Comparing Good Faith Estimates

October 12, 2007 by 5 Comments

Earlier a Mortgage Porter reader contacted me regarding working with their Builder’s Loan Originator.   They faxed their Good Faith Estimate to me to help review their closing cost fees associated with the rate.   You can click on either estimate for a larger view.   Here is the Builder’s preferred lender’s estimate 30 Year at 6.25% (APR 6.4246%):  Scan0002

Here is my estimate 30 Year Fixed at 6.25% (APR 6.442%):

Scan0001_4

When comparing good faith estimates:

  1. Make sure you’re obtaining the same lock periods (in this case, both estimates are for 60 Day Locks) and that you’re getting your estimates at the same time on the same day (I used a rate sheet from October 10, 2007).
  2. Add up all the costs shown in Section 800 of the Good Faith Estimate.   The total cost for the Builder’s GFE is $5200 and my GFE total cost is $4332.60.   This is a difference of $867.40 (my estimate has lower costs).
  3. Ask each LO if they will guarantee the closing costs shown in Section 800.   If they don’t, ask why not and listen hard.   There’s no reason a LO cannot back up the closing costs they promote on a GFE once a borrower is approved and the loan is locked. 

NOTE:  The Builder Lender’s APR is lower than what I’m quoting, yet my APR is higher even though my costs are lower for the same rate.   This is once again evidence why you DO NOT SHOP YOUR MORTGAGE BY APR.

I’m assuming the buyer has signed a purchase and sale agreement with the Builder who is offering a $5,000 closing costs credit if the buyer works with their lender.    They’re charging a 0.25% Discount Fee (shown on Line 802 of both estimates) where I would not.   The buyer should ask the builder’s lender why they’re charging a discount for that rate for 60 days when other lenders are not.   

When you’re receiving a credit from a builder, you certainly want to make sure that you are receiving the full benefit and that it’s not being absorbed by the lender.

Filed Under: Mortgage, Residential Purchase

How Do Lenders Hide Fees?

October 11, 2007 by 2 Comments

I received this email from a reader last night:Magichat

I’m about to close on a home in Washington with a [major builder in a subdivision].  This is my first home and I enjoy reading your blogs.  I’m in the process of shopping for a lender.  I just wonder if you had any experience with [Builders Mortgage Company].  I’m being offered $5,000 toward closing fees [if I work with the builders lender].  I have been told to watch out for hidden fees that would wash away the $5,000 in the long run.  The good faith estimate is comparable with other lenders.  How can a lender hide fees?  How much time do I have left before I have to decide on a lender?

How can a lender hide fees?

For starters, the house could have the credit for the closing cost built into the sales price.   I have worked with agents who have negotiated the same credit working with me (not the builders preferred company).  Some builders won’t budge.
On a good faith estimate, a Loan Originator may claim that certain fees are estimates only.   You really should only shop a LO by the fees shown in section 800 of the Good Faith Estimate.   And as I’ve discussed in previous posts, rate shopping can be quite a fruitless task.      Ask a Mortgage Professional, perhaps one that you received an estimate from all ready, to review the good faith estimates that you have all ready received.   

I suggest asking your Loan Originator if they will guarantee your closing costs within $100 of Section 800 of your Good Faith Estimate.   This means that once you are approved and have locked in your interest rate, the LO should be able to provide you with closing costs plus or minus $100.   If they won’t guarantee this, I would find a LO who will.

Watch for prepayment penalties which are disclosed on your Federal Truth in Lending.   Loan Originators can make up for dollars lost there.   If the box marked on the TIL states their “may be” a prepayment penalty, ASK!  If you find out at closing you have a prepayment penalty and your Loan Originator did not disclose this upfront, don’t stand for it!   The Escrow Officer should not be the person informing  you of a prepayment penalty.   

Some Loan Originators will play with costs outside of section 800 on the GFE to make their fees seem lower.  Title and escrow we have no control over and it can vary quite a bit.  Some LOs will throw in very lower than actual title and escrow costs.  You can ask them who they’re using for rates or what their reference is.  The purchase and sale agreement dictates who title and escrow providers are and what the level of title insurance will be.

