Rain City Guide » Federal Law

Impact of Fiscal Cliff Agreement on Homeowners?

ARDELL — Fri, 04 Jan 2013 07:35:00 +0000

There was so much fear mongering going on about “The Fiscal Cliff” it was starting to feel like being tied to a chair and being forced to watch The Shower Scene from Psycho. The stock market rallied up in response to it just being OVER WITH! But should we just be happy that it’s over with? Did the final agreement impact homeowners?

Doug Tingvall of RE-LAW sent me a quick synopsis of how the deal impacts homeowners “for now”. I asked him to post it publicly as I think it might be of interest to homeowners and homebuyers. I don’t see much in there that is alarming or even much of a change, but maybe I’m missing something. Read Doug Tingvall’s full synopsis HERE

While Doug’s Article does not seem to have a place to ask questions or post a comment, if you have questions you can post them here and I will see if Doug has some time to answer them for you.

The summary is worth a quick read and many thanks to Doug Tingvall for sending it over to us.

The post Impact of Fiscal Cliff Agreement on Homeowners? appeared first on Rain City Guide.

National Coming Out Day; We’ve come a long way in real estate and lending

Jillayne Schlicke — Tue, 11 Oct 2011 06:25:28 +0000

October 11th is National Coming Out Day. As an educator in the real estate and mortgage lending sector, I enjoy hearing stories from students about what it was like to sell real estate and originate loans in the 1950s and 1960s, before the Fair Housing Act of 1968 and the Equal Credit Opportunity Act of 1974. The young-youngsters in the room are a bit taken aback to hear real-life stories about neighborhood segregation, discrimination against Jews or African Americans, and denying credit to women. Blockbusting, redlining, and racial discrimination as well as mortgage lending discrimination happened to people who are still around to tell those stories because it really wasn’t that long ago.

The post National Coming Out Day; We’ve come a long way in real estate and lending appeared first on Rain City Guide.

Is the Seller a “Foreign Person”? Buyers, FIRPTA Says You Better Find Out

Craig Blackmon — Fri, 07 Oct 2011 19:26:21 +0000

This is not legal advice. For legal advice, consult an attorney in person about your specific situation. Never rely on a blog.

The Foreign Investment in Real Property Tax Act (FIRPTA) is a federal law that requires a “foreign person” to pay tax on the gain realized upon the sale of real property owned by that person. However, the law does not charge the seller with insuring compliance. Rather, the law requires the buyer to determine whether or not the seller is a “foreign person” (basically a non-resident alien). If the seller is a “foreign person” as defined by the statute,then the buyer must withhold 10% of the sale proceeds at closing. These funds are to be forwarded to the IRS to insure that the foreign person pays tax on the gain realized from the transfer. If the buyer fails to determine that the seller is a foreign person and thus fails to withhold 10% of the proceeds, the buyer is liable for the 10%. WOW! That’s significant.

The NWMLS, recognizing the risk to buyers, has included a “FIRPTA” provision in the standard Purchase and Sale Agreement:

j. FIRPTA – Tax Withholding at Closing. The Closing Agent is instructed to prepare a certification (NWMLS Form 22E or equivalent) that Seller is not a “foreign person

The post Is the Seller a “Foreign Person”? Buyers, FIRPTA Says You Better Find Out appeared first on Rain City Guide.

Related posts:

Buyers, is your Seller a Foreign Person? The IRS and FIRPTA say you better know…

The Statutory Warranty Deed: What You Should Know as the Seller

A Closing Date without a closing

Loan Originator Feels Entitled to Overage and Asks for Jillayne’s Advice

Jillayne Schlicke — Tue, 04 Jan 2011 23:39:29 +0000

This is a good representation of the emails and blog comments I receive daily over at the NAMF website on the topic of loan originator compensation:

Dear Jillayne, I read your article because I am trying to determine when the loan originator compensation limits will go into effect and what I’m going to do if this acutally happens. As an LO for 10 years, I take great pride in being a member of the lending industry and in my opinion, I have provided an invaluable service to my customers over that period. I will also admit to having earned the ocassional “overage” in a transaction. I did not price my loans to make overage, however if the par price paid less than 1% (as often happened because of the rate sheet) I felt I was entitled to do it.

