Observations from taking the SAFE Act required licensed mortgage originator exam

September 10, 2010 by Leave a Comment

I finished the last requirement for maintaining my license to originate mortgage loansfor homes in Washington this week: I passed the national exam required by The SAFE Act.  I will be required, as a licensed mortgage originator, to take 8 hours of continuing education every year since I've met my 20 hour requirement this year.  (Note: mortgage originators who work for depository banks, like Bank of America, Wells Fargo or Chase, or credit unions like BECU or Alaska Federal Credit Union, are not required to be licensed and are not held to the same standards per the SAFE Act.  You can read more about that here). 

I called a few weeks ago to schedule my test times at the PearsonVue Center.  The number I called directed me to a local office who then provided me with a toll free number.  The center said they could not schedule my appointment there.  Much to my surprise, when I called the toll free number to schedule my Federally mandated exam, I was sent to a call center in India!  Is it just me, or is there something wrong with off-shoring jobs for something that is required by our government?   Especially during these times when unemployment is darn near 10%.

I arrived at the exam center in Renton a half hour early and had my palms scanned.  Ladies, be warned, if you're wearing a jacket, you may be asked to remove it and leave it hanging outside during the test.  I wasn't quite prepared for this and probably would have worn a different top than what I had on underneath the jacket. 

The exam itself is multiple choice with a good portion of it being on Federal laws.  In my opinion, I don't find it very important knowing which branch of government created or oversees a certain law as knowing about the law.   Does it matter if it's HUD or the Federal Reserve Board who oversees RESPA or RegZ?  If you're violating RESPA, you're violating RESPA.  I think there's too much emphasis on this portion of the test.  I'd like to see more questions testing a mortgage originators general knowledge and their ethics, as well as the laws and regulations (just not so much focus on the "who" and more on the "what" and "why").  

I also think it would be beneficial to have specialized desiginations for mortgage originators that would require additional education and testing, for programs such as the Reverse Mortgage.  Just because I have the product available at our company, doesn't mean that I should be originating the loan.   

If your loan originator is licensed, they must take and PASS the (state and national) exams by December 31, 2010 or they cannot take a loan application effective January 1, 2011 unless they go work for a bank or credit union.  If they work for a bank or credit union, they don't have to sweat it.  They will need to register with the NMLS, but that's it. 

You can see if your mortgage originator is licensed or not by visiting www.nmlsconsumeraccess.org.

Filed Under: Legislation

Happy Labor Day

September 6, 2010 by Leave a Comment

Mortgage Master Service Corporation is closed today in observance of Labor Day and will reopen for business as usual on Tuesday morning.

Labor Day was first celebrated in 1882.  From the United Stated Department of Labor:

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.   

Last week, Christina Romer, the recently resigned White House Chair of Economic Advisors, stated

"We have tools that would bring unemployment down without worsening our long-run fiscal outlook, if we can only find the will and wisdom to use them".  

Read her entire prepared statement here.

During this Labor Day, I hope that those who are unemployed or under-employed find "labor" soon.  

Filed Under: Interest Rates

What should I do about my credit score, if anything?

September 2, 2010 by Leave a Comment

I was asked this question via a friend on Facebook:

I had a 785 mid score, with 3 open trade lines (all at less than 30%) until the bank dropped my credit limit to the exact dollar amount of my balances. Now I'm down in the 714 range. I'm now considered a low-mid risk…hmmmmmmmmmpppphhhh! Only way out I can see is paying off Visa.

On the flip side, I don't need my credit score now…don't need a mortgage re-fi, and already have all the insurance I need.

It's pretty stinky when banks reduce your total available credit because the side effect is, your credit is dinged.  What the bank has effectively done is make it appear as though you're a credit user who has maxxed out their credit cards to their limit!  I'd probably contact the bank manager to express you disappointment (to put it mildly) and to see if they will correct this and to learn why they did this.

Credit scoring modules reward borrowers who use 30% or less of their available credit line.  Borrowers who use less 50% or less of their available credit also receive favorable scores.   Borrowers are also being whammo'd by banks when they reduce their home equity lines of credit (HELOCs) if it increases their loan to value over 50%.

If this person was interested in improving their credit score, their goal could be to work on getting each credit card paid down to 50% of the new credit line limit.  I would start with the smallest debt first as the credit scoring system doesn't distinguish between a $5,000 credit card limit or $500 credit card limit.  If this borrower has a $500 limit and they pay it down to $250, it should have the same impact as paying the $5,000 down to $2,500.  Once one card is paid down to 50% of the new limit, continue to make minimum monthly payments and move on to the next lowest credit line limit and repeat until all of your credit cards are under 50% of the available credit line.  The next level of improvement would be to pay your credit cards down to 30% of your credit line limit; so if your lowest credit card line is $500 and you've been maintaining a $250 balance, the next target would be 30% of the credit line or $150 (500 x 30%).