Other ways LOs may contort their closing costs is with reserves and prepaids.  Unless you have a closing day that is set or that you’ve provided a LO, Loan Originators should use 15 days.  If they’re using 0 days of prorated interest with no closing date provided, they may be trying to pretty up their Good Faith Estimate.   The amount of taxes that is required is based on when your first mortgage payment is due.
What you really need to watch when working with a builders lender who is offering $X in closing fees is the rate at the time you lock with the builder’s lender.

Contact three people you respect and trust (tax advisor, financial planner, friend, co-worker, etc.) and ask for referrals.   Ask them for their mortgage professionals and then call and ask for rate quotes based on locking with a closing date of [when you’re closing] and based on the total fees in section 800 of the GFE.   1% in your loan amount typically equals 0.25% to rate.  If your loan amount is $500,000, and your rate is 0.25% higher than the going rate, the LO may have made $5000 to compensate for the credit.

I would never recommend going blindly with any lender unless they were referred to you by someone you all ready know and trust.  Do you know the builder personally or have any reason to trust them?  If it’s the builder’s mortgage company, they have double incentive to do your loan and there are no free lunches.

Let your LO and the escrow company know that you will require a copy of the HUD-1 Settlement Statment at least one business day prior to your signing appointment.   Compare this to your Good Faith Estimate and contact the LO and if there are descrepencies.  Bring your Good Faith Estimate to your signing appointment.   

Inform the LO when your signing appointment is and ask them to be available (by telephone at the very least).   Call your Loan Originator from your signing appointment if you find errors they need to correct and be prepared to call their bluff if they don’t.  After signing, you have less power to make corrections, if needed.   Don’t be afraid to contact your real estate agent from the signing table if you’re experience other than what you have expected from your Loan Originator. 

Escrow is (supposed to be) a neutral third party. They cannot tell you that you’re receiving a bum deal and they don’t always know for certain if you did (they may have a hunch.   I can tell you from working the escrow side before being in mortgage, things look pretty different from the Loan Originators shoes…but you witness what seems to be people getting bum deals when you’re in escrow).

How Much Time Do I Have Before I Have to Decide On a Lender?

All Loan Originators desire 30 days for closing.   Some of us “magicians” will pull off two weeks or less.  I don’t recommend this—it’s stressful for all involved.    The quicker you can decide if you want to work with the builder’s lender, the better.   However, if you feel you need to make a change and that you’re getting a bum deal from your current lender you do have the right to switch during the process.  Effective later this month, buyers will need to notify the sellers and essentially ask permission to switch lenders per the revised NWMLS purchase and sale agreements.   Depending on how the market is, this will give builder-sellers the chance to bump buyers if the homes in their subdivision are selling for more than when the contract was written.   This is all the more reason to do your homework about who your Mortgage Professional will be before you enter into a purchase and sale agreement Ideally, you should select your LO well before you begin shopping for your next home.

Hopefully you have found the right Loan Originator (what I like to refer to as a Mortgage Professional) from the get-go and this is all moot.   Please don’t blindly go with any Loan Originator that has been referred to you by someone who has an interest in your transaction closing.   If you have any doubts about your Loan Originator, get a second opinion NOW (yes, I’m shouting at ya…forgive me and thank me later).

Filed Under: Mortgage, Residential Purchase

Buyer must ask Seller if they can change loans with the new Financing Addendum

October 5, 2007 by Leave a Comment

Later this month, the Northwest MLS will be releasing a newly revised purchase and sale agreement.   Of particular interest to me, as a lender, is the following on the Financing Addendum (Form 22A, page 1, paragraph 1):

"Buyer may not change the type of loan or the lender without the Seller’s prior written consent after the agreed upon time to apply for financing expires."

This is important for sellers because they would naturally assume from a preapproval letter that financing is proceeding.  However, if the buyer decides to switch lenders for whatever reason, the seller is unaware that the buyer is not moving forward based on the preapproval letter that was originally presented with the mutually accepted purchase and sale agreement.

