My Take on the Fed’s Proposal to Amend Reg Z

December 19, 2007 by Leave a Comment

You can read the official press release here.   This following is from the highlights.  I’ve added my opinions (if any) in italic.

The proposal would establish a new category of “higher-priced mortgages” that should include virtually all subprime loans. The proposal would, for these loans:

  • Prohibit a lender from engaging in a pattern or practice of lending without considering borrowers’ ability to repay the loans from sources other than the home’s value.  Fine.
  • Prohibit a lender from making a loan by relying on income or assets that it does not verify.   Fine. I have never been a fan of "over" stated income when the income is not there.  I have done just a few stated income loans in my mortgage career where the income was there, but hard to document.  This will impact those borrowers.
  • Restrict prepayment penalties only to loans that meet certain conditions, including the condition that the penalty expire at least sixty days before any possible payment increase.   Fine.  I’ve never liked prepayment penalties.  Life happens and sometimes people don’t stay in a home or mortgage as long as they originally intended.
  • Require that the lender establish an escrow account for the payment of property taxes and homeowners’ insurance.  Fine.  The lender may only offer the borrower the opportunity to opt out of the escrow account after one year. All subprime (or non-prime, same thing–just sounds better these days) should have reserve accounts. 

The proposal would, for these and most other mortgages (prime aka a-paper):

  • Prohibit lenders from paying mortgage brokers “yield spread premiums” that exceed the amount the consumer had agreed in advance the broker would receive.    A yield spread premium is the fee paid by a lender to a broker for higher-rate loans.    Fine…IF…the borrower accepts and understands that the broker is going to be compensated a total of x% which includes YSP plus the origination if any.  For example, the broker would disclose upfront to the borrower that he/she is going to make 1.25% (just for example sake) to the borrower.  If the borrower is paying 1% if origination points and the lender is paying 0.30% in YSP; the loan originator will credit the borrower 0.05% of the YSP to the consumer.   However, if the reverse happens, and the YSP winds up being 0.20%, shouldn’t the Loan Originator be allowed to increase their origination by 0.05% to meet the 1.25% agreed compensation?  It needs to work both ways. 
  • Prohibit certain servicing practices, such as failing to credit a payment to a consumer’s account when the servicer receives it, failing to provide a payoff statement within a reasonable period of time, and “pyramiding” late fees.  This must be on the servicing side (and it’s fine with me).
  • Prohibit a creditor or broker from coercing or encouraging an appraiser to misrepresent the value of a home.  Fine…absolutely fine!
  • Prohibit seven misleading or deceptive advertising practices for closed-end loans; for example, using the term “fixed” to describe a rate that is not truly fixed.  It would also require that all applicable rates or payments be disclosed in advertisements with equal prominence as advertised introductory or “teaser” rates.   Fine.  I have called 5 year ARMs, ARMs that are fixed for five years and adjust annually afterward.  I don’t see that as misleading.  Consumers should know what the "worse case" payment may be on their ARM or any mortgage.
  • Require truth-in-lending disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees until after the consumer receives the disclosures, except a fee to obtain a credit report.  Fine.  I do not provide rate quotes (except for those I post on Fridays with all of my disclaimers) without sending a Good Faith Estimate with the Federal Truth in Lending. 

I am not seeing a huge issue with the Fed’s proposal.  In fact, as you can see, for the most part, I agree with it…it’s fine! 

NOTE:  If you bought a home using over-stated income and have an ARM adjusting, you may need to find a co-signer to help you obtain your next mortgage.  There will not be many (if any) stated or no-income verified products available for you.  This is your government in action.

Filed Under: Current Affairs, Legislation, Mortgage, Subprime Lending

December’s YOU Magazine Now Available

December 13, 2007 by Leave a Comment

This month’s issue of YOU Magazine features the following articles that I highly recommend you check out:

Like Mortgage Market Guide, this is a service that I subscribe to for the benefit of clients.   (I did notice the person who stole my post also copies Mortgage Market Guide and post it as his own…this is a huge no-no and could be a costly one.  If I notice my MMG and YOU Magazine being plagiarized, I may have no other choice than to provide the articles I pay for to those who subscribe only and to remove the links from Mortgage Porter). 

Anyhow…there are other articles available with this month’s YOU Magazine including those for recipes and health tips.   You can read them all by clicking here.

