My Interview with Jillayne Schlicke of Ethical Lending Foundation

January 28, 2007 by 4 Comments

JillayneJillayne and I go way back and recently have been reacquainted when we both became “Active Contributors” on Rain City Guide.  I have really enjoyed reading and responding to her blogs.  I am also quite interested in her company, Ethical Lending Foundation, which is very timely for the mortgage industry in light of new licensing laws and continuing education requirements.

Q: What prompted you to create Ethical Lending Foundation?

My business partner, Dr. Kevin Boileau and I do work in the area of applied professional ethics. Any profession that has to be licensed also has a code of ethics with mandatory training. An example is the Nat’l Assoc of Realtors Code of Ethics. Every four years, all Realtors nationwide must complete an ethics class. We write codes of ethics and have read hundreds of codes from all different industries. We have been writing and publishing articles in trade journals for many years now about the current codes of ethics available through The Nat’l Assoc of Mortgage Brokers, Mortgage Bankers Association of America, and the Nat’l Assoc of Professional Mortgage Women. We approached WAMB and NAPMW and offered to re-write their code. NAPMW declined and WAMB wanted us to do our work for free.

When the Department of Financial Institutions changed the Washington State law mandating all education course providers go through a professional organization, we decided to form a new professional organization with the absolute highest ethical standards, much higher than NAMB, MBAA, and NAPMW, and open up membership to all lending workers: loan officers from banks, loan originators from brokers, and so forth.

The biggest change we offer consumers is that members of our organization subscribe to put the client’s interest above their own interests. This prescribes "fiduciary duties" and elevates the status of our members to that of a "Professional."

The basic definition of Professional as a noun (and not as an adjective, as in "Jillayne is answering these questions in a professional manner") is as follows:

A Professional is someone who:

Has specialized knowledge in his or her subject area
Completes a minimum level of education
Is tested for competency
Is licensed
Maintains that license with mandatory continuing ed
Subscribes to a code of ethics with sanctions for violations
Owes fiduciary duties to clients

The easiest examples to see how this works is a doctor or a lawyer. The nice benefit for lenders who rise to the level of being a Professional is that you get to charge more for your services. Paralegals are another example. There was a group of legal secretaries who figured out that they were doing a whole bunch of legal work, and they didn’t have a law degree. They got together and formed a professional organization and now they get to charge a whole lot more money for their services.

In any narrative history of any profession, we will always see movement towards requiring MORE education, testing, higher ethical standards, more prescribed duties, as compared to any movement towards requiring LESS of these things.

I’m more of a DO-er instead of a talker. Dr. Boileau and I grew bored with all the talk about higher standards and decided to DO something about it. We have received favorable responses coming from all across the U.S.

Q: Sometimes your blog posts target mortgage brokers. What’s up with that?

I love mortgage brokers! But sometimes they get myopic and aren’t able to see that even though they are operating their business with a high degree of professionalism and ethics, that not everyone else in their industry is doing this. When consumers hear the word "predatory lending" to them, that means anyone in lending: banker, broker, credit union, consumer finance company. We all know that P-lending can take place at any institution. Consumers have become less trustworthy of all lenders, because they don’t really understand the difference between how institutions are regulated. The broker community likes to point the finger outward at banks or at consumers for being un-educated. A better action plan would be to figure out how to differentiate brokers so much that they are the institutions with the absolute highest ethical standards and offer the best choice for consumer trust. This is the change I would like to help influence.  Sometimes that means taking a bold stand and using radical, satiric references in order to get the attention of industry workers who normally just go on about their day thinking that someone else will solve the world’s problems. It will be all of us, slowly working
together every day.

Q: How has blogging impacted your career?

Oh, I’m not sure blogging has impacted my career. It’s too early in the advent of this medium to really have any meaningful data. Ask me this question again in six months. I can speculate on how it might impact what I do for the industry.

I think of blogging as another form of education. When online learning hit the world, I was unimpressed. It started out as correspondence classes put on a computer. Very boring. I remember finishing what was suppose to be a 3 hour class on Fair Housing in 19 minutes. Then we saw the online learning world add graphics and mini quizzes which made us pay more attention, but online learning is still kind-of one-dimensional. I think blogging might have a future in online education.

Q: What do you do for fun?

