Helping Washington State homeowners learn more about their mortgage options.
Many 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:
Next to snakes, spiders, deep water and falling down stairs (okay…I have a few phobias!)…and actually this is no laughing matter. There is so much hype in the media right now about the subprime industry and home owners in trouble with 80/20 loans and interest only ARMs, etc. Many people are contacting me to confirm they’re okay or to see if the need to refinance. So far, none of them need to refi (but I’m glad they’re checking with me). Either they’re planning on selling or their ARMs won’t be adjusting for a couple more years and they’re actually quite happy with payments once they step away from the fear factor. These home owners with ARMs and/or 80/20 financing are prime targets for unsavory loan originators to scare them into a refinance (there are even ads on TV soliciting home owners to do so) when they don’t need to. Costing them at least a couple thousand dollars in their equity and rewarding some loser with a commission they shouldn’t have.
How do they do this? For starters, the local title companies can provide list of home owners if they have financing through certain lenders (like New Century, for example), or if they financed within a certain time period with an ARM. The lender may call you (ignoring if you’re on the DNC) or send you a letter stressing their "sincere concern" over your current mortgage scenario. Please don’t buy into it.
Bottom line, don’t panic. The worst decisions are made when someone is being emotional and scared. Lenders who are predatory prey on the emotions of scared people. This type of loan originator is ultra smooth…could probably out-sell me (and I’m sure has) on my best day. (I do not view my career as "sales"). Take a deep breath and do some homework. Make the hoopla over subprime loans into a personal opportunity to review your credit and get your finances in order. It will save you in the long run.
With all this said, some people are in trouble…they are not the majority and regardless, it is unfortunate. If you are in financial troubles or if you feel you may be near it, please do contact your Mortgage Professional (or get a referral) right away.
My husband teases at me when I talk about the Bubble Bloggers…not because they’re funny (they can be), it’s simply the phonetics. Our local bubble bloggers are a very serious and determined group of individuals. In a nut shell, they believe that Seattle’s home values will plummet or burst like a popped bubble and when this happens, it will reek havoc for current home owners. Many of them feel it is much better to rent than to own a home for financial purposes. The Seattle Bubble is probably the most well known local blogs on this topic.
Recently, an article I posted on Rain City Guide, The Great Rent vs. Own Debate, was featured (or should I say, "flogged") on the Seattle Bubble and Priced Out Forever (these blogs share writers). Eleua, one of the "bubble bloggers" asked me if they could do this and I must tell you, I was a bit nervous about how this would all shake down. For starters, where ever there are numbers and stats, there is opportunity for debate. Numbers can be twisted and recalculated to prove anyone’s theory. I must say they were very fair and kind in their "flogging" of my post.
Here are some points they make on why it’s better to rent than to own a home (I’m not going to debate these points in this post):
I wrote The Great Rent vs. Own Debate over an exchange of comments on one of Rain City Guide’s post where I stated something along the lines of "owning a home is an automatic savings plan for some borrowers". I still believe this to be true based on what I’ve seen in my past seven years as a Mortgage Consultant.
Many people are not putting away money into savings accounts, retirement, planning for college…you name it. When you make a mortgage payment (assuming it’s not interest only), you are applying a small portion of that mortgage payment towards reducing the principle balance. For Americans who do not put 10% of their gross income (or anything) into an investment vehicle (no…not a new car!), this is their only source of savings. They are at least putting some money away where they do not have immediate access to it (unless they treat their home equity like an ATM).
I will be the first to admit that a big reason why I have bought homes is emotional. I have "a need" to own a home. I grew up renting and moving around quite a bit as a kid. I feel grounded and I have control over the home…it’s mine! With that said, owning a home has proven to be the best investment for me. I would not have realized the appreciation and profits from renting that I have as a home owner over the past 18 years.
Home ownership is not for everyone. Especially people who are careless with their credit and spending. You need to be responsible, plan for repairs and improvements and make your mortgage payments on time. Buy a home because you want to live in it and you want to be your own "home sweet home".
If you’re considering buying a home anytime in the near future, please think twice before purchasing your next car. I’ve had a couple different scenarios lately where the car payment has really impacted the home buyers. Don’t get me wrong, I love cars. Old and new alike. Here’s how it impacts your home purchasing power (based on a 6% mortgage interest rate amortized for 30 years):
Every so often I'll receive an email from someone who asks me about becoming a Loan Officer. Last night, just after hearing the news about Greenpoint, I had a lady contact me wanting to take the plunge into lending. "What? Now? Have you been watching the news? It's tough out there, Missy!" Okay…okay…I didn't say that to her…but I was thinking it! After getting over the shock of someone innocent and new wanting to enter into this field, I read her questions which I thought were pretty interesting (by the way, she's very persistent). I thought I would share some of them with you:
What exactly does a Loan Officer do? In a nutshell…meet with either people who are considering buying a home or refinancing their existing mortgage. A professional will explain the mortgage process, answer any questions and help the client understand what all their options are. (This could be a post on it's own!). May days are often spent completing loan applications (interviewing borrowers), learning and searching for specific loan programs and educating Real Estate Agents and borrowers on different products and guidelines as well as talking to various wholesale reps to learn about their products and reviewing files with my processor and underwriter. Every blue moon, I'm able to sneak out and make a "sales call" on a real estate office, it's rare these days.
