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

Not so much Good in the new Good Faith Estimate

August 25, 2009 by 3 Comments

Effective January 1, 2010, HUD is requiring mortgage originators use a new Good Faith Estimate which was designed to reduce the confusion for consumers and HUD claims that the "new Good Faith Estimate will help borrowers save nearly $700".

The new GFE is drastically different than the current form and in my opinion, it's not all for the better.   To begin with, the new form is three pages long instead of the current single page form…this seems to be the wrong direction for reducing paperwork for American borrowers. 

The intent of the new form is to "help consumers shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers".   If you are a long time reader of The Mortgage Porter, you know that I strongly feel that you should select the person who is going to help you with your mortgage, possibly the largest debt in your lifetime that is attached to your most valuable asset, by rate and cost could be one of the most expensive mistakes you ever make.   Other factors are overlooked when you're chasing the bottom dollar or a rate that you're not in position to lock when rates are changing 3-4 times per day on average in this turbulent market. 

What's more important than rate and fees?  How about making sure you're working with an experienced and qualified mortgage originator who can navigate your transaction to closing for starters.  It is more important than ever to select a mortgage originator who stays current on underwriting guidelines and who will roll up her sleeves to work for you.  If you're working with an originator who cares about her clients returning to her, has referral business (does not have to rely on cold marketing or junk mail to find clients) and who is ethical; then a fair competitve rate and fees will follow.  

Don't get me wrong, you should compare…but compare more than rates and fees.  Not shopping the mortgage originators qualifications and focusing only on the dollar may wind up producing a "potentially harmful loan offer" that is not suited for your financial scenario. 

I will be reviewing the new Good Faith Estimate in a series of posts here at The Mortgage Porter.   Stay tuned.

Filed Under: Legislation, Mortgage

What is your Mortgage Exit Strategy?

August 20, 2009 by Leave a Comment

I actually wrote this almost 2 years to the day at Rain City Guide.  A recent track-back brought this past article back to my attention.  Since I'm taking a short break from blogging and mortgage this week, I thought I'd share this oldy-but-goodie with you. 

Unless you have a long term fixed rate mortgage, you should develop an exit strategy.   An exit strategy is a well thought plan on how you’re [photopress:airplaneexit.jpg,thumb,alignright]going to leave your current mortgage.  Every time you board an airplane, the Stewardess reviews the “exit strategy”.   They’re not planning on an actual emergency landing, they are simply preparing you for a worse case scenario and informing you where the exits are and what you need to do in that event.  

You should have a plan if your current mortgage is:

Having a plan (being prepared) does not mean waiting until you receive a notice from your mortgage company that your mortgage payment is hiking because your fixed period on your ARM is over.   You need an exit strategy because once fixed period is over and your mortgage adjusts, odds are that your new mortgage payment will not be desirable or affordable.  

You need to start developing your plan well in advance.    Here’s what I recommend:

  1. Find the Note for your mortgage (deed of trust) and determine what your new rate may be using the worse case scenario.   If you have an ARM, you can figure this out by adding the first cap to your interest rate.   For example, if you currently have a 5/1 ARM with a note rate of 5% and the first adjustment rate cap is 5% (5/2/5 is a common cap structure), your new rate could be 10%.   If the first adjustment cap is 2% (2/2/6 is another possibility); your new rate could be 7%.   If your ARM has an interest only feature and will also be converting to amortized payments (some have longer interest only terms beyond the fixed rate period), you’re in for a double whammo if you’re keeping the mortgage.
  2. Determine what your worse case payment may be.  Your new payment will be amortized over the remaining term of the mortgage.   Use an amortization schedule to see what your mortgage balance will be at 60 months (using the 5/1 ARM scenario) and figure your payment based on the maximum possible rate amortized for 300 months.   This new payment does not include taxes and insurance.  In fact, anyone with an adjustable rate mortgage, regardless how long the remaining fixed term is, should contact their LO to determine what their “worse case payment” may be when their mortgage’s fixed period is over.
  3. While you have your Note out, review it to see if you have a prepayment penalty and when the term is over.   It’s possible that you may or may not want to wait for this to expire depending on your personal circumstances.   Even if you have a prepayment penalty, don’t stop preparing your exit strategy.
  4. Visit www.annualcreditreport.com and review your credit report.  You don’t need to sign up for all the credit bureaus extra stuff.   In fact, I recommend that  you just use one of the bureaus to pull your information for review and select another bureau in 4 months and the last bureau in 8 months so that you are constantly reviewing your credit information.  
  5. If you’re satisfied with the Loan Originator you worked with, contact them and ask them to review this information with you.   Most Mortgage Professionals will provide Annual Reviews for their clients which includes assessing their current mortgage, examining their credit report and reviewing goals (including if you’re planning on retaining your current home and/or mortgage).

Of course selling your home is another way to exit your mortgage.   In this case, I recommend that you price your home correctly.   I’m noticing more “new price” signs on listings in my neighborhood of West Seattle (I guess “new price” sounds more fresh than the old “price reduced” signs).   If you wait too long to work on your exit strategy, you may have to sell if you’re not able to refinance due to not being in the posititon to qualify for a new mortgage (this is why I strongly recommend meeting with your Mortgage Professional ASAP).

You cannot start too soon in preparing your exit plan.   The more time you allow yourself (at least 12-24 months in advance of a rate change), the more improvements you can make to your credit scores, assets, employment and home equity.   Avoid a rough landing and meet with your Mortgage Professional to work on your strategy to be in the best possible position when it’s time for you to exit your mortgage.

Filed Under: Mortgage
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