I do take issue with you on the amount of work that an LO does to earn their compensation, a competent LO not only takes the 1003 loan application, I take an appropriate amount of time on the front end of the transaction to thoroughly explain the loan process. I tell customers exactly what they can anticipate. I then take a complete application and discuss what documentation will be required and why. I spend at least 2 hours reviewing every disclosure, state and federal, that they are signing. I then collect all documentation, prepare the loan package, sort the package to a stacking order, order title, order appraisal, register the loan and submit to processing. I get the conditions which I discuss with the processor, and then collect the conditions and submit for final approval.

My company has just announced that they are discontinuing payment of all overage effective January 1, 2011. Regardless of your opinion on overage, it is a significant component of any LO’s income. While we can debate whether it should or should not be, the fact of the matter is, it is! The companies are not going to increase my compensation to account for that loss in income, and I find myself having to generate 50 or 75% more sources to find loans. How would you approach that change in your income?

Dear Entitled to Overage,

We exchanged two emails in which I asked you how many hours you spend, on average per file and I also asked for your average loan amount. E2O, you said you spend an average of 15 hours originating each loan and your average loan amount is $175,000. Let’s do the math. I’m going to estimate that in today’s competitive market, a loan originator would be hard pressed to get away with earning more than a 1 percent loan amount with a 1 percent overage

Let’s pause and quickly educate readers on overage income: This means marking up the wholesale interest rate and selling the consumer a higher interest rate at retail rates. The lender funding the loan, who is very happy that you’ve sold a much higher rate, rewards the loan originator by paying them a percentage of the loan amount at closing. Mortgage broker LOs disclose ALL their compensation on line 1 of the Good Faith Estimate. Mortgage banker LOs do not have to disclose this overage income as of today. However, two rules at the federal level will change this come April 1, 2011: The Federal Reserve Board Rule and Dodd-Frank Wall St Reform. More on LO Compensation limits in a future blog post.

So E2O, I’m going to estimate low. Let’s say you currently feel entitled to make 2 percent of the loan amount as your fee for working 15 hours. That’s $3500. Let’s divide $3500 by 15 hours. That comes out to $234 per hour. Please help me understand how a position that does not require a high school diploma is worth $234/hour? If a person making this kind of hourly wage works a full, 40 week, that means this same person is grossing $486,720 per year. No wonder loan origination attracted so many people who were only in it for the money. LOs could work as little as 10 hours a week and make a comfortable living.

Let’s get back to your question. You’re saying that your company is going to take away your ability to earn the hidden “overage” income immediately and you’d like my advice on how to approach that change in income.

First of all, I highly doubt that you’re working a full 40 hours per week. If indeed you were actually working that hard, you’d have more business sources than you’d know what to do with so my first suggestion is to honestly reflect back on how many hours you actually spend working on the job of origination. Subtract the hours spent going to the gym, talking sports with the guys over coffees or beers, subtract the hours spent on Mortgage Grapevine and the right wing political conspiracy blogs or Huff Po or wherever you’re currently wasting time and look at the bare bones number of hours spent talking with past clients, getting off your butt and into Realtor offices drumming up business. My first suggestion is to work harder. Don’t like that? Go find another job in another field that will pay you $233/hour.

Second suggestion: Ask yourself how much you love mortgage lending. If you’re only in mortgage lending for the money ONLY, then my second suggestion is to leave the industry. That’s right, get out of mortgage lending and go do something that you really love. Life is short (and life is long. It’s a paradox.)… life is too short to spend it in the mad, mad, mad world of mortgage lending unless you love what you’re doing so much that you wouldn’t dream of spending life any other way. This is the choice in attitude it’s going to take to get you through 2011 and beyond.

Third suggestion: If indeed you really, truly are worth $233/hour then go ahead and charge that! Charge your clients a 2 percent loan origination fee on line 1 of the Good Faith Estimate and when they shop around and find a lower interest rate and lower loan fee, explain to your clients the reason why you are worth that amount.