I play adult co-ed indoor soccer which provides a healthy aggressive outlet for all my energy. I also go to school at Antioch U in Seattle. I’m almost done with my Masters degree in Psych and I’m studying the relationship between business ethics, philosophy, and moral psychology. I have always been fascinated by the question "why do people do what they do?" I have two active daughters so I’m always running around having fun with them. Kids are avid tech sponges. My younger daughter walked up to a cell phone on display at the Sprint store and took my picture. And I’m the techie in the family! I think if we just simply watch what our kids are doing with communication devices and media, we will see how blogging will impact business in the years to come. In some elementary schools, they are already using blogging as a learning tool.

If you would like to learn more about Ethicial Lending Foundation, please contact Jillayne.  Jillayne, thank you for being my first blog interview!

Filed Under: Mortgage

Before You Go to Your Signing Appointment

January 27, 2007 by 5 Comments

EDITOR’S NOTE: This post has been updated. Click here to read the most current version.

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1.  Bring a cashier’s check.  A good lender will do everything in their power to provide escrow with instructions in a timely manner so that they can, in turn, give you the dollar amount required as soon as possible.  Sometimes, you may only get a day or two of notice before escrow contacts you with this information.   The reason this can occur so late in the process is because all the loan documents have to be prepared by the lender and are then delivered to the escrow company with our instructions.   The escrow company then creates a HUD-1 Settlement Statement which determines exactly how much funds you need to bring to closing.    When you are told the amount, you need to obtain a cashier’s check payable to the escrow company and bring it with you to the closing appointment.   A personal check is a no-no.  NOTE:  If you are considering wiring funds to the escrow company, please contact them in advance to discuss this process.

2.  Bring a copy of your Good Faith Estimate.   You will want to compare it to the Estimated HUD-1 Settlement Statement that will be presented to you at the signing.   Hopefully, the Escrow Officer has provided your Loan Originator a copy of the HUD in advance for them to review it prior to your appointment.   

3.  Bring your current driver’s license.  The notary must see them for proof you are you!  Some may require two forms of identity.

4.  Bring anything else that the escrow company or lender request.  Sometimes the lender may need you to bring follow up documentation to closing (such as originals, paystubs, etc.). 

5.  Bring directions to the escrow company.   Be sure to get specific directions to the escrow company from the escrow company (or visit www.mapquest.com).  Please be on time.  Escrow companies are often very busy and generally on time.

6.  Plan on your signing taking approximately 45 – 60 minutes.  If you would like to have more time to read your documents, or to have an attorney review them for you, ask your lender in advance so they can accommodate having a copy of your loan documents available to you in advance.   Your loan package is about an inch of paper.   If you want to read it word for word, you should get a copy beforehand.   

7.   Sign your documents as your names appear.   Sign your name within the County’s required borders for recordings.  This avoids last minute corrections or delays in your closing.   You may want to do some hand exercises before signing (just teasing—well, kind of).

If you have questions regarding your loan documents or program, please call your Loan Originator.  Don’t be shy!   The signer may not be familiar with your specific loan program.

After signing your documents, escrow sends the original required documents to the title company who, after reviewing, delivers them to the County.   With our company, the funding department also reviews the loan documents and verifies all conditions are met. 

At this point, the lender coordinates with the escrow company to release the funds and to record the documents on the scheduled day for closing.   Typically either the escrow company or your real estate agent will contact you once your transaction has recorded.

Filed Under: Escrow and closing, Mortgage, Refinance, Residential Purchase

Preapproval Letters Defined

January 19, 2007 by 10 Comments

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The preapproval letter is a tool typically drafted by a loan originator to be used by a buyer’s real estate agent when presenting an offer on a property.   The letter may be in the form of a certificate or be an actual letter on the lender’s letterhead.   The preapproval letter is intended to assure the seller and the listing agent that the buyer has been buyer has been approved by the lender and therefore accepting an offer from this buyer, there should ideally not be any financing issues with the buyer.

 

When I prepare a preapproval letter, it usually contains the following (depending on the program):

  • Effective date.
  • The borrower’s names (who is approved for financing).
  • The sales price and loan amounts they are approved for.
  • The type of financing is confirmed (ex. Conventional, FHA, etc.)
  • Credit has been reviewed.
  • Employment and income has been confirmed.
  • Down payment and closing cost have been verified.
  • Any closing costs that are being requested to be paid for from the seller.
  • Any item the preapproval is subject to (such as satisfactory appraisal, title, complete purchase and sale agreement, etc.).