I do not recommend paying off credit cards completely and closing if they're older as the credit scoring modules love established credit with a good history.  You can use your cards to fill your gas tank or buy groceries and paying it off monthly.

Of course, if you don't really care what your credit score is currently because you're not planning on making purchases that will require your credit score, you don't have to do anything.  However, I think it's best to try to have a credit score of 740 or higher as so many things in our lives are priced based on our credit scores. 

Related posts you might find interesting:

New Credit Card Regulations and Games Creditors Play

Overdraft Protection and Your Credit Score

The Fed is Getting Tougher on Credit Card Companies

Filed Under: Credit Scores and Reporting

Is 714 a Good Credit Score for Buying a House?

September 1, 2010 by 2 Comments

This is a term someone entered into a search engine, like Google, who wound up on my blog.  “Is 714 a Good Credit Score for Buying a House?” is a fair question.  Just a couple years ago, having clients with credit scores 700 or higher was considered “excellent”.  In fact, previously credit scores of 680 or higher were considered good. Now with conventional loans, we have several brackets based on credit scores and loan to value.  Many lenders are adopting this with FHA loans too.

[Read more…]

Filed Under: Credit Scores and Reporting, Residential Purchase Tagged With: , ,

FHA Streamline Refi’s with No Appraisal

August 20, 2010 by Leave a Comment

When HUD changed the guidelines for FHA streamlines last fall,I thought they had pretty much stuck a fork in a program that has been very beneficial to home owners who have an FHA insured mortgage loan.  You see, HUD made it to where if a borrower opted to not have an appraisal, they cannot finance their closing cost or reserves/prepaids.  Back then I never thought we would see rates at their current levels.  With today's rates, many home owners can opt for a slightly higher than "par" rate to have the lender pay for a portion of their closing costs.   In addition, it doesn't matter what your home's current appraised value is since there is no appraisal!

With an FHA streamline refi, if the loan has less than 36 payments, there may be a credit of the balance of the upfront mortgage insurance premium if it was financed (99% of loans have the ufmip financed).  The credit is on a sliding scale (the earlier in the loan, the larger the credit). 

Closing costs are reduced since there's no appraisal fee (and no worry about what your home may appraise for).  The loan amount is limited to the current principal balance plus the new upfront mortgage insurance premium.   With today's pricing, many Seattle area home owners are typically bringing in the mortgage payment they would have "skipped" or funds to start their reserve account at closing and enjoying the benefit of a much lower payment due tot he reduced rate.   Borrowers will receive a refund of the balance of their reserve account a few weeks after closing from their existing mortgage servicer.

FHA mortgage insurance premiums are set to change in weeks (October 4, 2010).  Although the upfront premium is decreasing, the annual (monthly) is increasing and the net effect is more expensive that the current formula.

At Mortgage Master Service Corporation, we are a HUD Endorsed Lender with our own in-house FHA underwriters.   I've been originating FHA loans for over 10 years and I'm happy to provide you a free rate quote for your home located in Washington state.

UPDATE:  In order to qualify for an FHA streamline refinance, the borrower must:

  • have an FHA insured mortgage
  • have made a mimium 6 mortgage payments (seasoning) by the time they apply
  • have a minimum mid-credit score of 620 640 (or higher)
  • document income and employment
  • document assets needed for closing
  • Last but not least, the proposed refinance must create a "net-tangible" benefit to the borrower.
Filed Under: Appraisals, FHA, Refinance 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

LQI: The Potential Kiss of Death for On-Time Closings

August 11, 2010 by 1 Comment

Potterybarn If you're planning on getting a mortgage to purchase a home or for a refinance, please do not obtain ANY credit, increase your credit debts (use your credit accounts) or please don't even THINK of applying for new credit until your new mortgage loan has funded and closed.   Why hold off on shopping for your new fridge or washer and dryer that you're going to need or that new sofa from Pottery Barn?   Because it could delay your funding (i.e. closing) or worse–it could disqualify you for your loan (kill your deal) right when you're expecting your transaction to close!