Fourth suggestion: Accept that you’re not worth $233 an hour. Why? Because if you were, you wouldn’t be asking for help. Banning overage income is going to separate the men from the boys and the women from the girls. Loan originators: You never were worth $233 an hour as a brand new, unexperienced loan originator. All it takes to get a license is a 20 hour prelicensing class, passing a background check and a national and state licensing exam, and to not have any felony convictions in the past 7 years. And if an LO wants to work at a depository bank, NONE of that is required! No loan originator is now or was ever worth $233/hour when they are first licensed. Maybe an extremely experienced LO with, say, 25 years experience (which means they entered the industry before the subprime lending era) is worth that much. Why? Because he/she can originate a loan IN LESS THAN 15 HOURS. That 25 year veteran knows his/her products, knows FHA/VA/USDA, knows the FHA 203K Program which will be highly used as soon as more REOs hit the market. That 25 year veteran has seen the rise and fall of the Savings and Loan crisis, has seen many refi booms, has lived through countless underwriting guideline changes, as lived through the same amount of federal law changes, and has the experience, maturity, and knowledge to help a wide variety of clients. This loan originator is very valuable. A brand new LO was never worth $233/hour and one of the big mistakes company owners made was to recruite people through greed to be LOs.

Fifth suggestion: Now that you’ve accepted that no green LO is or was ever worth $233/hour reset your own worth. If it seriously takes you 15 hours to originate a loan, I’d say that you don’t know as much as you think you know (this is very common for LOs who were hired during the subprime era) or you need to learn how to work more efficiently and spend more of your time procuring new clients. Don’t like Realtors? The majority of LOs who were birthed in subprime boiler rooms despise all Realtors because Realtors tend to hold LOs accountable. So if you don’t like Realtors and you don’t want to work harder to procure more clients…..

E20, my sixth suggestion is to accept that your value to your company is much less than you think it is. Reset your lifestyle and spending patterns to match your worth to your company and client, or prepare to work harder and smarter in 2011 and beyond.

I suppose there’s another option. You could open your own bank or mortgage bank. Now you get to keep the profits for yourself. As I look around the mortgage lending industry I see many faces of company owners who started out as loan originators and worked their way up the ladder to the point where it was time to start their own company. This is always an option for any of us…who want to work that hard.

The post Loan Originator Feels Entitled to Overage and Asks for Jillayne’s Advice appeared first on Rain City Guide.

13 Reasons Why 30% of LOs Fail the National Loan Originator Exam

Jillayne Schlicke — Thu, 30 Dec 2010 06:10:37 +0000

The first time “pass” rate of the national loan originator exam has fallen to 69 percent. This is an indication that the test is not too easy. A high pass rate means an exam is too easy. A low pass rate means an exam is too hard. The numbers that tell a different story are the repeat test takers. Test candidates who fail the LO exam the first time and retake the exam pass the exam only 44 percent of the time. The SAFE Mortgage Licensing Act is working the way it was intended.

This blog post is for loan originators seeking help who are trying to pass the test the second, or third time. Test candidates must wait 30 days between tests and if they fail after their third attempt, they have to wait 6 months before taking the test again. I know it sounds unfair, but in all seriousness, not everyone is going to be able to pass this exam. The six month cooling off time is like a forced reflection period for a candidate to either get serious in addressing their repeated fails or get serious about studying. The SAFE Mortgage Licensing Act of 2008 is only the beginning. Over the next decade loan originators will slowly transform from being less like retail salespeople and more like professionals. The loan originator exam will never be as easy as it was in 2010.

I teach the SAFE Pre-Licensing course for new to newer loan originators which is a 20 hour course. I also teach an exam prep course for experienced loan originators and have had the opportunity to interact with hundreds of loan originator students. In this blog post I’d like to share some reasons why folks are not passing the exam so those who need help can identify their challenges and meet or reset their goals. The following reasons are numbered for conversation sake and do not appear in any particular order.

1. One reason why people are not passing the loan originator exam is the same reason why people all over the world don’t pass comprehensive exams: Not enough studying. A 20 Hour pre-licensing course is definitely not enough time to teach and learn all the complex knowledge required to pass the national LO exam. 20 hours could be three, 7-hour days or two, 10-hour days. Take a look at the test content outline. There’s NO WAY an average human, who has never been in the mortgage lending industry, is going to be able to learn let alone understand, memorize and apply this content with only 20 hours of education. One reason the number of classroom hours was set at 20 may have been because during 2010 there were a huge number of experienced LOs who worked at non-depository lenders who needed this course. Two days is plenty of time to spend with an experienced originator but not someone brand new. In the future, expect the pre-licensing hours to be expanded to a full week of education. Until then, some students will have to spend way more time outside of the classroom studying on their own.

