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

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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: , , ,

My Biggest Fear

March 26, 2007 by 4 Comments

FearNext 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.   

  1. Contact your Mortgage Planner if you have any concerns with your current mortgage.   Now may be a good time for a credit and mortgage review–you may not need to refinance (everyone’s situations vary).
  2. Get a second opinion if you feel you need one.   Ask a friend, co-worker or family member for a referral.   Most professional Mortgage Planners are happy to discuss your situation without running your credit.  (If your Mortgage Planner all ready ran your credit, you can provide your scores to the person you’re getting the second opinion from). 
  3. Do not do business with lenders who have to "cold call" for business.  Rely on either your past Mortgage Planner or get a referral. 

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. 

Filed Under: Mortgage, Predatory Lending, Subprime Lending

My Encounter with The Seattle Bubble Blog

March 24, 2007 by Leave a Comment

Mpj040113000001 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):

  • Renters are not responsible for repairing or maintenance of the building.   (I do spend many weekends at Home Depot with my husband to work on our house…and I love it).
  • Freedom to pick up and move when your lease is up without the cost of selling a home (approx. 8-10% of the sales price including commissions, 1.78% excise tax for King County and closing costs).
  • You can invest the funds you would use for down payment and earn interest on it (your home equity does not earn interest).
  • You may be able to rent a nicer home than what you can afford to buy for the same payment.
  • The standard tax deduction may be better than the deductions you’re allowed as a home owner itemizing your mortgage interest and taxes.  (As always, check with your CPA regarding any tax matters).
  • And of course, home values are going to tank once the Seattle bubble bursts.

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".

Filed Under: Financial Planning, Mortgage, Residential Purchase, Seattle, Weblogs
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