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.

NMLS 

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.

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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 hsg-respa@hud.gov

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

Does Your Mortgage Originators Credit Score Matter to You?

Would you work with a mortgage originator who has a 620 credit score?   Would you prefer to work with a mortgage originator who has a 720 or higher credit score?   Does how someone manages their credit history important to you if they are providing you advice about credit scoring and/or helping you with one of the largest debts you may have in your lifetime?

Starting November 1, 2010, the NMLS and Washington State DFI will begin pulling credit reports on LICENSED mortgage originators.  This is one of the final "background" checks being performed as required by the SAFE Act.  If a mortgage originator works for a depository bank (like Chase, Wells Fargo, Bank of America, Washington Federal, etc.) or any credit union, they will not have their credit pulled and reported to DFI.

I'm not aware of what the "magic number" is that DFI will use for weeding out mortgage originators with lower scores.  I believe they're looking more at credit history than the actual score…but I don't know for sure.  

What I do know is that mortgage originators who are licensed are held to higher standards per the SAFE Act than mortgage originators who are merely registered.   If you're curious about whether or not your mortgage professional is registered (bank/union union LO's) or licensed, you can visit www.nmlsconsumeraccess.org.

Observations from taking the SAFE Act required licensed mortgage originator exam

I finished the last requirement for maintaining my license to originate mortgage loansfor homes in Washington this week: I passed the national exam required by The SAFE Act.  I will be required, as a licensed mortgage originator, to take 8 hours of continuing education every year since I've met my 20 hour requirement this year.  (Note: mortgage originators who work for depository banks, like Bank of America, Wells Fargo or Chase, or credit unions like BECU or Alaska Federal Credit Union, are not required to be licensed and are not held to the same standards per the SAFE Act.  You can read more about that here). 

I called a few weeks ago to schedule my test times at the PearsonVue Center.  The number I called directed me to a local office who then provided me with a toll free number.  The center said they could not schedule my appointment there.  Much to my surprise, when I called the toll free number to schedule my Federally mandated exam, I was sent to a call center in India!  Is it just me, or is there something wrong with off-shoring jobs for something that is required by our government?   Especially during these times when unemployment is darn near 10%.

I arrived at the exam center in Renton a half hour early and had my palms scanned.  Ladies, be warned, if you're wearing a jacket, you may be asked to remove it and leave it hanging outside during the test.  I wasn't quite prepared for this and probably would have worn a different top than what I had on underneath the jacket. 

The exam itself is multiple choice with a good portion of it being on Federal laws.  In my opinion, I don't find it very important knowing which branch of government created or oversees a certain law as knowing about the law.   Does it matter if it's HUD or the Federal Reserve Board who oversees RESPA or RegZ?  If you're violating RESPA, you're violating RESPA.  I think there's too much emphasis on this portion of the test.  I'd like to see more questions testing a mortgage originators general knowledge and their ethics, as well as the laws and regulations (just not so much focus on the "who" and more on the "what" and "why").  

I also think it would be beneficial to have specialized desiginations for mortgage originators that would require additional education and testing, for programs such as the Reverse Mortgage.  Just because I have the product available at our company, doesn't mean that I should be originating the loan.   

If your loan originator is licensed, they must take and PASS the (state and national) exams by December 31, 2010 or they cannot take a loan application effective January 1, 2011 unless they go work for a bank or credit union.  If they work for a bank or credit union, they don't have to sweat it.  They will need to register with the NMLS, but that's it. 

You can see if your mortgage originator is licensed or not by visiting www.nmlsconsumeraccess.org.

The House of Representatives Passes FHA Reform Increasing FHA Mortgage Insurance

Yesterday I was interviewed by Alan Zibel with the Associated Press about the passage of House’s FHA Reform bill which, among other things, would increase the annual FHA mortgage insurance premium.   The Senate still needs to pass their version of the bill but there is no doubt in my mind that we are going to see FHA loans become more expensive for consumers.  Congress is wanting this bill in order to “improve the financial safety and soundness of the FHA mortgage insurance program”. 

HR 5702, or ”FHA Reform Act of 2010″, gives HUD the power to triple the current annual FHA mortgage insurance premium (which is paid monthly).  HUD will offset this cost by reducing the upfront mortgage insurance premium which was increased to 2.25% in April of this year.  HUD will offset the increase in the annual monthly mortgage payment by reducing the annual premium to 1.00%.  HUD feels this is helping home owners increase their home equity by 1.25% since a majority of FHA borrowers finance the upfront mortgage insurance premium.

Currently, the annual mortgage insurance premium for an FHA loan with 3.5% down payment is 0.55% (if you’re putting down 5% or more, the premium is slightly reduced to 0.5%).  HR 5702 will allow HUD to increase the annual premium up to 1.55%.  To calculate how much this would impact your monthly mortgage payment, take the loan amount and multiply the annual premium; then divide by 12 months. 

This is how upfront (UFMIP) and annual mortgage insurance pencils out on an FHA insured mortgage today based on a loan amount of $300,000 and an estimated rate of 5.00% (this morning’s rate is much lower).  Since we’re dealing with future figures, I thought 5 was a nice round number for comparison sake.