2. “There’s no good study material available”
NMLS-approved course providers are not allowed to take the test only for the purpose of telling everyone what’s on the test. In fact, we agree to NOT do this. If we’re caught doing this we lose our ability to teach NMLS approved courses! If you think about it, if it were that easy to cheat on the exam then why bother with the SAFE Act? Why not just give anyone who wants a license a license and not test them. The Nationwide Mortgage Licensing System (NMLS) does not provide a study guide book. Instead they encourage test takers to seek out study material from course providers….however, slow down a bit and you’ll see right inside the test content outline, NMLS TELLS YOU WHERE THE TEST QUESTIONS COME FROM. Look at page 3 of this pdf. Those who are seeking good study material don’t have to pay to get it. It’s all available for free. However, that means you’ll have to actually read it. More about reading soon.

3. Wanting the answers/not wanting to study
Loan originators ask their compliance person for the answer when they have a question about Fannie Mae, RESPA, disclosure requirements, etc. So in attacking this exam, LOs expect to call a course provider and have that course provider hand them a set of 100 questions that will be on the exam. And by the way, anyone who claims to “have THE 100 questions you MUST know” is probably wrong. Any list of questions floating around out there will eventually make their way to NMLS and I’m sure they’ll pull those questions. Okay, so maybe you don’t expect the answers but you expect someone to sell you a book that tells you what will be on the exam. That book doesn’t exist either. What about a book that summarizes the test content outline? Yes there are books available and I think those books would be very helpful for some folks but no book will tell you the exact test questions you’re going to get! Relying only on a book is a mistake.

4. “I know the material, I just can’t pass the test.”
It’s possible you don’t know the material. Re-read numbers 1-3. Or perhaps you have test anxiety.

5. Test Anxiety
I have met several LOs who are have a high degree of test anxiety that goes way beyond normal nervousness. Yes, passing the test is important. In their mind, people with high test anxiety go from “not passing” to “living in a van down by the river” in one heartbeat. Test candidates get themselves all worked up so they can’t eat, sleep, think, or do anything let alone actually learn and understand the test content. There’s lots of tips and ideas that have been written about dealing with test anxiety and even a little self-quiz you can take here. One thing the experts agree on is that a person with high test anxiety isn’t going to be able to learn much while studying. If you want to pass the LO exam, you must deal with your anxiety first and foremost before taking any exam prep classes. There is no time in anyone’s classroom to give personalized psychological counseling. Besides, most of the instructors teaching classes whether they’re live or online specialize in mortgage lending not test anxiety. Your challenge is different. Know thyself….pass the test. Maybe your anxiety comes from not wanting to be honest with yourself about a possible learning disability.

6. Maybe you have an undiagnosed learning disability. As I’ve mentioned in other articles, back in the 1970s there were no para-educators available to follow kids around giving rambuncious kids extra support. Instead students survived in other ways. Humans listen and talk at a much faster and higher rate than we read and write. Some LOs are high functioning talkers but low functioning readers. Some people are dyslexic or have other bona fide learning disabilities that they know about but don’t want to deal with the stigma associated with being labeled. Well if you want to pass the LO test this might be that point in your life where you finally are going to have to come out of the closet and get some help. Repeated on purpose: Most of the instructors teaching classes whether they’re live or online specialize in mortgage lending and not learning disabilities. Ask your primary care physician for a referral to a doctor or counselor who specializes in diagnosing learning disabilities in adults. The Nationwide Mortgage Licensing System will make reasonable accomodations for people with documented learning disabilities. See page 14 of the MLO Testing Handbook for more details.

7. Subprime LOs who fell out of the industry during 2008 and are trying to re-enter the business are having a very, very hard time passing this test. The main reason is because they think they already know how to originate and don’t want to spend the time studying or don’t think they have to study so they repeatedly fail the test. Anyone who entered the industry around 2002, left the industry in 2007 or 2008 and only originated subprime received very little compliance training if any. 2011 is a radically different world compared with 2007. If you still think stated income loans should come back, if you still believe that a pay option ARM is “the right product for the right person” and if you think it’s unfair that people can’t use seller downpayment assistance programs please do not re-enter the industry.

8. “The test contains trick questions!”
Actually, the test doesn’t have any trick questions. Test writers try very hard NOT to write trick questions. The reason the test question sound tricky is because LOs are not use to looking up answers and reading the statute. Instead they ask their boss or the compliance person, their processor or the person sitting next to them for the answer and move on. People use language differently in different parts of the U.S. Teaching a class in Oklahoma or Idaho is vastly different compared with teaching in Seattle or Virginia. Test writers can’t use spoken language and coloquialisms from different parts of the U.S. when writing test questions for an exam to be delivered in all 50 states. The only fair way to write test questions is to copy and paste directly from the law. That’s why the test questions sound and look “tricky” but really the trick is on you. If LOs would simply study directly from the law, the test questions would look very, very familiar. Re-read number 2.

