Why Your Loan Originator Needs a Complete Application BEFORE Locking a Rate

May 19, 2008 by Leave a Comment

A home owner contacted me wanting to know how their rate could change so much from their original lock with his current lender for his refinance.   He thought this was his scenario:

15 Year Fixed Rate at 5.375% (I’m assuming that he was paying a point–I cannot tell from this lenders lock confirmation).  Here are the other factors this rate was based on for a $417,000 loan amount:

  • Rate Term Refinance (no cash out, he’s actually bringing cash to closing in order to bring his loan amount down to the conforming level).
  • 700 Mid Scores
  • 62% Loan to Value

The LO locked in the rate based on this information about two weeks ago and just provided a "lock confirmation".  It’s actually a lock request with the lender she’s brokering the loan to.   Two weeks later, the borrower finds out that his loan is being priced based on the following:

15 Year Fixed Rate at 5.75% or 15 Year Fixed Rate at 5.375% plus 1.50 additional points.  Why the change?  After 2 weeks, the LO lets the borrower know that the loan is repriced due to:

  • Cash Out Refinance = 0.75% Hit to Fee.  He has a second mortgage that is being paid off with the refinance that was not from when he purchased his home. Fannie/Freddie classify this (paying off a non-purchase money second) as a "cash out" refinance, even though he’s bringing cash to closing.
  • 627 Mid Credit Score with a 70% loan to value = 0.75% Hit to Fee.  This came to a surprise to the borrower who actually thought his scores were much higher.  With Fannie/Freddie’s credit score (risked based) pricing, this is another whammo to the borrower.

Cash out and the borrowers credit scores should have been known to the Loan Originator if not prior to locking the loan, then mere moments afterward.  The LO should have immediately notified their client of the differences between the information used to lock the mortgage and reality.

Loan to value can be tricky for a LO to know with certainty…especially these days.  We often have to rely on our clients to give us an honest estimate of what they feel their home is worth based on what other homes like theirs have sold for in their neighborhood.   Until we have the appraisal, we do not know how the home will be valued.    

I’m sharing this story because there are valuable lessons here for us to learn from.

Borrowers:

  1. If you’re serious about locking in a mortgage rate, complete a loan application for your Mortgage Professional and allow them to run your credit.
  2. Obtain a written Lock Confirmation within 48 hours of locking in your rate.
  3. If you smell something fishy…it’s probably shark.

Loan Originators:

  1. If you have bad news (lower credit score, repriced lock, low appraisal, etc.) deliver it right away.  Don’t wait…it’s not going to go away.  Let your client know in full detail what you’re having to deal with and what steps you’re going to take to remedy with.
  2. Whenever the terms or cost of the proposed mortgage change, contact your client and provide them with an updated Good Faith Estimate. 

Currently, this borrower feels the LO gambled his mortgage interest rate.  After reviewing the documentation I’ve been provided, I think it’s more likely that she was just really a really poor communicator.   Perhaps she was hoping rates would improve enough to absorb the significant 1.5% hit to fee…I can really only guess.

This is far more than a getting a "rate quote" and saying, "that sounds good, lock it".  When you’re locking in your interest rate, you are commiting to the Loan Originator and the Loan Originator is making a commitment to the lender that the loan will be funded.  Your lock is only as good as the information used when it was submitted to the lender. 

Filed Under: Mortgage, Predatory Lending, Refinance, Residential Purchase

How to Apply On-Line for a Mortgage Preapproval

May 6, 2008 by Leave a Comment

I recently had this excellent question from one my readers who is interested in getting preapproved:

I began filling out the loan application on the web, but stopped once I reached the part about the specific property, as I don’t currently have a property in mind.  I believe what I am seeking to do [is] a true preapproval letter.  I did read your post which clarified the difference between prequalification and preapproval.  Is there a way to submit the full-doc information to you electronically to start the process for preapproval?

Mortgage Porter’s On-line Application (under Favorite Links) allows you to apply for mortgage preapproval before you have a property address.   This is question is very valid because there is not a formal way to select that the property has not yet been found.  Ideally, home buyers should get preapproved before they make an offer on a home.  Anyhow, where the application asks for a property address, simply enter:

123 TBD St., Your City, WA, Your Zip  (NOTE:  I’m only licensed to help those who need a mortgage in Washington State).

During these historic times in our mortgage industry (and actually, in any time) it’s crucial to get preapproved BEFORE you begin to shop for your next home.