What sort of skills do I need? If you enjoy helping people, are patient and aren't afraid of crunching numbers…you have some basic skills. You should also be computer savvy and able to constantly learn. You cannot be afraid of tons of paperwork, paper cuts and have an attention for details.
Are there any classes I can take? Check out local community colleges for classes they may offer. Contact the local lending associations, for Seattle some would be the Washington Association of Mortgage Brokers, or the Seattle Mortgage Bankers Association. Jillayne Schlicke is CEO of an excellent school called CE Forward. Many of her courses are approved with DFI and feature approved clock hours. There are also advanced programs to receive designations such as Certified Mortgage Planning Specialist.
Mortgage Originator Magazine may also be a good read for someone considering entering this business.
What is the income for someone entering the business? It can range from $0 to "the sky is the limit". In fact, you could even lose money being a Loan Officer. According to the U.S. Bureau of Labor and Statistics, the average LO made $59,350 in 2005. Something to keep in mind is that there are hundreds of thousands of LOs factored into that average. And it can cost quite a few bucks just to be a LO with marketing, leads, etc. I would recommend having a back up source of income and 6 months of living expenses in the bank before starting any career that may be 100% commission.
Jillayne Schlicke, Co-Executive Director of Ethical Lending, also suggest "if someone wants the easy route and wants a base salary and on the job training included, then they should try to hook up with a bank or credit union. If the person does not have a sales mind, then they are better off starting out as a processor because the training is INVALUABLE. The competition for these jobs would probably be higher unless the candidate is bilingual. They won't have to pass the LO test if they start out here."
Jillayne's suggestion of starting at a bank or credit union is great because these institutions may also provide leads to a new loan officer. A bank or credit union may also provide you with more strict working hours, unlike a broker where you could be "on call" depending on how you structure your business. Last, banks and credit unions will not have as many programs to learn as a Mortgage Broker where you're learning many different lenders and all of those lender's programs and guidelines.
Bottom line: I would never recommend that someone get into the mortgage business with dreams of striking it rich. You may be setting yourself up for disappointment and money should not be what motivates you when you're helping someone with the largest investment of their lifetimes…their homes.
EDITORS NOTE 2/4/2009: I have updated Jillayne's contact information on this post thanks to another person who is interested in becoming a mortgage originator.
For the first time ever in my career, I had to contact a client to tell them that the Good Faith Estimate that I had provided him earlier today is no longer valid. This is a person who was getting ready to buy a condo utilizing an 80/20 and stated income. His mid credit score is above 750.
I received an email just after 7:00 p.m. tonight from Greenpoint Mortgage (more of an “alt-a” than a subprime lender) stating that all 80/20 mortgages must be funded by the end of this month. Regardless of how high the credit score is or even if the loan is “full doc”, Greenpoint, along with many lenders, is pulling in the reigns tight.
Just another warning to double check your preapprovals if you’re planning on buying zero down, stated income, interest only…even if you’re not considered subprime.
It happened quite on accident back in 2002. When I began my mortgage practice seven years ago, I was pretty much an "A Paper" lender. Conventional, FHA and VA loans were my bread and butter. The thought of doing a subprime loan made me shudder. I knew they were out there, but I was perfectly happy sticking to my 680 and higher credit score clientele and not diving into the subprime pool.
Then one day, a Realtor, Ima Agent, asked me if I would review her brother and sister-in-law’s good faith estimate since she felt the rate and fees were a bit high. Ima Agent told me that they had challenging credit in the past and were looking to buy "zero down". What could I say? I would at the very least talk with them to see if I could help. I reviewed their good faith estimate and was surprised at the cost of doing the mortgage. Most of our loans (to this day) are Correspondent and the closing costs are fairly low. Brokering to a subprime lender often has Broker Fees around $795 in addition to the regular closing costs. Of course the rates are higher too since the risk to the lender is greater.
Mr. and Mrs. Buyer are a very nice couple who were recently married and wanted to stop paying rent. She admitted that he had a troubled past with his credit and that they had been working on improving his (and their) finances. Their mid credit scores at the time were around 610. Back then, I would not have known where to go for an 80/20 with a credit score below 700…except the other loan originator they had met with previously had the name of the mortgage lender he was brokering to…BINGO! I called the lender and priced out their loan. I was able to provide my clients a much better rate so they elected to leave the other loan originator.