Filed Under: Financial Planning, Mortgage, Recipes

What to do with your turkey left overs?

November 23, 2007 by 2 Comments

Sandwich

Make a sandwich, soup or perhaps enchiladas…sit down, get comfy and read some great mortgage blog articles.  Here are a couple of recent posts that I highly recommend you check out:

HR 3915 – Getting Warmer by Matthew Graham of Mortgage News Daily

What Gas Stations Can Teach Us About Mortgage Brokerages – Part 1  by Russ of Smart Mortgage Advice

Prequalify Your Loan Officer By Asking: "Where Do Mortgage Rates Come From?" by Dan Green of the Mortgage Reports

Honor Among "Thieves" by Gina Gardner of Lenderama

But I Made My Payments by Mike Mueller of Mike’s Minute

7 Things That Have Changed in the Mortgage Industry by Larry Cragun of Real Estate Undressed

Enjoy!

Filed Under: Mortgage, Weblogs

Can I get approved for a 400,000 home loan with a 600 credit score?

November 6, 2007 by 4 Comments

Yes…quite possibly!   The title of this post is a question that was entered as a search that found Mortgage Porter.  Someone could buy a $400,000 home with a 600 credit score if:

FHA Scenario Possibility

  • No late payments or derogatory credit in the past 12 months.  FHA insured loans do not use credit scores.
  • Base loan amount at FHA loan limit (assuming King, Snohomish or Pierce Counties):  $362,790.
  • Just shy of 10% down or a minimum of 3% down plus closing costs with a 6% seller contribution.

With conforming, if the other qualifying factors (income, assets, employment, down payment) are strong, the borrower may still qualify for a mortgage. 

At the very least, if your credit score is 600 and you’re considering buying a home, I suggest contacting a Mortgage Professional to have your personal scenario reviewed.  The higher your credit score, the better your rate may be for a mortgage and a qualified Mortgage Professional should be able to advise you on how to improve your credit rating.

Filed Under: Credit Scores and Reporting, Mortgage

I’m pulling my funds from Washington Mutual

November 1, 2007 by 2 Comments

I opened a new bank account to begin transfering my funds out of Washington Mutual.   I said I was going to do this when they ticked me off the last time…now it’s done!  What did WaMu do this time?

Bloomberg.com reports:

"First American Corp., the largest U.S. title insurer, was sued by New York Attorney General Andrew Cuomo for allegedly inflating home values under pressure from Washington Mutual Inc…

First American and eAppraiseIT “signed over their independence to Washington Mutual,” said Eric Corngold, executive deputy attorney general for economic justice. Cuomo said Seattle- based Washington Mutual is not being sued because of questions over federal jurisdiction.

Cuomo, 49, conducted a nine-month investigation and the evidence against First American is “damning,” he said. It includes e-mails between executives at the appraisal company and Washington Mutual that show Poway, California-based eAppraiseIT “willingly violated” state and federal regulations that call for independent home appraisals."

CNBC’s video from this morning covering this alledged fraud.

Our office has access to eAppraiseIT and we don’t use it.  Although they promise a quick turn around time, I’m not willing to hand over who does the appraisals for my clients.   I completely trust the appraiser I like to use.  If he says the value isn’t there, I trust him.  It’s in the home owners and home buyers best interest.   If this allegation is true, I’m disgusted beyond belief.   

It’s upsetting that First American seems to be getting the brunt of the bad press at this phase and I do hope the appriopriate authorites investigate Washington Mutual regarding this situation.

I’m sure WaMu will not miss my checking and savings account.  I meant to close it a month ago when they insinuated that the current mortgage situation lies most heavily on the brokers.  Honestly, I don’t know how any mortgage broker can keep their personal accounts with WaMu.  They are NOT the friend of my family!

Update 11/2/2007:  Seattle PI reports on WaMu Faulted on Home Loans

Filed Under: Legislation, Mortgage, Predatory Lending

Picking your next mortgage by rate shopping? You might as well be playing Liar’s Poker.

October 23, 2007 by 8 Comments

Poker_2

Rate shopping to select who will be assisting you with your next mortgage is similar to playing “liars poker”.  The Loan Originator who is the most successful at bluffing wins.  The fact is, unless you’re locking in the rate at the moment you’re shopping, you don’t have that rate.  It’s a rate quote–that’s all. Mortgage rates change throughout the day.  They are based on mortgage backed securities: bonds.   Some lenders I work with offer “live pricing” and others issue rate sheets; sometimes we can have several rate sheets offered by a lender during one day.

