How to Shop for a Mortgage Originator When They Won’t Provide a Good Faith Estimate

June 17, 2010 by Leave a Comment

I just received this excellent question on a post I wrote at Rain City Guide about why Loan Originators are hesitant in issuing a Good Faith Estimate without all the required information:

…I am a new buyer with a question regarding the GFE. I am brand new to this world, so I apologize if this is a dumb question.

I read that I should shop around to a few banks and get a GFE to see who can give the best deal. I was pre-qualified by my personal bank but my Loan Officer denied me a GFE. She stated she cannot give me one until my offer is accepted for a home.

How am I supposed to shop around for the best deal, if they won't give me a GFE until I've found a home & been accepted? My intent of the shopping around is to be ready when the home comes along.

I've been meaning to write a post about how to select a mortgage professional since my original articles on this topic are a little out of date with the introduction of HUD's Good Faith Estimate at the start of this year.

Currently, if a mortgage originator issues a good faith estimate without the property address (when someone is shopping for a home), the addition of a property address does not create a "changed circumstance".  The only time a mortgage originator can issue a new or revised Good Faith Estimate after the initial GFE is if there is a qualified "changed circumstance".   Since the 2010 GFE has certain liabilities associated with various fees that are quoted, a mortgage originator is at risk for having to shell out hard earned cash if there are differences between the Good Faith Estimate issued and the HUD-1 Settlement Statement at closing.  I say "currently" because I do hope that HUD recognizes this significant flaw and that they correct this soon because a home buyer does not have their future home address will be hard pressed to obtain a Good Faith Estimate from any mortgage originator–which defeats the purpose of why HUD created this document!

So how can a home buyer "shop" for the person who is going to help them with one of their largest debts secured to where possibly their most significant asset?   Here's what I recommend:

  • Ask for a rate quote sheet or work sheet.  Lenders may have different names for this but HUD does allow us to provide rate quotes as long as they do not look like a good faith estimate.   If you are going to do this–it's imperative that you do in a short amount of time and provide each LO the same criteria as rates are a moving target.  Currently we're experiencing 2-3 rate changes per day. 
  • Determine if your mortgage originator is licensed or registered and if this is important to you.  Licensed Mortgage Originators are held to higher standards per the SAFE Act than Registered (bank or credit union) Mortgage Originators. If you visit www.consumeraccess.com you can verify a license and see your mortgage originators history.
  • Consider what type of mortgage company the mortgage originator works for.  What this boils down to is do they have in-house underwriting?  Where are the decisions on your loan going to be made?  Is the processing down in a far away "processing center" or does the processor work in the same office with the loan originator.   There are differences between correspondent lenders, mortgage brokers, mortgage banks and credit unions.
  • Google your possible mortgage originators.  A Google search may reveal rants or raves about the person you're considering to help you.  You may learn more about the mortgage professional.  Just enter their name into the search box–you might have to add the word "mortgage" if their name is common.
  • Is the mortgage originator or their company affiliated with a builder (the seller) or real estate agent's office?   If the mortgage originator is a builder's site agent, they may be naturally more incentized to look out more for who feeds them the most business–which isn't you.  If they are cozied up in the real estate agents office, make sure they are committed to not disclosing information that you may not want the real estate agent to have (for example, the maximum amount you may qualify for).   If you're comfortable with not having someone intendant of attachments to work with, then this point may not be a huge issue…but it is something to think about.

These are just a few suggestions to help you select your mortgage originator.  Mortgage rates and closing costs are important, but there are other considerations to factor as well. 

If I can answer your questions or help you with a mortgage for a home located in Washington state, please contact me.  I've been originating mortgages for the past ten years and I'm happy to help!

Filed Under: Good Faith Estimate, Mortgage

Who Does Your Loan Originator Really Work For?

June 8, 2010 by Leave a Comment

Photo credit Sarah G... via flickr I often wonder how a consumer can truly trust a mortgage originator who sits in a housing development or a real estate office.  Yes, it's convenient when you're checking out that new home and the loan originator that works with the builder or real estate company just happens to be sitting there waiting for you or the next person who'll walk through their door.  Is that the best option for you?

HUD is questioning this with regards to builders with in-house lenders and if this arrangement is a RESPA violation.  It is harmful to consumers if the closing costs or rates are increased to compensate for what the lender may have to shell out to be that builder's preferred lender. Often times, you may find that the builder has built any cost to bribe you to work with their lender by increasing the sales price of the home.  RESPA violations aside, I've always felt that if you work with the builder's lender, you're providing your personal information to the "seller" or the more specifically, the employee of the seller.   The loan originator may be employed by a bank, but when they're constantly fed by the builder…where do their loyalties rest?