In order to avoid giving the seller a reason to balk at a transaction in progress, it looks to me like the buyer had better be preapproved and have their financing figured out prior to writing up a purchase and sale agreement.  They should avoid program changes…and also…switching lenders mid-stream.

Filed Under: Mortgage, Residential Purchase

I should save this post about WaMu for a Friday Funny

October 1, 2007 by 7 Comments

This is such a joke I can’t stand it.   Washington Mutual is saying that lenders who broker to them, must adhere to tougher standards.    According to this article, from CNN:

"brokers who do business with the company must show evidence that they explained to borrowers key terms of the loans they are recommending – such as the amount, whether the interest rate or the payments may change, and if the loan has a fee for prepayments."

This should happen automatically with all loans.  I’m all for it.  The current forms that are used, such as Good Faith Estimates and Truth in Lendings could definitely stand for some improvement. This is not the funny part…the following is:

"In addition, brokers should also disclose the amount of their compensation, Washington Mutual said, adding that it would try to call every borrower represented by a broker before closing to review the loan terms."

A bank, who does not disclose what they’re compensation is "on the back end" is insisting that mortgage brokers do…guess what, mortgage brokers all ready do disclose their YSP or SRP.   Banks, like Washington Mutual do not!  In addition, Washington Mutual is stating that they will try to call every borrower to review the loan terms.   Yah, sure.  I want a Washington Mutual representative to contact my clients.   I doubt it would be to make sure they understand the terms.   I’ll bet it’s to see if they can undercut the loan originator who was sending Washington Mutual the loan in the first place.

Washington Mutual is one of the grand-daddys of the mortgage time-bomb: the option ARM. They’ve been schlepping this product to their clients for years.  And suddenly now they are going to try to improve standards of mortgage brokers when it’s banks like theirs that have created these programs and have been pushing them to Mortgage Brokers to pawn our clients for them?   

From Business Week’s Nightmare Mortgages: 

"There’s no way to camouflage what Harold, a former computer technician who asked BusinessWeek not to publish his last name, is about to face. He’s disabled and has one source of income: the $1,600 per month he receives in Social Security disability payments. In September, 2005, Harold refinanced out of a fixed-rate mortgage and into an option ARM for his $150,000 home in Chicago. The minimum monthly payment for the first year is $899, which he can afford. The interest-only payment is $1,329, which he can’t. The fully amortized payment is $1,454, which his lender, Washington Mutual (WM ), gets to count on its books. WaMu, no fly-by-night operation, said it couldn’t comment on Harold’s case, citing confidentiality issues."

Gee, wonder who’s going to counsel borrowers of loans originated by Washington Mutual?

In my seven years of working as a Mortgage Professional, I believe I’ve managed to send Washington Mutual two transactions.  Both were at the customers request.  The last one was years ago.   I don’t need WaMu and I don’t embrace their new standards.

I just may have to pull my few bucks from my checking account with WaMu (the last time I called my friend of the family to reorder my checks, I was routed to a call-center in the Philippines) and try to find some Ma and Pa Bank to keep my spare change in.

I’m not laughing anymore.

Filed Under: Mortgage

In Response to Cogger from “I Passed”

September 27, 2007 by 6 Comments

I received a fairly lengthy comment from someone (aka Cogger) who did not leave their real name or company…he/she appears to be from a bank but I can only assume.   Here are some points from the comment that I would like to address:

"That’s great you passed your mandatory test."

Yes, it is a mandatory test.  I’m glad we have it in place so that it will raise the current bar of entry to be a loan originator for a Mortgage Broker in Washington.  This is a welcomed improvement to our industry.   Is there a mandatory test to prove competence to be a mortgage banker in Washington?

"What continuing mortgage education did you take prior to this requirement."

I earned my CMPS designation last year.   Prior to that, I began working on earning my CFP (that’s on the back burner).   I belong to Mortgage Market Guide, Loan Tool Box, Strategic Equity and WAMB.  I am a self motivated student of mortgage.  I continue to attend as many seminars and to self study as much as possible in addition to training that I have received at my company where I have been employed for over seven years.   Prior to being in mortgage, I was in the title and escrow industry for 14 years where I managed a escrow branch…I learned plenty about the mortgage industy sitting across from signing tables from consumers.