9. You’re ESL
English language learners are my best students. Why? Because they are typically more emotionally mature, know good and well that they have to listen, ask lots of questions, and study over and over again to pass this test. ESL LOs…you WILL pass the test. Read more here.

10. The test has too many “situational” questions
So you know RESPA. You know TILA. You’re scoring high on all your practice exams but the test isn’t going to be as easy as just knowing that you have to send out early disclosures within 3 days of the application. Instead the test will contain situational questions that will require you to understand how and also why TILA and RESPA interact with each other. This requires you to look at a test question and understand what information you DON’T need and cast it aside. Only then will you be able to understand what content the test writer is testing you on. This means memorizing test questions is a bad way to study. Instead you’re better off studying the laws and rules that govern mortgage lending. Mortgage loan origination is all situational. These are highly appropriate questions for the exam and I hope we see more in the future.

11. Part Timers
The national LO test sets a bar and asks people who want to originate to show proof of knowledge of a body of information. Loan origination is no longer a sales job. It’s transforming into a profession. It’s really hard to be a part time doctor, lawyer, engineer, dentist, CPA unless that person is entering semi-retirement. The knowledge, skill set, and industry changes are too wide and deep and the consequences of screwing up are too high. Welcome to mortgage lending in 2011. You must be on your game full time or no one will want to hire you. And those companies that do hire part timers are going to have huge liability issues supervising you in 2011 and beyond. Commit to origination as a profession. Now start over and re-read items 1-3. Part timers have a high opinion of their knowledge of mortgage lending and are sometimes too proud to want to hear that they need more basic education on the entire mortgage lending process.

12. Lack of Basic Education
The SAFE Mortgage Licensing Act does not require a high school diploma or equivalent to become a licensed loan originator. Instead, those without a diploma simply must have proof of three years of experience in the mortgage lending industry. Subsequently, the national LO exam will be that barrier to entry for folks who may have a learning disability or folks who may not have the ability to think, reason, and understand above a 9th grade level. Some of the math questions on the exam will require a basic understanding of 9th grade algebra. Some of the questions will require the ability to understand how two federal laws relate to each other and to the consumer. Some people only have the ability to understand one federal law at a time. Mortgage loan origination today requires the ability to multi-think all day long. My recommendation: Finish high school first. The discipline required to obtain a GED will be good practice for studying for the LO exam.

13. Learning Style Not Matched with Study Choice
Visual, auditory, tactile, whole body, emotional…These are all learning styles and passing the test means knowing how you best learn. Learning requires understanding. If you can teach another person something, this is a good sign that you know that concept and will be able to select the correct answer on an exam. Some people have to see pictures. Other students need to hear the content. Sometimes instructors tell stories about legal cases. Stories evoke emotion which triggers long term memory. Sometimes students learn best if they get their whole body involved in the learning process. Everyone is different. Choose a course provider that understands learning styles and find one that matches your particular style. In my experience, most students have a mixed style so find an instructor/course provider that mixes it up for you. One student had me on the phone grilling me with questions about my course for at least 15 minutes. We figured out that we’d be a good match for each other. She attended my course and passed the test the next day. Don’t be afraid to call course providers and ask lots of questions.

Every test candidate is different. Some people listen at a higher/faster rate than they can read and write. Some people need to simply read through 400 sample test questions and that’s all they’ll need. Some people have undiagnosed learning disabilities. If you’ve taken the LO exam and failed, re-evaluate your learning style, the time you’ve spent studying and any of these other ideas and try again. If you still cannot pass the exam ask yourself how much you love the mortgage lending industry because there are other positions available in lending that do not require an LO license. And remember, you can always go work at a depository bank. Bank LOs do not have to pass the exam…..yet. Someday they will.

The post 13 Reasons Why 30% of LOs Fail the National Loan Originator Exam appeared first on Rain City Guide.

