My thoughts on NAR’s Pending Home Sales for April: Mortgage Guidelines are NOT “Excessively Tight”

May 27, 2011 by Leave a Comment

This morning NAR released the Pending Home Sales report which revealed that "contract signings, dropped 11.6 percent in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit." Pending home sales is a forward indicator since it's reporting on contracts that are signed but not yet closed.

Lawrence Yun, NAR's Chief Economist states that part of reason for the larger than expected drop is due to how difficult it has become to obtain a mortgage. 

“No doubt the continuing excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow…We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings….” 

It's my experience that it's not that difficult to obtain a mortgage and underwriting guidelines are not "excessively tight".  The difference between qualifying for a mortgage now and pre-2007 is that borrowers must now prove (provide supporting documentation) that they meet program guidelines.  Stated income, low or no-doc loans are gone.  

  • Every penny of your down payment and funds for closing must be documented with complete bank statements (all pages) or other asset accounts being used.
  • Large deposits on your bank statements must be sourced (more documentation) to show where the funds came from.
  • Employment must be steady.  Buyers are not required to have been on the same job for the past two years…heck, they can be out of college (may count as employment) and there may be some unemployment periods…it needs to make sense and be documented.
  • Income must be steady.  If a potential borrower is not paid salary (hourly, commission, bonus, self-employed, etc.) they need to show they've received this type of income for the past two years.
  • Borrowers must be able to afford their home based on their income and debts. Some debts where payments are deferred, like student loans, are factored into your debt-to-income ratios…one day, you are going to have to make payments on it!  
  • Borrowers who take out new debts before funding (closing) of their loan, may find they no longer qualify for their mortgage.  Doesn't this make sense? Yes, home buyers may need new a washer and dryer…however if they're borderline with their credit or pushed with their qualifying ratios, they risk blowing up the purchase just before closing due to "LQI".  Home buyers need to make sure they honestly reflect the loan application from the start of the transaction to finish.

Okay, I'll admit that credit scoring has become tougher. Pre-2007, a person with 600 credit scores (or lower) could qualify for a mortgage.  Now you pretty much need a mid-credit score of 630 or higher for most loan programs.  And their are price hits (risked based pricing) that are factored into interest rates based on loan to value and credit scores.  Credit scores are reflective and borrowers can work on improving their credit scores (and should).  

Income is also scrutinized more than before with 4506Ts being required on every transaction. If your income is higher on your loan application than what you claim on your tax returns, be prepared…you'll be providing additional documentation (tax returns) even if you're paid a salary and your income may be adjusted lower.

Here's where Congress may really muck up the housing recovery, especially in light of this report:

  • Lowering the conforming loan limits, which is scheduled to happen on October 1, 2011.  In the Seattle area, the current conforming loan limit is $567,500.  Effective October 1, 2011, it's set to roll back to $506,000 meaning that loan amounts of $506,001 or higher will be "jumbo" non-conforming.  Jumbo loans have much tougher guidelines and higher rates which does mean that fewer people will qualify for higher priced homes.  Loan limits are also set to be reduced for FHA and VA loans after September 30, 2011.  By the way, 2012 loan limits may be even lower!
  • Increasing the minimum down payment for FHA loans from 3.5% to 5%. Congress is working on this right now and it's been tossed around by our government for quite a while.  Does having 1.5% more "skin" in the game really make a more responsible borrower?  I don't think so.  I would rather see that a borrower have that 1.5% in their savings than invested as down payment (where they do not have access to it should they have an emergency) in a home.

People can still get a mortgage today.  It bothers me that NAR and others are painting that mortgages are too tough to obtain…painting an inaccurate picture does not help the housing market either.  Today's buyer needs to be prepared to provide plenty of paperwork to support they actually qualify for the mortgage by showing they earn what they say, have the funds for closing and are employed.  What's wrong with that?

If you are considering buying a home, I do recommend meeting with a local licensed mortgage professional as early as possible to start on the prequalification process.  If your next home is located anywhere in Washington State, I'm happy to help you!  

PS: I still believe that it would tremendously help the housing markets recover IF home owners who want to refinance and who qualify based on credit, income and employment are allowed to without an appraisal…very similar to an FHA streamline refi. This would allow people who want to stay in their homes and who qualify, to be able to take advantage of today's lower rates and not cause them to be punished due to lower appraised values.

Filed Under: Legislation, Rant, Real Estate Agents, Residential Purchase, Underwriting and Qualifying

How to Select Your Mortgage Originator

March 25, 2011 by 1 Comment

I’m working with a West Seattle couple who are getting ready to buy their first home.  This is something that is not unusual for me to hear:

“Our real estate agent was wanting us to contact a few lenders and have them all pull GFEs on the same day with the same perameters so we can choose who to go with. Then whoever has the best rates/lowest fees we were planning to have pull our credit…”

The real estate agent has good intentions, however this may not be the best advice for how to select a mortgage originator.   First of all, this couple may find it difficult to estract a good faith estimate from a mortgage originator without being in contract.  This is due to HUD’s [flawed] regulation that if a LO issues a GFE without a property address, once the buyers actually have a contract, the bona fide address of their new home will not constitute a “changed circumstance”.