If these items have not been actually verified with proper documentation, then a buyer has been prequalified—not preapproved.  BIG DIFFERENCE.  Being prequalified essentially means that a verbal interview has been conducted without providing all of the necessary supporting documents (pay stubs, W2s, bank statements—again, depending on the type documentation required for the specific loan “full doc” to “no doc”).  In addition, a Good Faith Estimate does not constitute a preapproval, it does detail the proposed loan scenario.

 

The preapproval letter does not contain private information such as a buyer’s credit score or their additional assets.   It is a sales tool for the buyer’s agent and if there are multiple offers presented on a home, having a strong preapproval letter is an advantage.   This is one reason why it is crucial for buyers to become preapproved before they begin shopping for their next home.   Many listings agents will not even consider an offer unless the buyer has been preapproved.    

 

 

The preapproval letter is generally effective for 90 days a specific amount of days, typically when most lenders consider the credit report “expired”.   Updating a preapproval letter is simply re-running the credit and possibly obtaining most recent income and asset documentation (paystubs and bank statements).    On occasion, the buyer’s agent may request a revised preapproval letter if they are presenting an offer on a home that is priced for less than what the buyer is approved for and if they are asking for closing costs.   

 

 

Real estate agents may also consider who the preapproval letter is from, and they may contact the lender to confirm the buyer is indeed prepproved and not just prequalified.   Many agents will tell you that the preapproval letter is only worth the paper it’s printed on.   This is also why it’s very important to be selective with lender you work with…it could possibly impact whether or not your offer is accepted on your next home.

 

If you’re considering purchasing a home located anywhere in Washington state and need a preapproval letter, I’m happy to help you!

 

EDITORS NOTE:  This post has been updated since credit reports are no longer “valid” for 90 days with most lenders.

 

Filed Under: Credit Scores and Reporting, Mortgage, Real Estate Agents, Residential Purchase Tagged With: ,

Loan Originator Licensing Links

January 16, 2007 by 2 Comments

Try saying that 3 times fast!  I’m preparing for my presenation at the Greater Eastside Escrow Association on Thursday on Loan Originator Licensing.   I’m going to feel a little like the wolf in front of the hen house…although I’ll be out numbered!  It’s actually all good.   I have a background in title and escrow in my past life before I was a lender.   Since I’m working on assembling a list to hand out to the Escrow Officers, I thought it might be more convenient to post the website regarding licensing here. 

Mortgage Broker Practices Act

Mortgage Broker Practices Act Rules

Washington State’s Broker and Loan Originator Licensing Law Chpt. 208-660 WAC

DFI’s List of Licensed Loan Originators (this is very backlogged…I’m not on it yet and I should be.  So please don’t assume that because a LO’s name is not on the list that they didn’t pass the background check).

WAMB’s LO Licensing info

Seattle Time’s Article

Rain City Guide blog that I authored, Licensed to Loan

Ethical Lending Foundation — offers clock hour approved courses for loan origintors.

I’m sure there’s more information available…this is just a quick place to start!  If you have suggestions for other links I should post here, please comment and let me know.

Filed Under: Legislation, Mortgage, Weblogs

Not a Good Option

January 16, 2007 by 7 Comments

Yesterday, one of my clients asked me about Pay Option ARMs.   These loans are Mpj034192600001_1 probably the most heavily advertised products promoted on the radio.   I cringe every time I hear the announcer boast about the low start rates of anywhere from 1 – 3%.  Pay Option ARMs are marketed by many different names, such as pick-a-payment or cash flow ARMs.   

A newer Option ARM program features a fixed period for the minimum payment and a fixed rate for a five year term.    Every month, when the mortgage payment is due, the borrower has the choice of what kind of payment they would like to make typically based on four different selections. 

Here’s an example of what a fixed period Option ARM could look like.

Option 1:  Minimum Payment–an interest only payment at 3% under the note rate available for the first five years of the loan (NEGATIVE AMORTIZATION).

Option 2:  Interest Only–an interest only payment based on the note rate available for the first 10 years of the loan term.

Option 3:  30 Year or 40 Year Fixed–A full principle and interest payment amortized over either a 30 or 40 year term.

