Survey Says: Consumers Do NOT Want Higher Mortgage Rates

April 3, 2011 by Leave a Comment

I posted a survey last week with three questions regarding loan originator compensation for people who either have or who are considering obtaining a mortgage.  Here are the results as of 7:20 this morning (click image for a better view).

LOComp1 

80% of those who took the poll would rather allow their mortgage originator to have the freedom to price rates as they choose and to be able to use their commission to help with cost after locking (typically at closing).

20% would rather that rates were detached from the LOs commission and are willing to pay a slightly higher rate in order to have this "protection" and have the LOs commission restricted from being allowed to go towards any cost.

The results are overwhelming.  Consumers would much rather leave mortgage originator compensation alone.  They do  not want government interference with how a mortgage originator is paid.   Many mortgage originators do not want this rule either even though many will actually receive a "raise" since their commission will be fixed (no pricing leaning on an easier loan) and their commission is forbidden to be used in the transaction for anything (including helping out paying for an extension or other closing cost).

The Fed's Rule on "LO Comp" has been delayed by dramatic intervervention late Thursday (the eve before the the rule was to go into effect) by the U.S. Circuit Court.  We should have more information this Tuesday.

As of right now, you'll find that some mortgage companies and banks are proceeding with the rule and others are holding back until more is learned on Tuesday.  This can make a significant difference in your interest rate so you may want to check with your mortgage originator if you're locking on Monday if they are proceeding with the Fed LO Comp rule or not. 

Mortgage Master Service Corporation is delaying following the Fed Rule on LO Comp until we learn more on Tuesday from the Circuit Court Judges.   This means that I have freedom to price and lock your rates as I see as "fair" for at least one more day.

I will be posting mortgage rates tomorrow morning on my blog "as usual".  It could be my last mortgage rate post where I'm able to quote rates based on how I want to price them.

Related post:

The Feds Loan Originator Rule is a bad April Fools Joke on You, the Consumer

Filed Under: Polls, The Fed - FOMC

Happy April Fools

April 1, 2011 by Leave a Comment

It's no joke.  Today marks my eleventh year as a mortgage originator for Mortgage Master Service Corporation.  When I began in 2000, the only mortgages I originated were FHA, VA and conventional.  I was really fortunate because I had developed many strong relationships from being in the title and escrow industry for 14 years and that "JVs" had not yet really popped up.  I was fortunate.

The "jv's" I'm referring to are the joint ventures by several of the big real estate companies to create their own mortgage, escrow and/or title companies.   Broker owners like to do this because they have a captive audience with their real estate agents and the JVs create a great deal of income for them.  Many broker owners do everything in their power to steer business to their in-house joint-ventures. 

When I began in the mortgage industry, a great deal of my business was helping first time home buyers in areas like Federal Way, Des Moines and Renton since most of the agents I worked with as a title rep were in South King County.  Many of my first clients, I still work with today.  I'm so greatful to the agents and home owners who have referred business to me over the years.

I'm also thankful that I began my mortgage career BEFORE subprime mortgages plagued our industry.  Don't get me wrong, I still believe that for the most part, there are no bad mortgages (I never originated an option ARM and the few stated income loans I did, my clients actually made the income); there is bad applications or uses for the mortgage coupled with bad (or no) advice.  Subprime loans were misused by borrowers, loan originators, real estate agents and appraisers who lacked a moral compass or justified bad decisions by "every one else is doing it…it must be right".   Subprime made up a small portion of business for clients who found themselves in a "subprime situation" and/or who did not want to take the time to work on what ever was causing them to be "subprime" for qualifying (lack of credit, income or assets).  I would say many became lazy and impatient.  Fueled with rising home prices, many lost reason.  I do think subprime will come back…disguised under a different name, like "non-prime".  And there are many qualified home owners who could use a little "sub-prime" guidelines to help them keep their homes.

Today, new rules created by the Fed regarding how I may be compensated will go into effect.  This was suppossedly created to help predatory lending by not allowing LOs to increase a rate to make more commission.  I'm totally fine with having my income no longer a part of the conversation.  I am bothered that with how the Fed has structured this rule, mortgage originators can no longer use their commissions to help out with borrowers closing costs after the loan is locked (paying extensions, for example).  Consumers will wind up paying for what the Fed (and Frank Dodd this summer) has done.

Dadog  
I do plan on sticking around in the industry for at least another eleven years assuming our industry is not regulated to death.  I love being a mortgage originator and helping people meet their financial goals and desire to be home owners.  Thanks to everyone for your continued support, your referrals and for reading my blog.

PS: One more reason why April Fools is special to me:  Five years ago today, I married my sweet heart.

I hope your April Fools is as happy as mine!

Filed Under: Current Affairs

Calculating Bonus Income

March 30, 2011 by Leave a Comment

Here's a question from one of my readers (not one of my clients) regarding how bonus income is treated for qualifying for a mortgage:

I am trying to close on a property and the loan processor is giving me a hard time about my income.  I am suppose to make $53,000 this year.  Last year I made $50,000 according to my W2.  My base salary is locked at $32,000 with the other income being a commission or bonus based off my offices profit.

Currently the loan processor is taking my year to date bonus/commission and dividing it by 12.  She is stating that this is how they are the bonus income is annualized so it is making it seem like my projected income for the year will be 32,000 + approx 5,000 = 37,000.  This is making my income to debt ratio pretty low.  Do you have any advice on how I can get this adjusted or if this is actually the correct way my income should be calculated?

Lenders are looking for trends with income.  Since your base income is a salary, the processor can give you credit for the entire amount.  If your additional income is bonus or commission, then lenders may go back 24 months to create an average bonus/commission income.  If your income is trending lower, best case–the lender may use the current average for your commission/bonus income.  Lenders are looking for "stable" income…if the income is considered unstable, there may be issues.