If Your Loan Originator Isn’t Licensed Today, They Need to Work for a Bank or Credit Union Tomorrow

Rhonda Porter — Thu, 01 Jul 2010 01:26:50 +0000

All mortgage originators who work for mortgage brokers or correspondent lenders/consumer loan companies must be licensed with the NMLS as of July 1, 2010 to take a residential loan application for property located in Washington. If your mortgage originator works for a bank or credit union, they only need to be registered with the NMLS (which means “do nothing” at this point).

Last Friday, Deb Bortner, Director of Consumer Services for Washington State’s Department of Financial Institutions, issued this statement:

“Unfortunately, many applicants did not submit by the deadline. I want to assure you that, even with the current budget reductions and staffing constraints, our Licensing Team is doing all it can to balance a timely review while complying with the recent provisions of state and federal laws that are designed to provide increased consumer protection. While we will process as many applications as possible by July 1st, we will not be able to fully address the volume of late applications that we are currently receiving.

It is important to remind each member of the industry that on July 1 an individual may not act as a Mortgage Loan Originator unless he/she is licensed or has received official written e-mail communication from DFI outlining the conditions under which that individual can work…”

It’s unfortunate for consumers that Congress made two separate classes of mortgage originators: Licensed and Registered. You can follow the dollars to figure out how that happened. In my opinion, all mortgage originators should be held to the same standards. Consumers should not have to determine whether a mortgage originator is licensed or not and what licensing means verses a simply registered mortgage originator working for a bank mortgage company or credit union. With that said, I’m thankful to be in the licensed category since those LO’s who are licensed are held to a higher standard than a registered loan originator per the SAFE Act.

Tomorrow, many mortgage originators employed at consumer loan companies/correspondent lenders or mortgage brokers who did not jump through the licensing hoops quick enough will either need to cease taking applications or go work for a bank or credit union. Again, this is for residential mortgage applications on properties located in Washington State (this applies to mortgage originators not in the State of Washington but taking applications on residential property located in Washington).

You can verify if your mortgage originator is licensed by checking http://www.nmlsconsumeraccess.org . You can run a search by entering their first and last name along with the state abbreviation. If your mortgage originator works for a bank or credit union, they’re not required to be licensed and registration is not available for them yet.

The post If Your Loan Originator Isn’t Licensed Today, They Need to Work for a Bank or Credit Union Tomorrow appeared first on Rain City Guide.

Question from RCG Reader: My LO Won’t Issue a Good Faith Estimate

Rhonda Porter — Wed, 19 May 2010 20:19:43 +0000

I recently received this question from a Rain City Guide reader:

I wanted a GFE from my lender… but am told I can only get one if I lock in the rate. Is this legal?

Effective January 1, 2010, a Good Faith Estimate is required to be issued no later than 3 business days once a mortgage originator has received all of the following:

borrower’s full names
monthly income
social security numbers to obtain a credit report
property address*
estimated value of the property
loan amount
any other information deemed necessary by the loan originator to complete an application

The above items are how HUD defines a loan application. One item that can be a bit tricky for consumers and loan originators alike is the property address. Yes, a mortgage origiantor can issue a Good Faith Estimate without a property address, however IF they do, it’s at a substantial risk.

From HUD’s RESPA FAQs (April 4, 2010 edition) 33:

…a GFE issued without a property address, the future receipt of the property address is not a changed circumstance that would allow the loan originator to issue a revised good faith estimate.

This means that the Mortgage Loan Originator would be on the hook for fees that are outside the specific tolerances set forth in the HUD’s Good Faith Estimate if a MLO issued the GFE without a specific property address. I think this is something that HUD needs to take a serious look at this if they truly want the Good Faith Estimate to be a shopping tool for consumers–otherwise, the “shopping” process can only take place after the borrower has identified their next home.

From HUD’s RESPA FAQ 23:

An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information.

A mortgage loan originator CAN issue a good faith estimate without the rate being locked. Going from a “float” (unlocked) to a locked rate constitutes a “changed circumstance” which allows the MLO to re-issue a good faith estimate. In fact, the GFE must be reissued withing 3 business days of the locked loan and any interest rate dependent changes may be reflected on the revised GFE.

HUD’s RESPA FAQ 31:

…a loan originator may not require a borrower to sign consents to verify employment, income or deposits as a condition of issuing a GFE as such a requirement may inhibit borrowers from shopping for the best loan by leading borrowers to believe that they are committed to obtaining a loan from that loan originator.

If you have provided all the information stated above to complete an application, including a property address, your mortgage originator must either issue a good faith estimate within three business days or deny your application. If they do not, they are violating RESPA.