I’m really glad that I was emailed this question so I could address it…otherwise, I might not have caught this.   Thanks!

Filed Under: Mortgage, Residential Purchase, Tech/Tools of the Trade

So You’ve Just Become a Home Owner…Feeling Popular?

April 21, 2008 by 2 Comments

You will soon feel quite popular if you’ve just bought a home or at least your mail box will be with tons of junk mail.  Over the weekend I received an email from one of my clients who closed on their new home last month:

"As I’m sure is typical, we’re being deluged with mortgage junk mail.  I see you have several highlights of particularly bad ones you’ve seen, but is there any way to stop the flood?  I know there’s a marker you can put on your credit report that stops credit card offers – is there anything similar for mortgages?"

In a nutshell, your Deed and Deed of Trust are recorded at the county which become "public record".  There are companies that research, buy and resale this information to those wanting to reach out to new homeowners.  You’re more popular than you’ve ever wanted to be…it’s the welcome wagon of junk mail.   What’s worse is that some companies will present the information as if they are a part of or teamed up with your lender.   

Please check back with your original lender before taking up some of these offers to verify if they are indeed from your mortgage company–the trickery they will resort is amazing and sickening.

Here’s a great article that I read another local blog, A Generous People regarding getting rid of junk mail.  I hope it helps!  In the meantime, I recommend opening your mail over your recycle bin. 

Filed Under: Predatory Lending, Rant, Residential Purchase

The Current Value of a Preapproval Letter

April 1, 2008 by Leave a Comment

Fellow Rain City Guide Contributor, Tim Kane wrote an interesting post while I was on vacation asking if preapproval letters are worth their ink in our current market.  Truth be told, this was a valid question prior to our current market conditions and has been for years.   The true worth of the preapproval letter prior to the mortgage "melt down" was based on the merit of the loan originator who was preparing the letter.   I’ve addressed this issue before here and here.   Anyone can type a letter or issue a fancy certificate; has the borrower really submitted supporting documents verify their income, employment and assets required per underwriting (i.e. the borrower has been credit underwritten)?   

The fact is, in today’s current mortgage climate, where loan programs are terminated, guidelines tightened, private mortgage insurance restricted and geographical areas are being deemed soft: a preapproval letter is not any sort of guarantee that a home buyer will be able to close on a proposed home purchase.   

So why bother with preapproval letters?  Here is the current value of a true preapproval letter:

  • It demonstrates that the buyer has completed loan application and is preapproved at that moment for a specific product.   
  • There is a level of commitment that a buyer has if they have provided all of their documentation to a lender over one who has not taken the steps to become preapproved.
  • You know who the loan originator and lender is that the buyer is working with.   I’ve recommended before, and especially do now, that Selling and Listing Agents give the Loan Originator a friendly phone call to introduce yourself…allowing you to see if the LO passes "the smell test".

What can you do if preapproval letters are worth less than they were before?

  • I recommend that all buyers with a credit score below 700 and/or using less than 20% down have a "Plan B" for their mortgage scenario.   Consider "what if" the mortgage scenario they are current approved for is terminated with no notice from the lender or if the area they are buying a home in is considered soft?  Is your Loan Originator able to offer FHA or VA financing?  Note:  FHA and VA jumbos are quite attractive.
  • Home buyers should start even earlier in the home buying process (six months to a year is fine).  A Mortgage Professional can help improve credit scores and provide advise on how work on where they may need more strength to be on the best position possible to buy a home.
  • Allow more time for preapprovals from lenders.  Underwriting (and appraisals) are taking more time in this climate.   Everything is being reviewed under a microscope.
  • Review your current preapproval with your Loan Originator.  There have been recent pullbacks with private mortgage insurance (including LPMI, Fannie Flex and Freddie Mac higher LTV products).
  • Home Buyers should discuss with their Real Estate Agent (not the Listing Agent) the "what ifs" of losing their financing and how it may impact their earnest money deposit.
  • Listing Agents should have their preferred Mortgage Professional review the preapproval letter should their be any doubt regarding the letter in question.  The preferred Mortgage Professional can at the very least provide some valid questions for the Listing Agent to ask the loan originator and Selling Agent.

