When are you obligated to a Loan Originator?

April 19, 2007 by 4 Comments

Commitment…ah hah!  I bet I just lost have of my readers out of fear from that oneMpj038482500001  word!  We’ve had a series of post recently at Rain City Guide that has developed some very interesting comments and dialog.    Here’s are excerpts from a recent post of Ardell’s:

Me:  “…if a buyer comes to you with a lender and has gone through the preapproval process, you might steer them to another one?”

Ardell:  “Absolutely YES….Are you suggesting that the “pre-approval” comes with some kind of “obligation” to use that lender? “   

A response from a real estate agent like this should not surprise me…but it did.  This probably served as a much needed personal wake up call.   I know when consumers are shopping me…and I have worked with a few real estate agents who have counseled their buyers to shop.   They call me with the same script almost word for word, “All I want is a Good Faith Estimate…”   I believe this agent (it’s not Ardell) is using my GFE to keep her preferred lender “honest” with his rates and costs.   

As I’ve mentioned many times in this blog…odds are you cannot successfully shop interest rates–they are a moving target and change throughout the day.   Any Joe Schmo L.O. can quote an enticing rate to get you drooling and then…when it’s time to lock (assuming he’s really locked in the rate and not gambling it) you may have your real rate.   At closing, with Joe Schmo L.O. you’ll discover your real closing costs.   (Always bring your GFE to your signing appointment).

The big issue I had with the post was the practice of going through the steps of getting preapproved with a Mortgage Professional just to drop them at the curb when you have a bona fide transaction.    Ardell brought up an excellent question though, when are you committed to a Mortgage Professional?

When somebody contacts me for the first time.   I’ll ask them a few questions, including what are their expectations of me at this point in time.   Some just want rates, have questions or would like to have an idea of what they qualify for.   This takes anywhere from five minutes to a half hour.   I certainly hope that I’m beginning to develop a relationship and to show the client that I’m worthy of their business…but if they move on and elect to work elsewhere, that’s fine.   There is no commitment at this stage.   You’re just dating and getting to know each better.

Once you decide to move forward with a preapproval, if you are working with a Mpj042298200001 Mortgage Professional who has been referred to you, they are responsive to you, have earned your trust and you seem to have a decent relationship…I think you should “commit” to them.   With the preapproval phase, you’re providing a Mortgage Professional with all of your income documentation for the past two years, savings and assets and allowing them to delve into your credit history.   The preapproval process may take hours or it may take days (depending on the situation).    This is a lot of work for Mortgage Professionals…and yes, this is what we do for a living.   Keep in mind, as much as a Mortgage Professional would love you to feel like you are their only client, we are often juggling quite a few transactions along with various potential buyers who are just interested in quotes or are in the “dating phase” as I mentioned above.   

Once you are preapproved, the Mortgage Professional issues a preapproval letter in the buyers name stating they have gone through all of these steps and are committed to providing the buyer financing.  We know this is not the perfect and that commitments from unsavory lenders or individuals are worthless…however if you have a solid Mortgage Professional, you as the client should honor that commitment as well.    In addition to the time spent with the preapproval process, there are often countless emails, phone conversations, letters…you may have several weeks invested into each other.    You are “going steady”.   Please don’t date other LO’s behind your mortgage professionals back…at this stage.  If there’s something you’re not happy with, communicate with them or move on before spending more of their time and resources.

 

 

Mpj042847600001 Once you find your home and have an accepted offer (signed around purchase and sale agreement)…I hate to say the “m” word…if you’re still reading this…but you’re almost married!   After a lot of hand holding, late night chats and frequent emails together, your transaction is coming to fruition.   By now, you should really know your Mortgage Professional.   If you doubt your rate when you’re locking in, you can always ask them.   Tell them you noticed xyz rate at the bank this morning…what ever…kind of a “is that a blond hair on your collar” check. 

My point is…in this post that is all ready too long (my apologies), when  you have a signed around purchase and sale agreement on your home is NOT the time to begin shopping for lenders.   Especially if you all ready have, as Brian Brady put it, used someone else to do all of “the grunt work” to get you preapproved.   Now is when the Mortgage Professional who has worked with you to get your loan approved really has a chance to do their job and see your transaction through to closing.   

And, ideally, I hope to maintain my relationship with my clients long after closing.  I hope they will continue to rely on my expertise when they have mortgage needs in the future, whether that just be a simple question or if they need to refinance or buy their next home.   