"If you have ever had the luxury of working for a bank you would know that compliance, ethics, security, etc… modules are required annually by the bank employees. We don’t wear these requirements as badges, rather we separate ourselves from the rest by demonstrating our knowledge. In addition, most of these employees continue to expand their knowledge with such certifications as CMPS. This is done for the sake of education rather than requirement. Of course, there are always employees that engage in education more so than others, but to try to distinguish yourself from the rest of the pack without truly knowing the facts tells me what you really know about the banking industry. I get your point….but really, can you actually believe that there are not well qualified employees with these institutions?"

I have only worked for one mortgage company which is a correspondent lender.  We are a HUD approved lender.  We can provide FHA and VA mortgage loans in addition to all the other programs of lenders we have a correspondent relationship with. Do we have compliance regulations? You better believe it.

I have never worked for a bank.  This is why I’ve asked in this post and others for mortgage bankers to respond with what their specific requirements are so I can compare them to those of a mortgage broker LO.    I have yet to have someone reply with detailed information.    I am proud and will wear being licensed as a badge.  Many LOs will not pass the exam, I studied and apply myself to my industry.   I’m committed to my clients.   There’s nothing wrong with taking pride in what I do for a living.   You are correct, I don’t know a lot about the banking industry and I (again) welcome  a response on what mortgage bankers have to do to comply with state and federal regulations to be loan originators.  There is nothing stopping a LO who works for a bank mortgage company from taking the same exam and the same continuing education courses that a LO who works for a mortgage broker is required to. 

There are "bad actors" at the mortgage banks too.   You can’t really believe that just because someone works for a bank that they are above bad mortgage practices?  Just last week I received an email from a borrower who just closed a loan from a major bank-mortgage lender.    They had escrow change the final HUD-1 after closing increasing the closing costs by $2600 without telling the client.  They only found out when their proceeds was shorted.   I may be telling their story in a future post…I’m waiting for the clients permission.

"You have not addressed the Banker/Broker scenario. So what’s your take on a Banker/Broker? You must realize that working with just a broker has far more limitations for the client vs. working for a Banker/Broker."

I’m assuming this is referring to a Correspondent Lender?  I’m really not sure.  Cogger, if you’re reading this post, please let me know and I’ll respond.   I am a Correspondent Lender which, in my book, is the best of both worlds.   We work from our own credit line and broker loans.   It is similar to being a banker and a broker.  What if you work for a bank who’s products are pulling away and you cannot broker to another lender?    A broker or correspondent lender has the ability to quickly move to another lender if needed.

"We all know that there are bad LO’s just as there are bad attorneys, cops, doctors, CPA’s, etc…Reading through your website I see a lot of attacks towards the bad one’s in the industry….However, in my opinion to continue to harp on the bad to prove a point that you work differently is a balancing act that is razor sharp. To continue to point out the flaws in the industry you feed into the stereotype of mortgage brokers. Try illustrating your skills without the examples of what others have done wrong. People can figure that out for themselves that you are good at what you do without perpetuating our industries stereotypes." 

I believe this is referring to my posts on the subprime lender.   This was not about saying "I’m better than him".    This LO contacted me looking for help on how to become a better LO and how to develop a relationship based business.   I’m flattered he would contact me and I was sickened by his story.  Not by him.   Someone younger (I don’t know his age) and impressionable could easily fall into his trap with his employer and "drink the kool aid".   The purpose of those post were two fold:

  1. To tell a different side of the subprime/predatory lender story.   This LO was fed a bunch of bull and he believed it.  Now he’s dealing with guilt and trying to clean up his life.
  2. To warn consumers that there are LOs out there who are great at selling but do not know what they’re doing to you financially and may not care.

Posting his story had nothing to do about elevating my status as a mortgage professional.   

It’s just recently that I’ve covered "the bad ones" in this industry.  The other post I did about LOs who irk me is about two of my past clients who have been damaged by other LOs.   I will not apologize for exposing what others have done and I only hope it will help other consumers.   I have been receiving a deluge of emails from consumers who are in trouble from the loans they received from their mortgage broker OR their mortgage banker.   I have not posted all of them.   They have stories they want to tell.    