This market demands that you select a Mortgage Professional based on ability, expertise, commitment and available products.   Trying to get the lowest rate in a market where rates change up to 3 to 5 times per day is insanity.  A true Mortgage Professional will provide you with the most competitve rate available considering your current mortgage plan. 

Filed Under: Current Affairs, Mortgage, Mortgage Insurance, Residential Purchase

Recently on Rain City Guide

March 26, 2008 by Leave a Comment

I can’t tell you how honored I am to be a part of Seattle’s Rain City Guide.  Here are a couple of recent posts that I really encourage you to check out…

Jillayne Schlicke just wrote a dead on post regarding our local situation with affiliated business arrangements between real estate, title and escrow and mortgage companies.  This is a topic close to my heart as before I was in lending (8 years ago), I was in the title insurance industry for 14 years.  I’ve seen drastic changes over this time since large real estate companies have entered into arrangements with title companies.   Now the State is stepping in with new regulations.   Read Jillayne’s post: Title Insurance Affiliated Business Arrangements Under Scrutiny.

ARDELL wrote a very timely post: Should You Buy Before You Sell?  Her answer is NO!  And during these times, I’m likely to agree.   Bridge loans may be hard to come by and properties are taking longer to sell.

Don’t forget…I’m on vacation and will return on April 1.

Filed Under: Residential Purchase, Title Insurance, Weblogs Tagged With: ,

It’s Official: Zero Down is Gone

March 21, 2008 by 6 Comments

Iceage_2Unless you’re eligible for VA financing within the conforming loan limits, 100% LTV financing (aka "zero down") is no longer available in the conforming mortgage markets.   

The following products are extinct:

  • Fannie Mae Flex 100
  • Freddie Mac 100
  • My Community Mortgage 100
  • Home Possible 100

If you are short on down payment with credit scores below 680, you should consider FHA financing, which is not as credit score sensitive as conventional programs.  Fannie Mae Flex 97 is still available as well as Home Possible 97.  Both conforming programs allow for 3% down.

Home buyers should also plan on having "reserves" after closing.  The amount of reserves may vary depending on the program from 2 – 6 months of proposed mortgage payments for owner occupied when it’s said and done.   Real estate agents, your first time home buyers may need help with closing costs from Sellers…if they’re willing…in order to meet the reserve account conditions. 

We’re rolling back the underwriting guidelines…not all the way back to the ice age…but close!

If you’re considering buying a home or refinancing, meet with your Mortgage Professional sooner than later so you have time review your credit and consider your options.

Filed Under: Credit Scores and Reporting, Current Affairs, FHA, First Time Home Buyer, Residential Purchase

New Conforming Loan Limit Won’t Help Refi’s w/2nds…FHA May Save the Day

March 13, 2008 by 2 Comments

Fannie Mae’s underwriting guidelines for the temporary conforming loan limits have been released and it looks like the new loan amounts are not going to be as helpful as many had hoped.   The new guidelines for loan amounts between $417,001 – $567,500 in King, Snohomish and Pierce Counties are far more strict.

The biggest whammy is that if you were hoping to combine your first and second mortgage (or heloc) into one new conforming-jumbo mortgage, you’re out of luck.  Fannie is not allowing any "cash out" refinances.  This means that even if you were just paying off the two mortgages and not receiving a nickle back at closing–it’s not going to fly. 

You must have a minimum of 660 credit scores for a fixed rate purchase for a LTV of 80% or less for a purchase using a fixed or adjustable rate.

Limited cash out refinances are allowed up to 75% loan to value with a minimum 660 credit score.  Limited cash-out means that you are allowed to roll in the closing costs to the refinance and receive no more than $2000 cash back at closing (no second mortgages/helocs can be included in the refinance).

Update:  it appears that Freddie Mac will allow cash out refinances up to a 75% loan to value with a 720 minimum credit score.

Adjustable rate mortgages are qualified at the fully amortized PITI at the higher of the note rate or fully indexed rate (worse case rate). 