It is solid advice that if you’re going to shop lenders, do so at the same time with the same perameters–just don’t expect a good faith estimate.  DO get something in writing from the lender (it may go by many different names, including “rate quote” or “worksheet”, etc).

In addition to rates and fees, here are some other suggestions I think one should consider when selecting the professional who will be helping them obtain the financing of their home:

How long have you been a mortgage originator?  I began originating mortgages on April 1, 2000.  Prior to that, I was in the title and escrow business for 14 years.

What type of mortgage company/institution do you work for?  Most will say bank, correspondent lender (some LO’s will call themselves “mortgage bankers”), mortgage broker or credit union.  Each type of company offers unique advantages or disadvantages.  Mortgage Master Service Corporation is a correspondent lender.

What type of programs does your company offer?  We offer FHA, VA, USDA, Conventional, Jumbo (non-confoming mortgages).   If you’re considering a certain program, such as FHA, ask the LO how long they’ve been originating that specific type of program.

Where are your loans physically underwritten?  I’ve worked with our same underwriters for over 10 years at our main office in Kent since 2000. 

Are you NMLS Licensed or Registered?  There are differences between what each type of LO is required per the SAFE Act between Licensed and Registered LOs.  LO’s who work for a bank or credit union will try to tell you that they’ve been adhering to the SAFE Act…only Washington Licensed LO’s are regulated by DFI and have a license to lose.  There is more required of LO’s who are licensed per the SAFE Act than those who are registered.  I’m NMLS Licensed and have been licensed since 2007 (when state licensing started).

I also recommend “googling” your mortgage originator.  It’s totally my opinion, and perhaps a bit biased, that if your mortgage originator blogs or has a social media profile, their reputation is gold to them.  They tend to be more transparent and current on ever-changing guidelines IF they are writing their own content.   Google me!

Filed Under: Real Estate Agents, Residential Purchase

How Much Info Can Your Mortgage Originator Share – Part 2

January 26, 2011 by 1 Comment

Jillayne I asked Jillayne Schlicke of CE Forward to chime in on a question (below) that I received from one of my readers.  I’m happy to say, she wrote an entire page and therefore, I’m sharing this post, written by Jillayne with you.  Part 1 of this article, where I address the question, can be read by clicking this link.

As a loan originator, is it ethical to deny someone for a loan and then turn around and share not only that the loan was denied, but the EXACT reason the loan was denied (for example: too many NSFs, large deposit in checking account, hours cut back at work, etc.) with the applicant’s Realtor as well as the listing agent who in turn shares it with the sellers?

Jillayne’s response:

[Read more…]

Filed Under: Mortgage, People, Real Estate Agents Tagged With: , , ,

My Thoughts on the Future of Home Mortgages and Home Ownership

August 18, 2010 by Leave a Comment

Yesterday, I had the Future of Housing Finance playing in the background as I was working away on rate quotes and lock commitment confirmations for a few of my clients in the Seattle area.  Oh how I wish that I, or a fellow mortgage origintor who has been originating mortgages since pre-subprime days could be on the panel.  Since I'm not, I'm going to share a few of my thoughts on this post.

People who currently have a mortgage and who are credit and income qualified (have made their payments on time) should be allowed to refinance without an appraisal.  This would not only help home owners save hundreds of dollars each month with their mortgage payment, the end benefit would be real stimulus for the economy.

I believe all mortgage originators, regardless of the type of institution they work for, should be held to the highest standards of the SAFE Act.  (Currently mortgage originators who work for banks or credit unions are not licensed).  

I also feel strongly that those who present themselves to be residential mortgage originators (licensed or registered) should not be allowed to also sell real estate.  I'm concerned this has huge potential for fraud and the home buyer is not best served when a real estate agent knows the fine details of the buyers finances.  I view this as a huge conflict of interest.   HUD all ready has this standard: real estate agents cannot originate an FHA insured loan.  I'd like to see this implemented with conventional financing.

Last but not least, not everyone in American needs to or should own a home.   Owning a home is not a right, it's a privelidge that's one's personal financial choice.  And there's nothing wrong with renting a home.  Renting a home, like obtaining a mortgage, is a personal financial choice.  

What are your thoughts? 

Filed Under: Opinion, Rant, Real Estate Agents

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

What Should a Preapproval Letter Contain?

April 21, 2010 by Leave a Comment

This isn’t the first time I’ve written about preapproval letters at The Mortgage Porter…however it has been a while and I would say that with all the changes in the mortgage industry, your preapproval letter is more important than ever.  Most Seattle area real estate agents will not accept an offer on a home that’s listed for sale without a bona fide preapproval letter.

