

I did send [Big Bank Mortgage] an email message which included reference to fair lending practices (not specifically predatory lending laws)…. I have been in touch with the Attorney General’s office and they seem to feel there’s some indication of senior exploitation in this case.  If we want to proceed with an investigation they are willing to do so…. Meanwhile, I’ve cancelled the [Big Bank Mortgage] loan and requested cancellation of our line of credit.  

Loan Officers: Stop Your Crying…Let’s Love the Good Faith Estimate

EDITORS NOTE:  This post by yours truly was originally published at Rain City Guide.  Since I'm taking a blogging break, I thought I'd share it with you here.  To read the original post along with the comments, please visit Rain City Guide.

Okay, I admit…I’ve been groaning, sniveling and bitching along with many other mortgage originators about HUD’s 2010 Good Faith Estimate.   The document has it’s faults and was created pretty much because of the faults of loan originators who used the GFE as a tool for bait and switch.   We’ve had a month to mourn the loss of the old good faith estimate, which was an asset in how I explained scenarios to my clients…it’s gone.  Get over it.

I’m hearing from consumers that many mortgage originators are refusing to issue Good Faith Estimates – even if they have provided the “six points of information” which HUD uses to define a loan application.   A mortgage originator has three business days to provide you with a good faith estimate or deny your “application” if you have provided the following:

  • the borrower(s) name
  • monthly income
  • social security number to obtain a credit report
  • property address
  • estimated value of the property
  • loan amount

HUD has added an additional item (which can be vague):  any other information deemed necessary by the loan originator.

Per HUD’s most recent RESPA FAQs that were updated on January 28, 2010, a mortgage originator cannot refuse to issue a good faith estimate if they do not have supporting documentation (such as income or assets documentation) or verification disclosures signed by the borrower.   If after providing a GFE to a borrower, it is discovered that their income they provided is not how an underwriter would view it, this may constitute a “changed circumstance” allowing a revised good faith estimate to be issued.    If you read the FAQs, you can tell that HUD is well aware that consumers have been having a real challenging time getting their hands on the 2010 GFE.

Update from HUD’s RESPA FAQs (page 11, #33)

“In order to prevent over burdensome documentation demands on mortgage applicants, and to facilitate shopping by borrowers, the final rule specifically prohibits the loan originator from requiring an applicant, as a condition for providing a GFE, to submit supplemental documentation to verify information provided by the applicant on the application…

Similarly HUD has long supported a public policy goal of creating a circumstance where consumers can shop for a mortgage loan among loan originators without paying significant upfront fees that impede shopping”.  (Only a credit report can be charged to a borrower at this point).

So dry your eyes, my fellow mortgage professionals, the Good Faith Estimate IS a tool for consumers to use for shopping…whether we like it or not.  It’s time to open our arms wide and embrace it.valentinescandy 

PS LO’s:  This post (and any of my articles) are not a replacement to your employer’s compliance department or legal advice.

Happy Valentines Day

Mortgage Master is Closed Today

In observance of President's Day, Mortgage Master Service Corporation is closed for this holiday.  We will reopen for business as usual on Tuesday morning, February 16, 2010.

Still No Love for the Subprime Borrower

EDITORS NOTE:  It's hard to believe that I wrote this original post three years ago at Rain City Guide for Valentines.  The last paragraph of this post, I plea that subprime borrowers contact their mortgage professionals as soon as possible to get out of their loans while programs were still available.  At that time, I had no idea how underwriting guidelines would tighten and how many programs would be removed.  I know I've shared this post here before when I've taken a break from blogging…just in case you're new to Mortgage Porter, I'm sharing this Valentine's classic here again.  Please visit the original post and comments at Rain City Guide.

It’s all over the news, we’re hearing about major subprime lenders having to restate their losses and every day, lenders are coming into my office to inform us of changes to their guidelines.   This is all good, right?    It will be tougher to provide loans for home buyers who maybe should be spending more time to learn about budgeting and using their credit cards.    What about the people who are all ready in these programs?

First, allow me to explain the basic dynamics of these loans.  Many of these mortgages are zero down, 80/20s (80% of the loan to value for the first mortgage/20% of the value for the second mortgage).   The first mortgage is typically offers a fixed rate for 2-3 years with a prepayment penalty (the standard is six months interest) that matches the fixed rate period.   In addition, the mortgages may be interest only or amortized at 30, 40 or 50 years.    The rates on these mortgages are completely dependent on credit score. 

When I meet with Mr. and Mrs. Subprime, I advise them of their options of buying now using this type of subprime mortgage or that they can work on their credit, job history, etc. and buy later with a better mortgage program.   Because there are no guarantee of what rates will be (or maybe because they know there’s not guaranteed they’ll clean up their act) and because they want to buy a house now, they often opt for the subprime mortgage.   Once this happens, I heavily stress (or Jillayne would say, I lecture :) —which I’m sure I do) to Mr. and Mrs. Subprime that they have 2-3 years to change their spending habits because once their fixed period rate is over, their mortgage is going to adjust and do so big time.    I let them know that I want them to be in the best position for a refinance into permanent financing (or to have a better mortgage should they decide to sell the home assuming they have any equity) and that the subprime mortgage they are using to obtain their home is temporary financing.  

Many of my clients in these mortgages have done very well and I’m proud of them.   They have taken the responsibility of owning a home and having a mortgage to heart.  I’m able to restructure the original mortgage and improve their situation greatly.   The concern is for Mr. and Mrs. Subprime who just didn’t get the hang of it.   They continued to charge up their credit cards, they bought or leased a new car to go in their new driveway and maybe a new TV, too.   They’ve been sliding ever since the holidays and are now having a tough time paying their mortgages on time.   Maybe they just have one mortgage late.   Their credit is rough at best.   Their fixed period (and prepayment penalty) is over and now they really need to refinance fast because their mortgage has adjusted for the first time—their rate is now 2% higher.  Their situation has gone from bad to worse.    With all the tightening in the subprime market, even if their credit scores and scenarios are the same as when they bought, there may not be a program for them to refinance out of now.   They will be forced to sell (hopefully they have enough equity to pay commissions and other closing costs) or to somehow manage to choke down their increased payments.

I guess this post is a plea of sorts.  If you currently have a subprime loan (especially the type I described) please contact your Mortgage Planner to have your credit reviewed to make sure you’re on the right track to be able to refinance (or have a better loan for when you sell) when the time is due.   Do not assume there will be a program for you if you have not made significant changes to your spending and use of credit cards.   If you’re a real estate agent or loan originator, check in on your subprime clients to let them know of the changes in the industry…see if they need guidance to stay or get on track so they don’t wind up stuck with a higher mortgage payment, being forced to sell or foreclosure.

I Can’t Wait for Spring

…and neither can my garden.

Ben Bernanke’s Mortgage Rate Exit Strategy

Ben Bernanke will be testifying before the House Finance Servicing Committee regarding the Fed’s exit strategy.   From his prepared testimony:

All told, the Federal Reserve purchased $300 billion of Treasury securities and currently anticipates concluding purchases of $1.25 trillion of agency MBS and about $175 billion of agency debt securities at the end of March.

What this means is to you and me is that we will start seeing rates increase well before the end of March as the markets will adjust before the Fed stops their support of keeping mortgage rates artificially low.

This is nothing new.  It will be interesting to hear what else Mr. Bernanke has to say to the Committee today.

And for your morning viewing pleasure, how about this clip from Snagglepuss who’s famous for his exits:

I can’t believe I used to watch this stuff while eating my sugary cereal in the morning!