This is a relationship business and it’s a two way street.  If you expect to have your Mortgage Professional to be devoted and available at your beckon call, shouldn’t they be able to have a little faith in the borrower?   

Filed Under: Mortgage, Real Estate, Residential Purchase

How Did You Find Mortgage Porter?

April 15, 2007 by 3 Comments

One of the features of having a Typepad blog is that I can see what the input was for Google and various other search engines.   

Here’s a recent sample from today (in chronological order):

I like to read how viewers have discovered Mortgage Porter.   The search phrases are helpful as it shows me what is currently on people’s mind.  And provides me with ideas for future posts. 

There is a definite ethics theme with both lenders and consumers and there are general searches about mortgages.   I’ve added the links to the pages the visitors were referred to (there are a couple links I had to make an educated guess on).

I wish Typepad had a way to show what the most viewed pages are in Mortgage Porter’s history…I’ll have to send them an email!   Meanwhile…I’m just scanning the information as much as possible to get a glimpse of how people are finding this site.

Filed Under: Mortgage, Weblogs

How Do You Find an Ethical Lender?

April 4, 2007 by 4 Comments

On Rain City Guide, there are often debates that will arise about measuring one’s ethics (usually referring to real estate agents or loan originators).   So how do you determine whether or not someone is indeed ethical?    You can have a Code of Ethics plastered all over your web site and at your office…but it really doesn’t mean squat unless you do what you say.   

Cmpssmall As a Certified Mortgage Planning Specialist, I am to adhere to their Code of Ethics or I will lose my CMPS designation.  This includes 11 Statements of Commitment and 8 Duties to the Client Codes of Conduct.  There are 10 other Codes of Conduct that apply toward fellow CMPS members and the CMPS Institute.   It’s pretty elaborate.

The Washington Association of Mortgage Brokers (WAMB), which I am a member of, also has a Code of Ethics.   WAMBs Code of Ethics are more "short and sweet" than those of CMPS.Campfire

The company I am employed by, Mortgage Master Service Corporation, has their philosophy and goals on our website.    And I was a Campfire Girl while in elementary school.  (Our troop was the Blue Bird Blue Stars).

Jillayne Schlicke recently did a post on Vacation Mortgage about a local mortgage company who has "ethics in their name" and touts ethics on their web page.  However, if you contact them about their "vacation mortgage" which is heavily advertised on the radio, instead of providing information about the mortgage and answering general program questions (I emailed on several occasions inquiring about their vacation mortgage), they want to run your credit and obtain all of your information information to make sure you’re considering the proper mortgage.   Hmmm…dangling a vacation from your mortgage payment, then refusing to explain the program so they can offer you a different program…sounds like bait and switch to me.   Hardly ethical in spite of all their efforts to promote being an ethical company. 

This is why I will always return to relying on referrals from three different sources of individuals whom you respect to select your Mortgage Professional.   Such as a friend, co-worker, neighbor, Certified Financial Planner, CPA or Real Estate Agent.  Preferably, one who has recently gone through a purchase or refinance transaction themselves. Lego_gsr_2 Your referrals have all ready been tested by those you trust.

Unfortunately, you’re not able to submit a Loan Originator to a polygraph test to determine if they’re straight shooters with your best intentions at heart.  And, you cannot follow them around 24-7 (legally) to see what types of decisions they make throughout the course of a day.   And although the new legislation to have loan originators who work for mortgage brokers licensed (banks such as Washington Mutual, Countrywide and Wells Fargo; and credit unions are excluded from this law) is a start, it’s still no guarantee of the the person’s moral fortitude.   At least unsavory LOs who work for brokers will have a license to lose (or, at least they will not be originating loans at a mortgage brokerage). 

One of my favorite examples of a "Code of Ethics" is from Les Schwab Tire Company.   They promote that they treat clients just like they would their own mother.  I browsed through their web site and could not find a posted Code of Ethics…but I guess this is, perhaps my point.   They do what they say, it’s not all talk or print.   Simple.   Funny, I think some of the best things are!

Filed Under: Financial Planning, Legislation, Mortgage, Predatory Lending

Getting on Track to Buy Your First Home

April 2, 2007 by 2 Comments

Last fall, a Mom made an appointment with me to meet with her childreImg_3528n about buying a home.  It was so cool.   First off, she was very proud of her 18 and 20 year olds.   Both were hard working individuals…being responsible young adults.  Mom thought they should look at buying a house together instead of renting.   It was a very interesting consultatation.   I was happy to meet with this family to help make sure her young adults are on the right track of becoming home owners and mortgage payers.