I feel the same way about loan originators who work as "joint ventures" with real estate companies.  They may be paying rent inside your real estate agent's office or just be on their preferred providers list with some sort of business arrangement.  I believe most of the big real estate brokerages in the Seattle area have an arrangement made to steer you to their lender, title or escrow company.   When a loan originator, title rep or escrow officer are constantly fed or partially owned by a real estate company–where are their loyalties?  If you only want to get approved for a $400,000 sales price, and can afford to much higher–do you think the LO who's shacked up with the real estate agent will let that agent know when they press the LO for more info on you?

Yes, you pay for their origination, title or escrow fees, but who are these people really work for.  Shouldn't you have more of a choice?   Some real estate agents will tell you that there isn't much difference in rate or fees–which they may truly believe; however, it may not be accurate. 

I "work for" Mortgage Master Service Corporation.  I'm paid by the consumer when we close a mortgage transaction together.  My business is dependent on my clients referring me to people they know who need a mortgage in the greater Seattle area.  I also have clients who find me from reading my blogs.   I am not part of any joint venture or arranged business agreements.  I'm not paid based on volume, quotas or selling a certain type of program.

Bottom line as a borrower in one of the largest transactions you may ever make in your lifetime, it is your responsibility to make sure you have the right team working for you.  Do as much research as possible before you've entered into a real estate contract.

Photo credit:  Sarah G… via Flickr

Filed Under: Escrow and closing, Mortgage, Opinion, Rant, Real Estate Agents

Mortgage Buybacks and How It Impacts You

May 13, 2010 by Leave a Comment

I was invited by Amtrust Mortgage to hear a presentation by Jackson Nafziger on "A State of the Industry Update".   My biggest take away from yesterday's event in Seattle was the huge amount of buy backs (aka repurchasing) of loans that are taking place.  A "buy back" is when a lender is forced to repurchase the loan from Fannie Mae or Freddie Mac typically because it's not performing.  It's reported that in 2009, over $30 billion in troubled mortgages were repurchased.   From 2008 to 2009, this is an increase of 320%!   According to the seminar, Bank of America/Countrywide, led the buy-back pack in 2009 followed by Chase/Washington Mutual, Citigroup and Wells Fargo. 

If you're considering a mortgage to purchase or refinance home, be aware that it's a different process than it was just a few years ago.  I still help people obtain financing on their homes every day.  My point is to be prepared for more paperwork (even the Good Faith Estimate has gone from 1 to 3 pages) and tougher underwriting guidelines.  

What can you do to help improve your mortgage process?

  • Select your mortgage professional and get preapproved early.  This allows you to create a game plan, if needed, such as working on your credit or funds for closing.
  • Be prompt in providing documentation or information that your mortgage professoinal requests.
  • Be prepared for the process to take possibly take a little longer.  Everything is being scrutinized from your bank statements to your appraisal.

The mortgage loans that are being originated today are of a much higher quality than recent years past. 

If you have a question about today's mortgage process or are interested in a home loan for a property located in Washington, I'm happy to help.

Filed Under: Fannie, Freddie and FHFA, Mortgage

President Obama wants your input on mortgages

April 20, 2010 by Leave a Comment

President Obama is seeking public input on financial reform.  Let me get this off my chest right now: I WISH OUR GOVERNMENT WOULD START WITH CAMPAIGN REFORM FIRST.  I don't how any other reform can truly effectively take place without the influence of lobbyist in our government…how can they truly represent the people and how can they have any credibility if they don't walk the reform talk?

Anyhow, here are the questions with my answers.  You can visit the website that even comes with equipped with a "Decoder" button which is really a glossary of terms.  Your answers need to be submitted in writing–more details are on President Obama's site www.financialstability.gov.

The Obama Administration will seek input in two ways. First, the public will have the opportunity to submit written responses to the questions published in the Federal Register online at www.regulations.gov.  Second, the Administration intends to hold a series of public forums across the country on housing finance reform.

Questions for Public Solicitation of Input:

    1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy?
    2. What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?
    3. Should the government approach differ across different segments of the market, and if so, how?   
    4. How should the current organization of the housing finance system be improved?
    5. How should the housing finance system support sound market practices?
    6. What is the best way for the housing finance system to help ensure consumers are protected from unfair, abusive or deceptive practices?
    7. Do housing finance systems in other countries offer insights that can help inform US reform choices?

What would you like to see the Government to do with regards to home financing?   We havethe SAFE Act, which effectively creates two classes of mortgage originators:  licensed and registered (unlicensed).    My biggest concern with Financial Reform, without Campaign Reform, is that the end result may be that Americans have even fewer choices for their home financing.  Not just originators or types of institutions to chose from, I'm talking about products too.  

Your thoughts?