Preapproval letters may vary in appearance and content from lender to lender.   Some mortgage companies may have different protocal for when a preapproval letter may be issued.   When I provide a preapproval letter, it means that I have a complete loan application, most likely with exception to the property address since the home buyer has not yet identified a home.   It also means that the home buyer (i.e. borrower) has provided me all the necessary documenation that supports or backs up the information that has been provided on the loan application, such as

  • income documenation (to make sure they qualify for the proposed montly mortgage payment)
  • assets (at minimum, enough to cover the down payment and closing costs)
  • credit report…everything seems to be based on your credit score from potential interest rates to what you qualify for.   This is something that we need to pull if you are interested in obtaining an actual preapproval.

A good preapproval letter should address all of these items so that the seller and the real estate agents know how qualified the home buyer is.  This is done in a manner in which not to violate the buyers privacy.  For example, a seller or real estate agents should not see the buyers income, assets and credit scores.  If a buyer wants to share that information with someone other than their mortgage professional, it is up to them!   Instead, the preapproval letter will address that these items have been reviewed and are acceptable. 

For example, I might include something like this in a preapproval letter:

This preapproval is due to your job stability and excellent credit.  Funds to close this transaction are from your personal savings and a seller contribution in the amount of $5,000.

You can see that I have addressed income, assets and credit in this paragraph. 

My preapproval letter also includes program type, the sales price and loan amount.  Every so often I’ll have a real estate agent want me to leave the sales price blank.  This is something that we can do IF the borrower has substantial cash reserves.  I’ve found that some home buyers would rather not have their preapproval letters written this way…and I’m happy to provide several preapproval letters with staggered sales prices (as long as the borrower has documented the funds for down payment and closing costs).

You may find a total mortgage payment on a preapproval letter.  This is because borrowers are qualified by their mortgage payment since loans have a certain allowed debt to income ratio.  If a borrower is a little pushed with their ratios and they find a home within the sales price and loan amount they are preapproved for, but the property taxes or home owners insurance are higher than estimated or mortgage rates climb higher than what they were approved at, you no longer have a preapproved buyer.   Whether or not your mortgage originator includes what payment you’re preapproved for, it’s important to ask.

Any conditions to the loan approval should be included on the preapproval letter.  Standard conditions on our preapproval letter may include:

  • satisfactory purchase and sales agreement
  • satisfactory title commitment 
  • subject to appraisal 
  • subject to changes to financial situation as disclosed on the loan application (i.e. changes in your employment, debts or assets may jeopardize your preapproval status).

Preapproval letters may also have an expiration date.  Before our current lending environment, preapproval letters would be valid for a longer period of time.  Now credit reports and other supporting documentation “expire” earlier.  Should your preapproval letter expire, they’re typically easy to update by just supplying your latest supporting documentation (paystub, bank statement, etc). 

The letter should have a date and be signed by whomever prepared the letter with their contact information. 

When I prepare a preapproval letter for someone who’s buying a home located in Washington, at the very least, they have gone through preliminary underwriting.  If a mortgage originator has not obtained your documentation or if you have not completed a loan application, you are probably just prequalified and not preapproved.

With HUD’s new Good Faith Estimate, unless you have a property address, you may not receive a good faith estimate with your preapproval letter.  This is a glitch with RESPA that I hope HUD finds a way to correct.  Even HUD admits that if a mortgage professional provides a good faith estimate without a property address, they’re doing so at great risk (due to the financial liabilities packed in the new Good Faith Estimate).   Your mortgage professional can provide you with a “work sheet” until you have a transaction (property address).

If you are shopping for a home anywhere in Washington state, I’m happy to help you become preapproved. 

Filed Under: Real Estate Agents, Residential Purchase Tagged With: , ,

I hope to see you at The Pacific NW Housing Summit & Seattle RE Barcamp

March 13, 2010 by Leave a Comment

The Pacific NW Housing Summit and RE Barcamp Seattle are taking place this week on Thursday, March 18 and Friday, March 19, 2010. If you are in any aspect of the real estate industry, I hope to see you at both events!

Filed Under: Events, Real Estate Agents

Sunday Drive to the Tri-Cities: Washington’s Wine Country

November 16, 2008 by 4 Comments

Cari_2Editors Note: This Sunday Drive is brought to you by Cari McGee who knows her way around Richland, Kennewick, Pasco and surrounding towns as a Realtor in the Tri-Cities for Windermere.  Cari is also the author of The Real Estate Blog by Cari McGee.

Now that gas prices are back at feasible levels, you should think about taking a drive over to the OTHER side of our fair state.  The Tri-Cities (3-4 hour trip by car, depending on how fast you drive and what the traffic on the Pass is like) is a great place to spend a peaceful Sunday afternoon. [Read more…]

Filed Under: Real Estate Agents, Sunday Drive - Neighborhood Tours, Washington Cities Tagged With: , , , , , ,
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