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Filed Under: Financial Planning, First Time Home Buyer, Mortgage, Residential Purchase Tagged With: , ,

Why I Don’t Like Stated Income Loans

March 31, 2007 by 11 Comments

Let me start by saying, I prefer a “No Income” over a “Stated Income” loan.  If you Riskybusiness_2 have to “state” an income, you’re potentially setting yourself up for committing fraud.  A “no income” verified loan (where your income is blank on the loan application) does come with a slightly higher rate than a stated income loan, however, there are no questions about what is questionable…your income!

Recently, a home buyer contacted me for a second opinion on their good faith estimate.  They had just made an offer that was accepted on a home.  After reviewing his information, he revealed that the loan was stated income.   I did not have all of their documentation needed for self employed borrowers (2 years complete tax returns, for starters) since I was just looking at closing costs and the rate.   So I asked why they were going stated income.   Here is his actual response:

“Let’s just say it’s income we’re hoping to achieve, but higher than what is on our tax return.”

Does that sound a wee bit concerning to you?   For one, they are stating income they don’t make in order to qualify for a mortgage.  When  you’re self employed your income can vary quite easily.   What happens if they don’t make the income they “hope to achieve” and they cannot swing their new mortgage payment?   

I asked if his Loan Originator was going to have him sign a 4506 or 4506T.  These forms are sent to the IRS so the lender (and what ever company your loan is sold to) can verify the income you are stating on the loan application by accessing your tax transcripts directly from the IRS.

“I did ask [our LO] about that, and she said it’s basically a formality – that they don’t actually pull the tax return…it’s just put [the 4506 form] in the file.”

Often times, the 4506 may stay “in the file”.  However, if the borrower defaults on the loan, you can bet the first thing the lender will do is to grab the 4506 to compare what was stated on the loan application to the actual income reported to the IRS.   

 

“Since I certainly don’t plan on defaulting, I’m going trust [the LO] and the bank on this one. She’s got an interest in this as well!”

The LO certainly does have an interest in the loan.   She’s going to get paid and keep her real estate agent happy.   Stated income and no-income verifiers are very easy loans to do as compared to doing a full document loan for a self employed borrower where you have to review and average incomes for the past two years.   Yikes…the LO might actually have to pull out their calculator and do some hard math and go through someone’s tax returns.  Oh dear!

Let’s assume worse case scenario for this borrower who is all ready admittedly overstating income at what he hopes to achieve…what he suffers a loss with his business and and is not able to keep up with his mortgage?  As a self employed person,  your income and costs are not secure or stable.   This could quite easily happen to the best of people.  Now you’re in a mortgage that you could not afford to begin with because you had to over state lie about your income.   Should your mortgage go into default, will the LO who put you into this loan stand by you?  I doubt it.  Plus, she’ll probably state something like “I had no idea they didn’t make that income.”   She won’t go down holding the borrower’s hand in this case, far from it.

If you are considering a mortgage where you “state” your income on the loan application, you should know:

  • Stated income loans are not created to exaggerate your income so you can qualify for a mortgage.   
  • Your stated income should compare to what you have reported on your gross income tax returns.
  • Consider a “No Income Verified” loan vs. a “Stated Income”.  The difference to rate, with good credit, is often not that significant.   With no income stated, there are no figures to lie about.   You’re qualifying on credit and down payment alone.   
  • Don’t lose sight on whether or not you can actually afford the mortgage payment.    Qualifying for a mortgage does not mean that you should have the mortgage if you cannot make the payments.

Lying about your income, or anything on the loan application, is mortgage fraud.  There are many other types of documentation available so that borrowers do not need to go this route (unless it makes sense–ie they actually have the income).

Still thinking about stated income?  Watch this video from CBS.   

Filed Under: Financial Planning, Mortgage, Predatory Lending, Refinance, Residential Purchase, Subprime Lending Tagged With: ,

I’m an April Fool

March 30, 2007 by 5 Comments

Vows11This April Fools is my first anniversary with my husband, Rob.   We were married in St. Helena, California at Harvest Inn near Napa.   We were suppose to have an outdoor ceremony next to vineyards. However, due to rain (I guess it followed us) we were married indoors underneath an "exit" sign.   I was thankful Rob didn’t look up and read the sign.   He could have bolted for the door!