[Read more…]

Filed Under: Financial Planning, First Time Home Buyer, Interest Rates, Mortgage, Predatory Lending, Refinance, Residential Purchase

Please Don’t Neglect Your Unhealthy Mortgage

October 22, 2007 by Leave a Comment

ErToday I received a phone call from a CPA who was trying to help her clients who have a "toxic mortgage".   She was hoping I would be able to save them…there was a time that I probably could perform a "rescue".   In fact it was just a few months ago before the current mortgage melt down.   Believe it or not, when applied correctly, subprime mortgages could mean the difference of someone being able to save their home assuming they were able to be disciplined enough to keep (or get) their finances healthy.  This family will not qualify for FHA or FHASecure (they don’t have an ARM that’s adjusted).   What they need is a subprime (now known as "non-prime") mortgage to buy them a little time.   Now their time is running out.

Part of their problem began with working with an unsavory loan originator who is now out of the business.   The LO brokered their loan to a subprime company I would not work with.  (Even though we’re approved with around 80 lenders, give or take depending on the day, I tend to select 5 preferred prime lenders and 3-5 subprime/alt-a…this lender was not on my list of preferred). 

Shortly after closing, their lender informed them that they did not have home owners insurance…they did.  They provided documentation showing their insurance to the lender.    The lender did not respond and instead, ordered insurance for them at a hefty price…jacking up their payment beyond what they can afford.   Now they’re sliding down a very slippery slope and the lender is not cooperating.   They are behind on their mortgage a couple months.  They called out for help too late.   

NOTE:  Other lenders may be more willing to cooperate with homeowners…you need to act quickly and contact your lender if you’re having difficulty with your payment. 

Homeowners:  the very moment you think you may be having trouble with your mortgage or debts, please contact your Mortgage Professional right away.   If you don’t have one, you can always contact your CPA or other trusted financial advisor for a referral.   Please don’t wait until you have a "mortgage emergency"…get help, even if you just have the sniffles.

Trusted Advisors (Real Estate Agents, CPAs, CFPs, etc): Please keep an ear out for your clients who may have adjustable rate mortgages or are may be having difficulites with their mortgage payment.   Even if an ARM isn’t scheduled to adjust for 12 months or more, the sooner someone meets to with a Mortgage Professional to make sure their credit and everything else is in line to restructure the mortgage (if needed), the better for all.

All home owners should meet with their Mortgage Professional at least annually to have a "mortgage check up" or Annual Review.   This is a service that I provide to my clients.  I’ll provide more information about the Annual Mortgage Review in a separate post.   

My point is, the more time you allow yourself to fix a "sick" mortgage situation, the better your odds are of finding a cure.

Filed Under: Debt Restructuring, FHA, Financial Planning, Mortgage, Predatory Lending, Subprime Lending

Conforming Loan Limits will not be reduced through 2008

October 18, 2007 by Leave a Comment

There has been quite a bit of speculation that the conforming loan limit might be temporarily increased before the end of the year to try to provide some relief for the jumbo market (loans over $417,000 for single family dwellings).    OFHEO has announced that the conforming loan limit will not be reduced through 2008. 

In our region, you’re probably reading this say, "Duh! Of course the loan limit shouldn’t be reduced".  Nationally, homes are depreciating.  Our home values have been less volatile than other parts of the country.    Conforming loan limits are set based on a certain percentage of the national home prices. 

"The conforming loan limit is adjusted annually through a calculation of year over year changes to the existing level of home prices based on data from the Federal Housing Finance Board’s Monthly Interest Rate Survey (MIRS)". 

In late November, OFHEO will announce the 2008 conforming loan limits.  There is still a possibility that loan limits may be temporarily increased.   Congressman Barney Frank, Chairman of the House Financial Services Committee, would like the conforming loan limits to be temporarily lifted to $625,000. 

OFHEO is now seeking additional comment on the revised guidance within 30 days of its publication in the Federal Register.

I have a suggestion for OFHEO, why not allow loan limits to be factored on a county basis instead of national?  This system seems to work just fine for FHA loan limits. 

Filed Under: Mortgage
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