With a standard fixed period ARM, if the LTV is less than 80%, the borrower is qualified at the start rate; if the LTV is more than 80%, the borrower is qualifed at the second year rate (so if the ARM has a 3 year or longer fixed period, it would still be qualifed at the start rate). I do expect that eventually we may be qualifying these products as the fully indexed payment eventually.

As of today (4:05 pm 3/20/2007), this does not appear changes for conforming ARMs.

Subprime ARMs…”Freddie Mac’s new requirements cover what are commonly referred to as 2/28 and 3/27 hybrid ARMs, which currently comprise roughly three-quarters of the subprime market. Specifically, the company is requiring that borrowers applying for these products be underwritten at the fully- indexed and amortizing rate, as opposed to the initial “teaser” rate.” This is effective Sept. 1, 2007.

Subprime ARMs and 5/1, 7/1 and 10/1 ARMs are two different animals all together. We can bet there are more changes coming down the pike!

I would then venture to guess that a low percentage of callers actually qualify for the “vacation” mortgage and are steered to other mortgage products……unless everyone is still underwriting based on the start rate/payment.

Rhonda, how strict or lax are banks/lenders with underwriting based on last fall’s mandate from federal and state regulators to qualify borrowers based on the adjusted rate?

Thank you so much for probing into this for RCG readers!

“Hello Rhonda,
I have been busy but not to busy to respond….
With regard to “bait & switch”, the program is available so; I’m not trying to bait& switch you.

The loan product in question is an Option ARM. You have the option of paying principle and interest, interest only or a minimum payment which is substantially lower than the interest only option. If you choose to make the minimum payment, XYZ Mortgage will credit you the amount equal to 12 months worth of the minimum mortgage amount.

That’s basically how the loan works but certainly not in anyway the whole picture. I would need to know more about your individual borrowing scenario to be able to explain rates, APR, etc. Please call me if you’d like to discuss your loan needs.”

I sent him an email asking “one last question”… How on earth can they pay the 12 months minimum mortgage payment? It HAS to be rebate and/or priced into the rate. I’m having the hardest time with this!

The good news is that in your class today, no one seemed to be aware of their ad…it must just insult our ears since we’re in the biz?

Heard one yesterday from one of my clients that a lender DID prequalify before I started working for them, but lender refused to give rates and refused to tell them their credit score afterward. Their response “your credit score is ‘good’ and ‘rates are not that much different between 5 year, 7 year and 30 year’ so you don’t need to know that”.

My advice was to not even talk to that lender again, though they did run his credit. Talk about not wanting to be shopped!

Is my opinion too severe? I figure once you have a “bad taste in your mouth” over someone’s business practices…RUN!!

The legal question would go something like this, “can a company advertise a product or service and then require the consumer to provide deep level financial and personal information to that company just to receive information about the advertised product or service?”

If the answer was ‘no’ then we can try to apply the same theory to a different medium. Real estate is a service. Then real estate agents would be able to advertise a service and then require deep-level financial information and personal information before giving the consumer any information about the advertised product or service.

Purchasing a product. Retail car salesmen/women would be able to require deep-level financial and personal information from consumers before explaining their car loan programs.

With this company, consumers are asking for information about the loan product advertised.

Doesn’t it seem unfair that a consumer would be required to become prequalified first?

On the other hand, I DO see how a mortgage company would want to NOT waste time talking with consumers over the phone who don’t want a loan but are just shoppers. Hmm. You’d think if the loan program were good, then they would WANT the shoppers.

What do RCG readers think?

However, this still doesn’t help because the ad is possibly not false nor misleading but we don’t have enough info yet to know for sure.

http://apps.leg.wa.gov/RCW/default.aspx?cite=9.04.050

It shall be unlawful for any person to publish, disseminate or display, or cause directly or indirectly, to be published, disseminated or displayed in any manner or by any means, including solicitation or dissemination by mail, telephone, electronic communication, or door-to-door contacts, any false, deceptive or misleading advertising, with knowledge of the facts which render the advertising false, deceptive or misleading, for any business, trade or commercial purpose or for the purpose of inducing, or which is likely to induce, directly or indirectly, the public to purchase, consume, lease, dispose of, utilize or sell any property or service, or to enter into any obligation or transaction relating thereto…