April Fools also marks my first day in the mortgage business.  I "retired" from fourteen years in title and escrow industry and began my mortgage career at Mortgage Master seven years ago.   I must admit, I was hesitant to become a Mortgage Planner.   In the title and escrow business, you typically spend an hour with the consumer towards the end of transaction when they’re signing.   Often times, the buyer or seller may be feeling pressure even under the most ideal transactions. Buying or selling a home is not something most people do everyday and there is a lot of money at stake. 

I also did not have the have the highest opinion of loan originators.   A majority of the borrowers that I would sign did not understand their loan program and would expect escrow to explain it (this needs to be done by the Loan Originator well before your signing loan documents).   

I have learned so much in these past seven years.   It’s incredible.   And of course, the industry continues to evolve and new programs and products emerge.   My father in law, Bob, is Chairman of Mortgage Master and retired in his young 70’s just a few years ago!   This is a wonderful career.  I’ve had the opportunity to help hundreds of families with buying homes, restructuring their mortgages and debts or financing their goals.   If I have my way, I’ll have my mortgage practice as long as Bob did (he still receives phone calls from clients).

I guess I take some pretty crazy leaps on the first day of April!   Maybe this year, I’ll try bungee jumping or sky diving?

Filed Under: Current Affairs, Escrow and closing, Just for Fun, Mortgage

The Low Down on Fannie Mae Flex

March 28, 2007 by 2 Comments

Mpj040558600001

Update: This is a classic example of the trouble with writing about mortgage programs…some are no longer available. When researching about mortgages on the internet, please be sure to check the date of the article.

With many of the zero down options tightening up, it's time to return to the mortgage programs that were popular a few years ago before the 80/20s were all the craze.   One such program worth considering is the Fannie Mae Flex (97 and 100).   This is truly a low down program offering either a minimum $500 borrower contribution or 3% flexible contribution.   

The Fannie Mae Flex allows for flexible sources of funds for closing costs and prepaids:

  • Borrowers own funds (including loans against a 401(k) account or cash-valued life insurance policy.
  • Gift or unsecured loan from a relative.
  • Grant from non-profit or employer.
  • Interested party contributions (to be applied to closing costs and prepaids) such as a Builder or Real Estate Agent.

The Flex program utilizes automated underwriting so minimum credit scores, reserves and qualifying ratios are determined by Desktop Underwriter. 

There are no income limitations, such as with My Community programs.   The program is limited to conforming loan limits (currently $417,000 for a single family dwelling).   

There is private mortgage insurance with this program.   However, with a credit score of 620 or higher, a borrower may qualify for LPMI (Lender Paid Mortgage Insurance).   The rate with LPMI may or may not pencil out, depending on the credit score and loan to value.   Also, private mortgage insurance is tax deductible this year if you meet income limitations.

Sorry folks, this program will not work for manufactured homes.

Currently, I'm helping a couple buy their first home with this program.   They are utilizing a gift from their parents for the down payment and the real estate company they are working with rebates part of the commission which will cover their closing costs (including a 1% discount towards their interest rate).   The couple will not have to dip too deep into their savings or 401(k).   The current interest rate for the 30 year fixed rate is in the low 6%s with a loan to value of 97%.   They will pretty much be getting into their first  home with the earnest money investment of approx. $2,500 (special thanks to Mom and Dad).

Here's a quick re-cap of the Fannie Mae Flex program:

  • Low down payment
  • Higher debt to income ratios allowed
  • Forgiving of credit scores

Remember, always check with your Mortgage Planner to see which strategy for your home financing best suites your personal needs.

Filed Under: Adjustable Rate Mortgage (ARM), Mortgage, Refinance, Residential Purchase

Would You Like Your Mortgage Blended, Shaken or Stirred?

March 27, 2007 by 4 Comments

Mpj028975400001Many home owners have two mortgages on their properties.  A first mortgage and a second mortgage that may either be fixed or a home equity line of credit.    Do you know what your effective rate is?   Basically, this is if you factor in what your paying on both mortgages, and then figured out what your interest rate is on your payment.

Here’s how to determine what your “blended rate” is:

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Filed Under: Interest Rates, Mortgage, Refinance Tagged With: , , ,
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