Fannie Mae has created Loan Quality Initiative (LQI).  According to Fannie Mae, LQI is intended to prevent mortgage lenders from having to buy-back mortgages by increasing the quality of the loan that is being sold to Fannie Mae.   LQI addresses more than undisclosed debts on the loan application, including occupancy and borrower identification issues.  However in my opinion, the re-verification of credit prior to funding has the potential to impact a transaction more often.

LQI requires that if new debt is discovered when the credit is reviewed, that it be disclosed on the final application.  New debt is not limited to a new credit card you used to purchase appliances, it could be that you made a charge on an existing credit card that increased your monthly payment.   Maybe you simply filled up your gas tank at $3.00 a gallon…this could possibly trigger a delay in a transaction closing if the borrower has higher debt-to-income ratios or average credit scores.  If new debt or inquires are discovered just prior to funding, the loan may have to be sent to underwriting again to include the new debts payments. 

Most lenders are doing "soft pulls" on the credit (without the credit score) also referred to as a credit "refresh".   However, if new debt is discovered and the loan is sent back to underwriting, a new full credit report may be pulled.   If the borrowers mid-credit scores have dropped, this may impact qualifying and possibly the interest rate since conforming rates are based on credit scores.  Not so refreshing, is it?

So if you are considering buying a home or refinancing, please do not:

  • apply for any credit or loans after you've completed a loan application;
  • use your credit cards during the transaction (increasing your borrowed amount on your credit line);
  • pay off or close any debts during your transaction without first speaking to your mortgage originator (this can actually drop your credit score).

As tempting as it might be to purchase your fridge (or what ever) so it's ready for your new home when you move in–please don't!!  It may cause a delay in your closing or cost your mortgage approval and at this point in the transaction, your financing contingency is most likely waived! 

I understand Fannie Mae wanting higher quality loans and that the loan application should reflect the borrower.   However everyone knows that the day after closing, the new home owner is probably going to purchase some new appliances and maybe make a trip or two to Pottery Barn or Restoration Hardware.  This is a classic example of how the underwriting pendulum is swinging too far.  I can tell you that my typical client today is more qualified than those of the subprime era, our current guidelines alone (pre-LQI) have done this.  NOTE:  Please be responsible whenever using credit…especially after just taking on the largest debts you may have in your lifetime: a mortgage.

PS:  Real Estate Agents:  please be sure to make your buyers aware of this newer policy.

Photo credit: Rob Young via Flickr

Filed Under: Credit Scores and Reporting, Underwriting and Qualifying

HUD Announces Possible Principal Reduction: The “FHA Short Refinance”

August 6, 2010 by Leave a Comment

HUD has been busy!  They just issued another press release stating that starting September 7, 2010, FHA will offer "certain 'underwater' non-FHA borrowers who are current on their existing mortgage and who's lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA insured mortgage".   This program will be available on FHA case numbers issued on or after September 7, 2010 and must close before December 31, 2012.

The biggest catch that I see is that this voluntary program requires that all mortgage lien holders consent to the refinance.  Any first mortgage being paid off must agree to reduce their principal balance by a minimum of 10% and the second mortgage must agree to be subordinated.   There's a maximum combined loan to value limit of 115%.  It will be interesting to see how the banks embrace this program.

Here are some other requirements for the FHA Short Refinance:

  • the home owner must have negative equity
  • the home owner must be current on their existing mortgage that's being refinanced.
  • owner occupied (primary residence) only
  • the mortgage being refinanced may not be an FHA insured loan (NOTE: if you're upside down on your FHA insured loan, you can do a streamline FHA with no appraisal).
  • existing lien holder must write off at least 10% of the principal balance
  • first mortgage maximum loan to value is 97.75% for the new FHA loan and 115% combined loan to value when there is a second mortgage.

Potential borrowers of this program will be subject to "Borrower Certification" which was enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010.  If the borrower has been convicted in the last ten years of any of the following: (a) felony larceny, theft, fraud, or forgery; (b) money laundering; or (c) tax evasion.  More details are expected to follow.

Last but not least, the Mortgagee Letter advises that borrowers need to be aware that, as with any loan forgiveness action, short refinancing under this program may be reflected as a negative feature on a borrowers credit score and that anyone who is considering this type of transaction should contact their tax advisors regarding the cancellation of debt and possible tax consequences.

It will be interesting to see how many banks will participate in reducing principal balances and how this will work with the Home Affordable refinances.  This could be a nice resource for home owners who don't have Fannie Mae or Freddie Mac securitized mortgage but want to take advantage of our current historic low interest rates.

Stay tuned…I'll keep you posted.

 

Filed Under: FHA, Refinance
« Previous Page
Next Page »