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):
That New Car Will Cost You
March 15, 2007 by 3 Comments
You want to be a WHAT?
March 9, 2007 by 2 Comments
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.
The Times…They ARE a Changing
March 8, 2007 by 3 Comments
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.
My First Subprime Client
March 7, 2007 by 2 Comments
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.
Will someone please change the channel?
February 28, 2007 by 1 Comment
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.
Your ARM May Not Be Broken
February 26, 2007 by Leave a Comment
You may have noticed on the evening news and the local papers all the bad press about mortgages lately. Specifically sub-prime, negative amortized ARMs a.k.a. payment option plans (which I am opposed to for 99% of the population), 100% financing and interest-only ARMs…to name a few. Many sub prime lenders are restating their earnings and are suffering losses. Some are closing their doors and the remaining are changing their underwriting guidelines. It use to be very easy to obtain 100% financing with a credit score of 600…some lenders would even consider 580. Now, the benchmark is 620. Throughout history, lenders change underwriting guidelines based on market conditions.
How Strong Are Your Legs?
February 25, 2007 by 1 Comment
A borrower in a mortgage transaction is kind of viewed like a chair with four legs. The legs on the chair provide strength to the base or seat of the chair. If one leg is shorter than the others, the chair is still strong, but may wobble a bit. Shorten two legs and the chair becomes less stable. Three week legs and the chair is just waiting to tip over on you.
So how strong are the legs of your chair?
Consider each of these items as one leg in your chair.
- Employment. Having a minimum 2 year history in your line of work (this can include education). Employment gaps that don’t make sense to an underwriter, may cause issues with getting your mortgage approved. A lender wants to know that you are going to be able to keep your job and therefore, make your mortgage payments on time.
- Income. If paid salary and regular hours, this can be pretty easy to compute. When your hours vary, the income needs to be averaged. Also, if you’re paid bonuses or commission and going for the best interest rate (not stated income or no income verified), then your bonuses and commissions are typically averaged for the past two years. Debt-to-income ratios are crucial for qualifying for mortgages. A $500 car payment equals $50,000 less home that you can purchase.
- Savings and assets. There are many zero down loans, even if you are considering that route, it is in your best interest to have at least three months of your future mortgage payments in savings after all closing costs are paid. The more money you can put down towards a home, the better your interest rate will be.
- Credit Scores. Having scores above 680 are a worthy goal. A score 700 or more is even better! Pay your accounts on time. Keep your balances below 30% of the credit limit for the best scores. Take care of your credit and it will take care of you. Credit is reflective. If your credit score is on the low end, meet with a Mortgage Planner to help you develop a plan to improve your score.
All of these factors impact how a borrower qualifies for a mortgage. The more strong legs you have reduces the risk to the lender, which in turn means a better interest rate for you!
The Cart Before The Horse
February 22, 2007 by 2 Comments
Note: I was contacted by the fine folks at DFI with corrected information to this post regarding continuing education. My corrections are either striked out or bold.
This week has been a bit crazy with mid-winter break…our three kids all have different break schedules so our family is home instead of vacationing somewhere. This has provided me with a great opportunity to attend classes and seminars, which typically take a bit of coordinating with getting the kids to schools (they go to three different schools due to their ages).
Anyhow, on Monday, I went to a seminar by Dustin Luther. Dustin is the creator of Rain City Guide, a blog that I contribute to that has been a force in the Seattle Blogosphere for years. This was actually my first time meeting Dustin! And, the seminar was great. I learned about Web 2.0–how the consumer is directing the web instead of the web attracting the consumer. It was fascinating. He is truly genuine.
Yesterday, I took my first clock hour course to retain my State of Washington Loan Originator License. It kind of feels strange to take a course before passing an exam that is not yet available (hence the cart and horse photo…I was going for the cart before the horse…but it was taking too much time to find the right photo). I am assuming I’ll pass the exam once it’s available (or I will be adding a post with a photo of egg on my face).
The course is required for all Licensed Loan Originators during their first year of being licensed and is on ethics. This one was taught by NAMB. I wish it would have been an exam on ethics, instead this was a class or open discussion. I typically do not attend "lender functions". When I took the CMPS exam, I really enjoyed networking with the professionals who cared so much to fly from all over the nation to take the three day exam (25% did not pass the first test). I was very proud to be a Loan Originator (or what ever title you wish to call me) in the company of those fellow lenders.
At today’s class, I was fortunate to sit with two other fellows who I feel also have very high standards and ethics. And I do believe overall, the room was filled with the same caliber of people who truly care about serving their client’s best interest before there own. I mean, they are there spending their time BEFORE taking the exam. (You must pass the exam to retain your license…you can re-take the exam for $125 a pop). the cost for the exam will be determined by the exam provider and is anticipated to be around $50 -$60. DFI also recommends that BEFORE a loan originator spends their time and money on continuing education classes, they check DFI’s website to make sure the professional organization or individual course are approved for loan originators or mortgage brokers continuing education.
What was interesting to me is that when you survey a room full of people, ethics can become a bit blurry. I left the four hour class with my certificate…I have one more class and an exam to go before all of the criteria is met to REALLY be a Licensed Loan Originator.
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