Here is what the basic guidelines were back in 2002:
- 600 minimum mid-credit score
- 100% total loan to value using an 80/20
- 50% Total Debt to Income Ratio
- First mortgage is a fixed for 2 years and amortized for 30.
- First mortgage has a 2 year prepayment penalty of 6 months interest.
- Second Mortgage is amortized for 30 years and due in 15.
- Reserves (taxes and insurance) were OPTIONAL.
- Funds for closing were not seasoned (no bank statements provided) or sourced.
- Seller can pay up to 6% of closing costs and prepaids (taxes and escrow).
I reviewed their credit history with them and we developed a plan on which debts they should focus on eliminating. They had all ready established a budget since they were working on reducing their credit card debt. I began to feel more comfortable with helping Mr. and Mrs. Buyer with their subprime financing since I could tell they understood the responsibility of having a mortgage and being a home owner. Ima Agent found Mr. and Mrs. Buyer their next home and we financed it with the subprime lender. They were extremely happy in their new home they purchased in March of 2002 in Seattle for $239,500.
Shortly before their prepayment penalty was over, Mr. and Mrs. Buyer contacted me to restructure their mortgage. They were excellent borrowers; they paid their mortgages on time as well as their other obligations and did not over extend themselves with credit. Mr. and Mrs. Buyer with having a mortgage (which helps improve credit score) their credit scores were now in the low 700s. I was able to provide them a long term mortgage (30 year fixed) for 5.75% and their home had appreciated to $310,000.
I’m thankful that I took the subprime plunge. I’ve since been able to help many home buyers who would not have qualified for an FHA or VA mortgage. Many first time home buyers lack the 3% down or are better off leaving the 3% down in their savings account as a cushion.
Since my first subprime loan 5 years ago, the guidelines have gone through dramatic changes. Soon Subprime lenders were promoting 80/20 programs with interest only payments, stated income and credit scores down to 580…yikes! With these loose guidelines, lenders are now facing record foreclosures and are now tightening their requirements for a subprime loan. Every day I’m receiving updates from various stating that the minimum credit score for 80/20 financing is now 620 and stated income is disappearing.
I have just added a new category to Mortgage Porter: the market toughening up, these home owners really need to minding their credit and budget so they don’t wind up in the deep end with no way out of their subprime mortgage after the rate adjust.
I’m watching CNN this morning while I’m getting ready to head into the office (it snowed a few flakes this morning, so being the chicken I am, I’m taking my time before I venture onto the roads)…when I see three commercials within 10 minutes that I found somewhat disturbing.
First commercial: Ditech…cash out refinance your home with a fixed rate up to 125% of the value! Well, thank God it’s not an interest only negative amortized ARM! In light of the increased foreclosures and troubles with subprime lending, I cannot believe I just saw this commercial. What happens to the borrower who has overextended their home equity and then they lose their job or they need to sale? Guess what, they can’t. There’s not ANY equity to pay for closing costs. Welcome to Foreclosure City.
Next: Countrywide…offering a no cost loan. No origination fee, no credit or appraisal fee and no third party (title, escrow, etc.) fees. This isn’t so upsetting to me (especially after following the Ditech ad). Anyone can provide a no-cost mortgage. What the commercial does not tell you is that no cost mortgages do cost a borrower in the monthly mortgage payment by a higher interest rate. Nothing is free. Typically, 1% of your loan amount equals 0.25% to interest rate. If your closing costs amount to $2000 and your loan amount is $200,000, you can increase your rate by 0.25% and have "no closing costs" from any loan originator. Please always compare good faith estimates by different lenders. Their commercial was the least offensive–they just happened to be sandwiched between two commercials that got my goat!
Last: Freecreditreport.com. You know the commercial…the friendly redhead young man challenges you to guess his credit score and encourages you to find yours. This is great advice. Where this one slips up for me is that it’s URL sounds just like www.annualcreditreport.com in fact, I think freecreditreport.com is a better marketing name than the one created by the big three credit bureaus by order of our government. Should you not read the disclaimer on freecreditreport.com’s site, you might believe this is the web site the Fed had created for consumers. However, this is Experian’s site and should you obtain your "free" report, you’ll be signing up for a credit watch service at $12.95 per month. Not so free after all, is it?
I just had to vent a bit. It’s no wonder people get confused about their mortgages and finances with all of the misleading and deceptive advertisements on television, the internet, and coming to our mail boxes at home.
Bottom line: Do your research. Ask questions. Be responsible.
Rhonda Porter is a Licensed Mortgage Originator MLO121324 living in the greater Seattle area. Rhonda began her career in 1986 in the title and escrow industry and began her mortgage career in 2000. She enjoys helping people understand the mortgage process and started writing The Mortgage Porter in late 2006. Read More…
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