Be prepared for a "full doc" mortgage.  There is no "stated income" allowed.   You will also need two months of reserves (PITI) and are limited to a 45% DTI (debt to income) ratio.

You can only have four financed properties, including your principal residence.

On Monday, I believe lenders will finally unveil pricing…which again is said to not be as exciting as consumers had hoped.  I’m hearing that the rates will fall between current Jumbo and conforming.   

Rumor has it that the FHA-jumbo will be more friendly to "jumbo" homeowners…if they can get over paying the upfront MIP (1.5% of your loan amount) and monthly mortgage insurance (0.5% of your loan amount/12 months).   For example, on a $500,000 loan amount, the upfront MIP would be $7500 (typically financed into the loan) plus monthly mortgage insurance in the amount of $208.33…even if you have an 80% loan to value.  We’ll just have to wait and see a couple more days.

Remember, these loan limits only last through December 31, 2008.

More to follow. 

Filed Under: Home Equity Loans & Second Mortgages, Jumbo/Non-Conforming, Refinance, Residential Purchase

Shiney New and Temporary Conforming Limits…Not So Fast!

March 7, 2008 by Leave a Comment

I feverishly posted the new FHA and conforming loan limits for Washington State.  It was pretty darn exciting since many of us in the industry were hearing whisper figures of $493k or so and voila, our new FHA and conforming limit for a single family dwelling is $567,500 for King, Snohomish and Pierce Counties.  This could be a nice bump through the end of this year.

The word is out!  Many Seattle, Bellevue, Everett and Tacoma area homeowners are VERY interested and want to take advantage of "conforming rates" now.   Not so fast….sorry.  (Hey…I’m really hoping that on Monday, I’m eating my words…the proof is in the pudding).   So far all that’s happened is that the loan limits have been announced.   This whole process needs to trickle from Fannie Mae and Freddie Mac and through all the wholesale lenders before those of us on "the streets" can offer you any benefits.   

Be prepared.  I fully expect an "add to rate" on loans from $417,000 – $567,500 (or what ever your area conforming limit is).   This will be to compensate Freddie/Fannie for the additional volumes and risk they are taking on.   The big question is: how much will it be?  My best guess is anywhere from 0.25% to 1.00% to what you currently see for conforming.   

"WHAT?" You say… "You’re telling me that you just quoted 6.00% for conforming today…and 7.00% for JUMBO…yet the new conforming rate for loans over $417,000 may still be 7.00% if I were locking today?"

Yes…that’s what I’m saying.  Again, PURE speculation on my part.

The "new conforming limit" goes back to July of 2007.  It’s retroactive for jumbo mortgages still not bought on Wall Street clogging credit lines.   I think that’s where we may see the most action:  rescuing the Thornburg Mortgages of the world (or at least Wall Street).  This from Bloomberg:

Thornburg specialized in so-called jumbo mortgages of more than $417,000, which typically were used to buy more expensive homes. Until recently, such loans were too big to qualify for purchase by government-sponsored entities such as Fannie Mae. Trading for such “non-conforming loans has come to a standstill, cutting off a source of funds for mortgage companies and pushing down the value of their holdings. More than 100 halted operations or sought buyers last year.

The company’s demise would reduce liquidity even more, said Keith Gumbinger, vice president of HSH Associates, a mortgage- market research firm based in Pompton Plains, New Jersey.

“No one has had anything bad to say about Thornburg; they have served the good-quality, high end of the market,” Gumbinger said. “It’s been a good, well-run business that is taking a beating because of market conditions.”

Thornburg is not a part of the subprime melt down they are being sucked into.  My best guess is that due to the volume and risk of loans that Fannie and Freddie will take on through the end of this year, consumers will see a benefit in pricing when the credit lines have been relieved.   

This may not be the band-aid we’re hoping for.  I don’t want to be a "bummer"…I do want to be practical. 

My best advise to those in the "new (temporary) conforming market" is to not wait for the new limits to be in effect.  Check with your Mortgage Professional to see if they can switch your program to "new conforming" IF it’s a better rate/scenario for you if you’ve all ready began the process under the current guidelines.  This is something that I can offer and I would assume most Mortgage Professionals are able to as well.

Filed Under: FHA, Legislation, Mortgage, Residential Purchase
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