  • 2.25% UFMIP x 300,000 = $6,750 = principal & interest payment (UFMIP + loan amount) = $1,646.70
  • 0.55% annual MIP x 300,000 = $1,650 divided by 12 months = $137.50
  • PIMI (principal, interest & mortgage insurance) payment: $1,646.70 + $137.50 = $1,784.20

HR 5702 would allow HUD to almost triple the annual premium while reducing the UFMIP.  Worse case scenario, it could look like this based on the same criteria in my last example:

  • 1.000% UFMIP x 300,000 = $3,000 = principal & interest payment = $1,626.57.
  • 1.55% annual MIP x 300,000 = $4,650/12 months = $387.50
  • PIMI payment = $1,626.57 + $387.50 = $2,014.07

A increase in payment of $229.87 for the same loan even with the reduced upfront mortgage insurance premium!  Based on using an interest rate of 5%, $229.87 per month equals $42,800 in loan amount–meaning that if the borrower only qualified for the PIMI of $1784.20; their loan amount (borrowing power) has been reduced by $42,800.

According to Alan Zibel of the Associated Press, the annual mortgage insurance premium will start off at a lower 0.9%: 

FHA officials want to raise that fee to 0.9 percent, though the bill would give them the power to hike it as high as 1.5 percent.

Even with the annual premium at 0.9%, the monthly mortgage payment (PIMI) would increase to $1,851.57.  (300,000 x 0.9% = 2,700/12 = $225 monthly mortgage insurance plus 1% UFMIP payment of $1,626.57).  This would increase the payment by $67.37 per month based on my example.

Based on HUD Commissioner David Steven’s testimony in March, their goal is to be “more in line with GSE and private mortgage insurers’ pricing”.  

Often times, I’ve recommend FHA loans over conventional mortgages requiring private mortgage insurance because even though FHA has annual and upfront mortgage insurance, the pricing and overall payment has been lower (plus many FHA loans are presently assumable).  

In my opinion, making FHA more like a conventional mortgage will impact many borrowers for the worse and delay the recovery in the housing market further.

Insanity

I'm working on renegotiating a locked rate for one of my clients.  The lender will allow us to do so if it meets specific criteria (price and rate must improve by a certain amount).   If I'm successful in obtaining a lower rate for my clients, I may potentially cause a delay in their transaction due to the Mortgage Disclosure Improvement Act (MDIA).  Most lenders interprets MDIA as any change in APR, for better or worse, of more than 0.125% for a fixed rate mortgage.

So I'm requesting an interest rate improvement of 0.125% because the transaction meets the criteria to do so.  If the lender approves the request, I am required to provide a new Federal Truth in Lending which will disclose the APR lower by 0.126%.  This will trigger a three day waiting period before my client can sign their mortgage papers at closing.  Luckily, the clock starts on the day of delivery (unlike the right of recession waiting period) and includes Saturdays.

Along with the Federal Truth in Lending, I am required to provide a revised Washington State's Loan Application Disclosure Form (no beef from me there) disclosing the change in interest rate.

Isn't it crazy that improving an interest rate for my client could possibly trigger a delay in closing? 

15 Days Remaining for the Home Buyer Tax Credit

NOTE: this is a post from 2010 and this tax credit is no longer available.

If you are planning on taking advantage of the home buyer tax credit, either as a first time home buyer or a "repeat" home buyer (aka "long time resident"), you have fifteen days to be in a binding sales contract with mutual acceptance.    This means that both you and the seller have ironed out the negotiations which can sometimes take a few days to agree on…so in reality, you probably have less than 15 days unless you submit the "perfect" offer to the seller and they decide to accept it with no counter offers.

If you are hoping to claim the home buyer tax credit, you should check in with your mortgage professional to make sure that your preapproval is still valid.  In the Seattle-Bellevue area, listing agents and sellers expect a preapproval letter to accompany the purchase and sale agreement before they will consider the offer. 

Preapproval letters may expire if your paystubs, bank statements or credit report are outdated.   The terms stated on the preapproval letter should match with the terms of the offer being presented to the seller.  Mortgage rates have been volatile and if your debt to income ratios were "pushed" to the limit, you may or may not be qualifed for what you once were.

If your offer is countered past April 30, 2010 because you didn't have all your ducks in a row with your lender, you may not qualify for the home buyer tax credit.

And before you try to get into a mutual contract before the deadline–it's a good idea to make sure that you actually qualify for the tax credit.  

You may be disqualified from the home buyer tax credit if:

  • the government has deemed you make too much money–modified adjusted gross incomes up to $125,000 for a single taxpayer, or $225,000 joint, qualify for the full credit.  Those with MAGI up to $145,000 for a single taxpayer   and $245,000 joint qualify for reduced credit.
  • if the purchase price is over $800,000 (better write that offer for $799,950 if your income qualifies).
  • if the home being purchased is not going to be your primary residence.
  • family members are not eligible (you cannot buy the home ancestors or dependents)
  • if the contract is accepted after April 30, 2010
  • if the transaction is closing after June 30, 2010

Remember, I'm your mortgage expert for homes located in Washington.  I am not a tax expert–please consult your CPA or tax advisor for more information.

Is Your Mortgage Originator Licensed or Registered

The SAFE Act was enacted in July 2008 to help create a national standard for residential mortgage originators.  This is a fantastic idea EXCEPT that if a mortgage originator works for a depository bank, like Bank of America, Chase, Citi or Wells Fargo (just to name a few) they are excluded from licensing.  Mortgage originators working for a bank will only have to be registered…and  yes, there is a difference.

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