Filed Under: Mortgage, Real Estate

If You are in any aspect of the real estate industry, you don’t want to miss this…

January 29, 2010 by Leave a Comment

PNWHSREBCflyer

Both events are at the Seattle Center:

March 18, 2010 – Pacific Northwest Housing Summit  
March 19, 2010 – RE Barcamp Seattle

The panelist for the Summit continue to grow and we anticipate quite a turn out from across the country at both events.  Sponsorship opportunities are still available and start at $250.  

Of course there will be "tweet-ups" and social hours following both days.

Be there!  Follow both events on Twitter: @pnwhs #pnwhs and @REbarcampSEA #rebcsea

PS:  Space is limited to the first 700 registered attendees for the PNWHS…and there's a "sweet heart deal" for pre-registrations by Valentines Day.  

 

Filed Under: Appraisals, Events, Mortgage, Real Estate, Real Estate Agents, Seattle

My “Ideal” Home Purchase Time Line

December 18, 2009 by 3 Comments

Previously I reviewed HUD's Home Purchasing Time Line, which I found several issues with if you're a home buyer in Washington State.  If I'm going to pick something apart, it's only right that I offer an example of how I think it should be corrected.

Below is HUD's suggested time line.

HUDTimeline

Here is how I see a successful purchase transaction evolving.  My modifications to HUD's time line are in blue below.

Mortgageportertimeline

Rhonda Porter's Ideal Home Purchase Time Line   

Step 1: Determine what you can afford. Make sure you really consider how much home you can personally afford (not just how much home you qualify for or what a lender tells you).  Please do not stretch yourself to be "house poor".  Keep in mind the lessons that this economy is teaching all of us.

Step 2: Shop for a mortgage pro. Oh how I wish that instead of a shopping cart for rates (which is a moving target) and fees on page 3 of the new Good Faith Estimate, that it had a place for you to "shop" your mortgage professional instead.  Perhaps a place where you could compare resumes and available products instead of focusing so much on rate and fee.  The person who will be guiding through the process of obtaining one of the largest debts you may have in your lifetime should not be selected so casually.

Step 3:  Choose the best loan for you.  After selecting your mortgage professional; he or she should consider your financial goals and help provide you with information to allow you to make an educated decision on which mortgage program best suits your goals based on what you currently qualify for.  You need to know what your total payment will be and how much money will be required for your down payment and closing costs BEFORE you start looking for your next home.

Step 4: Find a real estate agent.  I recommend asking friends and family members who have recently purchased or sold a home and interview them.  If you need a recommendation for one around the greater Seattle area, please ask me!

Step 5: Shop for other service providers.  This has to happen BEFORE you prepare an offer on your next home assuming your lender permits you to shop (this is per RESPA guidelines–not a control freak mortgage originator).  If you select your own title and escrow service provider, there is no cap to how much their fees can change at closing.  If you use the providers from the mortgage originators preferred list, the accumulative fees at closing cannot exceed 10% from the good faith estimate.

Step 6: Find a home and negotiate contract terms.  Now you can start searching for your next home with confidence since you know what you can afford and you have your home buying team assembled.

Step 7: Have house inspected.  I recommend this even if your home is new construction.  I can tell you a few stories…but this post is all ready getting too long!

Step 7.5:  Shop and select your home owner insurance provider.  Do not wait until closing to do this.  Home owners insurance rates can vary and your credit score will impact your insurance rate.  Also if the home has a history with certain insurance claims, there could potentially be issues that are better to be aware of early in the process.

Step 8: Loan is processed.  Once we have a signed around agreement, your loan is processed and various services are ordered or set up.  This is also the time to review you lock options to determine whether you want to commit to an interest rate or float (not lock). 

Step 9: Loan is approved.  The loan approval may come back with conditions.  This happens after the underwriter reviews what has been submitted to them during the processing period. 

Step 10: Do the final walk through. 

Step 11: Go to settlement.  Prior to your escrow appointment, I recommend that you obtain a copy of your estimated HUD-1 Settlement Statement 1-2 days in advance so that you have time to review the final figures.  Be sure to let your mortgage professional and escrow officer/settlement agent know that you expect this as the lender will need to provide your loan documents to the closing company a few days earlier than "the norm".  The same is true if you want a complete copy of your loan documents to review prior to your signing appointment.

Step 12: Move in!  Yay–this can be such an exciting time!  Typically there may be a few days between signing your closing documents and moving into your new home. 

Filed Under: Disclosure Forms, Good Faith Estimate, Mortgage, Opinion, Rant, Residential Purchase

Always Read All of the Fine Print

December 9, 2009 by Leave a Comment

I've been noticing at my bank a new promo offering "1% mortgage cash back".  My husband has enjoyed teasing me saying stuff like "why would anyone use you?"  And when he was at the bank branch, he asked a mortgage-teller if this was legit they replied something along the lines of "yeah, isn't this great!"