Option 4:  15 Year Fixed–A full principle and interest payment over a 15 year term.

Sounds great, right?  Wrong.  I know a lot of lenders offer this product.  And, at least this option ARM offers a controlled minimum payment for a five year term.  However, how many people are going to make a principle and interest payment when they receive their mortgage coupon? 

Negative Amortization (deferred interest is the nicer term) is the difference between your note rate payment (the actual payment due) and the minimum payment (the low teaser rate).   In this case, every time you opt to make the lower payment, the difference is tacked on to your mortgage balance.   There are ceilings in place that will prevent all of your equity from being gobbled up from your mortgage called “negative amortization cap”.   This loan particular program (option ARMs vary from lender to lender, and this is just one that we could offer, if I don’t persuade you otherwise) features a cap of 115%.    This means that once you’ve made minimum payments long enough to increase your original mortgage balance by 15%, your loan terms will change and you no longer have the minimum payment available as one of your options (this is referred to as “recasting”).

Option ARMs can also impact your credit scores for the worse.   Credit scoring modules give more favorable scores when balances are decreasing and worsen if balances are shown above the credit limit.   If your original mortgage is $200,000 and due to negative amortization, the current balance is $215,000 (for example) your credit scores will be dinged as it appears to the scoring system that you’ve extended beyond over your credit limit on your mortgage.

These loans may work for seasoned investors who do not plan on utilizing the minimum payment option unless, perhaps, they have a rental without a tenant.     However, the majority of homeowners who have Option ARMs don’t fully understand how this animal works or that they are trading equity for lower payments until it sneaks up on them.  It’s not a program that I recommend for my clients when there are so many better programs available that won’t jeopardize home equity.

Filed Under: Adjustable Rate Mortgage (ARM), Credit Scores and Reporting, Mortgage

How to Pick a Lender

January 10, 2007 by 1 Comment

Picking your mortgage professional is not as easy as selecting a good cantaloupe or watermelon atJ0400581  the market.   As tempting as it may be, I certainly wouldn’t recommend thumping a Loan Officer on the head to see if there’s anything in between the ears or smelling them to see if their fresh!  So how does a potential buyer decide who they should use for possibly the financing one of their largest investments in their lifetime?

  [Read more…]

Filed Under: Financial Planning, Mortgage Tagged With:

The “R” Word

January 4, 2007 by 2 Comments

Resolutions.  I was not going to post New Years resolutions since they are everywhere.J0309664_1..however, I can’t pass up this opportunity.  Beyond the perennial lose 10 pounds, start excising, or stop smoking; here are a few goals to consider for your financial health.   I plan on revisiting these goals more indepth on future blogs…so I’ll try to be brief for now.

  1. Have an emergency fund established with at least 3 months of living expenses in an accessible account.   You can also use a HELOC for an emergency fund account IF you have the discipline to leave it alone.   A HELOC can be an excellent tool and should be applied for before you have an emergency situation (loss of employment, medical, or a tree landing on your house from sweet Mother Nature) and may not be able to obtain one.   In the event of an emergency, do you have your finances organized?   A recent article I read from the Financial Planning Association recommends having copies of all your pertinent financial documents in a binder that you can find quickly in the event you need to evacuate your home.

  1. Know your score, or at least what is being reported on your credit history currently.  Credit scores are not only used for determining what mortgage programs and rates you qualify for.   They also impact insurance, credit card rates and auto loans to name a few.  In addition, reviewing your credit will help determine if you credit is being used without your knowledge (identity theft).   You can visit www.annualcreditreport.com for a free credit report.   This is provided by the “big 3 bureaus” and it may not provide your score without paying an additional fee.  As you are allowed one report from each bureau annually, I would recommend that you pull your report from one bureau every four months to keep a constant monitor on your credit activity.  There may be simple ways to improve your credit score that you can determine once you have the information available.

  1. Create or review your Will.  I had a pretty cheesy will until I married last year.   My husband and I spent quite a bit of time with an attorney to make sure we have everything set up as we wish it to be instead of letting the government have it.   You would be surprised how easy, with home values, a retirement account, etc. that your net worth can grow.  Whether you have children or not, a will is a must.   After you have a will, it’s a good idea to have your information organized for your loved ones.   A great website to check out is www.readyornot.biz.