"A more cohesive industry is a healthier one for all of us."

Amen.  How about we all abide by the same laws and guidelines?   It would not only benefit the mortgage industry as a whole (bankers and brokers) but most importantly, it would benefit consumers as well.   Isn’t that what it’s all about?  Where do consumers go if they have a legitimate complaint about their LO?  They have to determine if they’re a mortgage broker, banker and then who regulates them…it’s a mess.   

I agree with you.  A cohesive mortgage industry would benefit all.  We don’t have that right now.

Filed Under: Mortgage

I’m happy to adopt your ARM…no refi required!

September 24, 2007 by Leave a Comment

One of the Realtors I work with sent a Seller to me since they were having second thoughts about the lender they were working with for the property they were buying in Arizona.  I reviewed their estimate and discovered their proposed loan had a prepayment penalty that they were not aware of.   Long story short, they decided not to buy (not just because of the lender…I believe their house did not sell in time and they were "bumped").    I’ve told their story in a previous post.

They recently contacted me wanting to know if they should refinance.   They have 5 years left on their 7 year ARM which is currently at 5.5%.     Since their mortgage is not set to adjust until the summer of 2012 and they still hope to move from their current residence, I recommended that they do not refinance at this time.   Even though I’m not her original loan originator, she asked me if I would mind watching her rate and keeping tabs on her ARM.    Managing mortgages is part of my standard business practice for my clients.   I added her information to my database and told her I will gladly add her to the mortgages that I care for…even though I did not originate her current mortgage.

It got me thinking… if you or someone you know have an adjustable rate (or actually mortgage) and you don’t have a Mortgage Professional who is helping you manage that debt (watching current mortgage interest rates and trends, keeping tabs on when your mortgage payment may adjust), and you’re in the beautiful Washington state, I’m glad to include include your existing mortgage to my database.   No refinance required.    If you’re satisfied with your Loan Originator, then ask them to manage your mortgage for you.   I’m sure they’ll be happy to do so (again, no refinance is required).

Now if I could only figure out a way to be paid for all the times I’ve talked people OUT of refinancing!   Seriously, if you have an adjustable rate mortgage, please contact a Mortgage Professional to review the terms. 

Filed Under: Adjustable Rate Mortgage (ARM), Financial Planning, Mortgage, Refinance

Foreclosures slightly up in King County

September 19, 2007 by Leave a Comment

Foreclosure0919fix_2While we continue to fair better than the rest of the country, with many ARMs (adjustable rate mortgages) getting ready to re-set out of their introductory rates, this trend may continue.   

This is why it’s critical that all home owners with adjustable rate or balloon mortgages contact their Mortgage Professional as soon as two years before their mortgage rate is set to adjust.   This (ARMs adjusting) is not limited to those with subprime mortgages.   

The more time you allow yourself to get your credit in check and possibly avoid having home values depreciate, the better off you’ll be should you need to refinance.   Sadly, I’ve been contacted by a couple of home owners in other parts of the country who are not only facing higher payments from their adjusted ARM payments, mortgage balances that exceed their home values and plumeting credit scores.   FHA Secure won’t help them since they’re beyond the 97% loan to value.   It’s too late.

Please don’t put off contacting a Mortgage Professional.   Take action before you’re in trouble.   

Here’s a great article by Sandy Kaduce: Avoid Losing Your Home.

Filed Under: Adjustable Rate Mortgage (ARM), Mortgage, Subprime Lending

Family Opportunity Mortgage…now at Mortgage Master Service Corporation

September 12, 2007 by 12 Comments

The Family Opportunity Mortgage helps families who are buying or refinancing homes for college students, elderly parents and disabled adult children.   Without this program, these transactions would often have to be considered as “investment properties” with higher interest rates and closing costs.   Now, it can essentially be treated as a primary residence.

[Read more…]

Filed Under: Family Opportunity Mortgage, Investment Property, Mortgage Tagged With: , ,
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