Today I received my monthly bank statement and sure enough, stuffed inside was an advertisement for the "1% mortgage cash back.  The bold print states that "you will receive 1% of your principal and interest payment back each year!"

But it's the fine print you need to read…by the way, the fine print takes up about 30% of this add…you really have to read everything word by word.  In the middle of the print, I found what I was looking for:

"There is a $500 calendar year cap on the principal reduction and cash back amount…"  and by the way, you must have (or get) a checking account with this bank in order to get up to $500.

And it get's better…when I priced out a refinance scenario based on excellent credit, a $400,000 loan amount and a home valued at $500,000; I was quoted 0.25% higher in rate than what I would offer today on a 30 year fixed rate (4.625%/APR 4.777).   Serious.   That bank is making pretty darn good change on that extra quarter point in interest while giving the consumer back a maximum of $500 per year.

In my opinion, this is a terrible way to potentially trick consumers into thinking they're getting back much more than $500.  To me, 1% of your mortgage sounds like 1% of your loan amount and with this promo, it's not.

A quarter point interest rate difference on a $400,000 loan amount will pay you about $60 per month or $720 a year!  Not to mention interest paid over the life of the loan.

My advice, work with someone who can offer you a more competitive ratedon't chase a bad gimmick from a bank.  

Filed Under: Mortgage, Rant

Review of HUD’s New Good Faith Estimate: Part 1

August 26, 2009 by Leave a Comment

UPDATE August 31:  HUD just issued their 2nd revision to the RESPA FAQs…let's hope the third time is a charm. 

As I mentioned in a previous post, I'm going to be doing a series to review the Good Faith Estimate that will be mandetory on new residential transactions effective January 1, 2010.

The top of the new form is not earth-shattering.  It includes contact information for the mortgage originator and the borrowers' name, property address and the date the GFE was prepared.  An improvement would be to have the estimate also include the actual time it was prepared as well since we are averaging 3-4 new rate sheets per day.

HUD created this new GFE so that consumers could shop by rate and fees, ignoring the qualifications of the mortgage originator.  On the top of the form, they encourage you get three quotes.

GFEshopping

We'll delve deeper into the "shopping cart" in a future post.  Can you imagine if HUD also encouraged borrowers to compare the expertise and track-record of the mortgage originator?

The section "Important dates" is on the top half of the new Good Faith Estimate.

GFEImportantDates

Item 1 is suppose to let consumers know how long their rate quote on said estimate is good for.   There is no way to guarantee how long a rate is good with a quote unless the borrower is locking at that instant–infact, rate changes can and do happen while you're trying to lock in a rate.   Mortgage originators do not have crystal balls to know when or if the next rate change is coming. 

Item 2 is suppose to give the consumer a date for how long the closing costs are good for.  Again, this is assuming the mortgage originator has some magically control over third party services, such as the appraisal, title and escrow.  We have no way of knowing for certain if rate increases or reductions are planned by the various companies that are involved with putting together a real estate transaction.  The estimate can only be reflective of what fees are at the moment in time that GFE is prepared. 

Item 3 is just intended to disclose the lock period.  The most common lock periods are 30, 45 and 60 days.  Without a closing date on a purchase, you do not know the lock period.   Some borrowers may decide to float (not lock) and home buyers without a signed around contract do not know what the agreed to closing date is.

Item 4 provides the consumer with a drop dead lock date.  I don't have an issue with this.  Consumers should know how long they can float should they decide to gamble the markets with mortgage rate.

Per HUD's New RESPA Rule FAQs, which they've all revised just 7 days after it was first issued, Good Faith Estimates expire after 10 business days:

If a borrower does not express an intent to continue with an application within ten business days after the GFE is provided (or such longer time period specified by the loan originator), the loan originator is no longer bound by the GFE.

I'm assuming this does not apply towards interest rates where the rates may be the same or we could have experienced 30 rate sheets within the said 10 business days.  I'm also concerned about this language as the loan originator cannot guarantee that certain loan programs and underwriting guidelines will be available within any time period.   Unless the borrowers information (credit, income, assets) and the mortgage world has not budged in ten days, I'm not seeing how a mortgage originator can be bound to the GFE.

I do stand by my good faith estimates, however until an application is made, all supporting information is provided and the rate is locked, there cannot be any guarantee.  There are too many moving parts and uncertainty.   Mortgage originators will need to state clearly to the consumer the rate is based on x, y and z and as long as all of these hold true, your estimate is "binding" for 10 business days assuming the rates are the same at that moment, underwriting guidelines have not changed and the program is still available (as I'm writing this post, I'm receiving notice from one of the lenders I work with that they are no longer offering the 40 year amortized mortgage).  Do you see an issue here?

Watch for my next post in this series where we continue reviewing the first page of HUD's new Good Faith Estimate.

Filed Under: Disclosure Forms, Legislation, Mortgage
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