Most lenders will typically go back 24 months including year to date bonus income; and average it since this type of income fluctuates and is not a guaranteed fixed amount.   Hopefully your bonus income in 2009 is close to what your 2010 bonus income was and shows a positive income trend.  You need to document that you've been receiving your bonus income for a minimum of two years.   

2009 = $20,000 Bonus Income

2010 = $23,000 Bonus Income

3/31/11 = $5,000 Bonus Income

$48,000 divided by 27 (24 plus 3 months) = $1778 monthly bonus income.

If the base salary is $32,000; your loan application will reflect base monthly gross income of $2667. (32k divided by 12 months).  Even if the base salary was lower in previous years, the current base (assuming it's a bona fide salary) is what is used to determine current monthly income for qualifying for a mortgage.

$2667 plus $1778 = $4,445 averaged monthly income (based on the example above).

Another factor to keep in mind is that lenders will pull 4506 Request for Tax Transcripts so if you write-off significant amounts of your business expenses, this may deducted from what the lender uses for your income. 

Verification of Employment forms (VOE) will be sent to your employer to verify that your bonus is likely to continue.  If your lender is relying on a Verification of Employment for your bonus income, they may annualized it (divide the current year to date amount by 12 months) instead of using an average.  Plus, if your employer indicates that the bonus income is not likely to continue, it should not be used for qualifying purposes. 

Dear Reader:

It appears to me that the processor is "annualizing" your bonus income ($5000 divided by 12 = $417) instead of averaging.

Talk to your mortgage originator about supply documentation (last two years tax returns, W2s and/or 1099s) to support your income to see if this will change how the processor is calculating your income.   

Good luck!

Filed Under: Dear Rhonda, Underwriting and Qualifying

Three Questions for Consumers Regarding Mortgage Originator Compensation

March 30, 2011 by Leave a Comment

The Fed has a rule that will go into effect on April 1, 2011 which will impact how a mortgage originator is paid and restrict what they can do with their commissions.   The rule is currently before a judge and may be delayed.

Please take a few minutes to answer three questions regarding mortgage originators and compensation. 

Click here to take the quick survey

Thank you!

Filed Under: Current Affairs, Polls

Gas Buddy may be my new Best Friend!

March 29, 2011 by Leave a Comment

GasBuddy_001 One of my current favorite aps for my Droid has got to be Gas Buddy.   Gas Buddy allows me to find the cheapest gas by grade in any area.   It confirms that when I'm filling up in my neighborhood of West Seattle, that I'm not paying more than I need to.  Gas Buddy helps me when I'm trying to find a gas station that won't ping my wallet more than it needs to.   

Let's face it, gas is getting very expensive!  Gas Buddy's heat map shows some scorching prices in various Seattle and Bellevue neighborhoods.

Here's some good news, you don't need to have a "smart phone" to use Gas Buddy.  You can also find out who has the best deals by visiting their site online at www.gasbuddy.com.

We all need to do what we can to save money!  What are some of your favorite tips?

Filed Under: Economy, Misc., Tech/Tools of the Trade

HELP!! I’m goint to be “locked up” in West Seattle to raise funds for MDA

March 26, 2011 by Leave a Comment

MDAI'm scheduled to be "locked up" to raise funds for the Muscular Dystrophy Association on April 7, 2011 at Angelina's Trattoria in West Seattle. 

While I have no idea who the special person was who nominated me to this event, I do know that I'm tasked to raise $2,000 to help King County families.

Please help "bail me out" by making a donation (click here).  Every donation counts and I appreciate your support for this important cause.

Thank you!

Filed Under: Charity, Seattle

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

FHA Mortgage Insurance Increasing in April

March 24, 2011 by 4 Comments

NOTE: I originally published this article in February when HUD published the Mortgagee Letter. However with the increase to mortgage insurance on FHA insured loans just around the corner, I thought I should re-post this. If you are purchasing a home or refinanacing using an FHA insured loan, you will want to be in contract and have your loan application complete no later than April 13, 2011 to insure having an FHA Case Number issued in time.

Yesterday HUD issued Mortgagee Letter 11-10, making it official that FHA annual mortgage insurance will increase another 0.25% basis points on case numbers issued on or after April 18, 2011. The annual mortgage insurance is included in the monthly mortgage payment. There is no change (at this time) to the upfront mortgage insurance which is paid for at closing (typically financed or may be paid as a closing cost). This is in line with the Obama Administration's plan for reforming mortgages which was revealed on Friday.

HUDmip

Here's how this will pencil out for a 30 year fixed mortgage based on a sales price of $400,000 with a minimum down payment of 3.5% (base loan amount of $386,000).

FHA mortgages with a case number issued prior to April 18, 2011 (current as of this post):

386,000 x .90% = 3,474/12 months = $289.50.

FHA mortgages with a case number issued April 18, 2011 or later:

386,000 x 1.10 1.15% = 4,246 4,439/12 months = $353.83 $369.92

Difference in monthly payment: $64.33. $80.42

This will also impact FHA 203k rehab loans.

Remember, FHA annual mortgage insurance remains on the loan for a minimum of 60 payments regardless of loan to value. Even if a home buyer is putting down 20% towards the purchase of their Seattle area home, they will still have FHA mortgage insurance. FHA mortgage insurance will also remain on the home until the loan balance reaches 78% of the loan to value based on the original appraised value or purchase price of the home (which ever was less).

I have been originating FHA insured loans for the past eleven years at Mortgage Master Service Corporation (a Direct Endorsed HUD approved lender). I am licensed to originate mortgages for homes located in the State of Washington. If I can help you with your mortgage needs, please let me know!

Filed Under: FHA, Mortgage Insurance
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