  1. Get a mortgage check-up.   If your mortgage has an adjustable rate (ARM), if you are paying private mortgage insurance (PMI) or if you have two mortgages on your home, this could be a great time to review your current scenario to see if you can reduce your monthly payments.   There is no sense in paying more than you need to, unless you plan on selling the home soon.   An Annual Mortgage Review is more in-depth than checking out your mortgage to current rates and products.

  1. Eliminate credit card debts.  It is too easy to fall into credit card debt.  Banks do not want you to ever pay them off with all the interest they earn.   Start with paying additional towards your smaller debts and then work toward the next one.  This is a slow process, but worth it.  It is boggling how much the interest can mount up on these types of loans with no tax benefit to you.  Improving  monthly cash flow reduces stress and allows you to eventually save for more important life items such as retirement and college.

I know this is a few days past New Years…however, it’s always relevant.   I wish you and yours a very happy, healthy and prosperous New Year.   Cheers!

Filed Under: Credit Scores and Reporting, Debt Restructuring, Financial Planning, Identity Theft, Interest Rates, Mortgage

Credit Unions, Banks and Brokers…OH MY!!!

January 2, 2007 by 2 Comments

Recently I found myself drawn into a blog on Rain City Guide.  The topic that got my attention is Wiz authored by Jillayne Schlicke titled “Hot or Not” which featured various tips for first time homebuyers from an USA Today article.   The specific “hot” tip that forced me off of the sidelines and onto the paying field (it was New Years weekend…football…etc.) was: 

"Hot:  The author also suggests comparing rates and fees from three different lending sources: a mortgage broker, a banker and a credit union". 

After a few friendly banters back and forth debating our points, I realized what my real issue was…it’s not the institution, it is the person.   I do believe that a broker is going to offer a consumer more products and rates from many different sources than a bank or credit union…and I’ll still stick by my guns to say a “licensed originator” (banks and credit union loan officers do not have to pass background test and exams and be licensed) is probably better suited to serve a consumers mortgage needs.   Credit unions and banks typically just offer their products and rates.  If a bank loan originator elects to "broker" and not use a bank product, they are often paid a lower commission.   Brokers typically work many different banks (For example, the Broker I work for, Mortgage Master, works with over 80 different lenders, banks, etc.) and all of their products and rates.   

My recommendation is that a consumer should, instead of going to a bank, credit union and mortgage broker for rate and fees, consider these three options:

1)      Referral from a family member, co-worker or friend who has just bought or refinanced their home.

2)      Recommendation from their Realtor and, ask the Realtor why they prefer the lender over others.

3)      Recommendation from their CPA or CFP for the lender they endorse.

If a consumer does not yet have a Realtor, CPA or CFP, then I would recommend they ask a friend, family member and a co-worker for their lender.   

The whole idea of rate shopping is misleading and a potential for disaster for home buyers or people who want to refinance. A rate shopper really needs to be educated before picking up the phone, going to the internet, or picking up the "liars list" in the newspaper.  It really does come down to the individual providing you the quote, their ethics and expertise…how do you measure (or “shop”) for that? 

A mortgage is one of the largest investments most people will make in their lifetimes.  I cannot imagine allowing anyone providing me advice unless they could demonstrate they are competent, dedicated, educated and equipped with the latest mortgage programs available.   

Does licensing or an earned designation prove this?   I think it’s a step in the right direction.   I am one of the few loan originators in the fine State of Washington (grey, rainy and windy today) who has taken the steps to become a Certified Mortgage Planning Specialist (CMPS) and who is looking forward to having brokers become licensed…it’s just too bad the licensing does not apply across the board to EVERYONE originating any type of mortgage loan.   Alas, it’s only for Mortgage Brokers (Countrywide, Washington Mutual, Wells Fargo, Chase Manhattan are just a few of the loan officers who will not have to pass the test).    I predict that once the testing takes place (estimated mid 2007) you will see a shift of loan originators who use to work for brokers, leaping to mortgage banks to either avoid the test and background test, or because they could not pass the states requirements.

The true test of mortgage broker licensing will not be known to us until we actually take the exam late this year.    Measuring the ethics of anyone, let alone a loan originator, can be a tricky task…I guess that’s where I keep coming back to getting a referral from resources you trust. 

Filed Under: Interest Rates, Legislation, Mortgage, Weblogs
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