The post Question from RCG Reader: My LO Won’t Issue a Good Faith Estimate appeared first on Rain City Guide.

Everybody LOVES bank fraud!

Craig Blackmon — Tue, 20 Apr 2010 21:35:12 +0000

Is it just me, or do loan orginators routinely encourage bank fraud? First, the background: There are a variety of federal and state laws that make it a VERY serious crime to mislead a lender for purposes of getting a mortgage. At the federal level, 18 USC sec 1014 makes it a crime to “knowingly make any false statement or report . . . for the purpose of influencing in any way the action of” a commercial lender. (Emphasis added). The penalty? A cool million dollar fine and/or 30 years in federal prison. Yup, not a misprint: 30 years in Club Fed. On the state level, RCW 19.44.080 makes it a crime to “knowingly make any misstatement, misrepresentation, or omission during the mortgage lending process knowing that it may be relied on by a mortgage lender.” (Emphasis added). The penalty? Its a class B felony, so 10 years in the joint and/or $20 grand.

As indicated by these laws, as a society we cherish honesty to lenders and believe very strongly that anyone who is dishonest AT ALL in order to secure a loan has committed a very serious crime. The problem, of course, appears to be that nobody in the RE industry agrees. Rather, it appears that the RE industry treats this type of bank fraud (misleading a lender in order to facilitate getting a loan) to be something akin to taking a second serving of dessert: bad form, sure, but if nobody knows…

You may be thinking: “What on earth is Craig talking about? Everyone I know is honest and abides by the law!” Well, think further, and in particular think about a buyer’s inspection contingency response. The NWMLS provides a Form 35R specifically for resolution of the inspection contingency. By its terms, the 35R and any other notices or addenda relating to any modifications or repairs becomes a part of the contract, and of course the lender has the right to receive (and buyer has the obligation to provide to the lender) the entire contract.

How many agents out there have used the Form 35R to request repairs and/or price reductions? And have you gotten any feedback from the loan originator once he or she receives a copy of the signed form? I have. The 35R had the fourth box checked (buyer proposes modifications) and the text below, “Sale price reduced to $440k.” About as simple as can be — but apparently still likely to arouse the suspicions of the underwriters, thus complicating the process. The loan originator’s request? “Toss” the 35R and instead use a Form 34 for a simple price reduction.

The problem? That clearly violates the state law above, and probably the federal law too (at least it will when the buyer signs at escrow a statement indicating that he has provided the lender with all requested information, including a complete copy of the PSA). In other words, even LENDERS encourage violation of the laws designed entirely to protect lenders.

And one wonders how we inflated the housing bubble…..

The post Everybody LOVES bank fraud! appeared first on Rain City Guide.

IRS and Homebuyer Tax Credit: obtaining a”signed” Final Settlement Statement

Tim — Wed, 17 Feb 2010 18:47:40 +0000

This is tax time.

Sometimes escrow offices wonder if we are CPA firms during tax time. Our office has received numerous phone calls from clients that are in need of their “signed” Final Settlement Statements. Lynlee wrote a quick post on our blog with an IRS link addressing what the IRS may need from borrowers to claim the tax credit.

As always, please contact your CPA or tax professional for specific details regarding claiming the homebuyer tax credit.

We contacted a CPA and they responded:

“we generally have found that the Final Settlement Statement (with NO signatures) are acceptable.”

Why? Because in Washington State (and other escrow states) Final Settlement Statements do not have signatures from borrowers. Final Settlement Statements are mailed to clients after a transaction is closed. Estimated Settlement Statements are signed at escrow prior to your transactions being closed.

The post IRS and Homebuyer Tax Credit: obtaining a”signed” Final Settlement Statement appeared first on Rain City Guide.

Predatory Short Sale Negotiators

Jillayne Schlicke — Sat, 06 Feb 2010 06:55:53 +0000

I received a call the other day from a consumer who was in the process of purchasing a short sale home. The homeowner has defaulted on her mortgage and the trustee sale auction has been postponed a few times now that this buyer’s firm offer has finally reached the lender’s loss mitigation decision-maker. Once the offer was accepted by the seller, the homebuyer was surprised to learn that there’s a third party involved, a “Short Sale Negotiator” who is charging an additional $9,000 fee on top of the real estate commissions paid to both the agent for the seller and the agent for the buyer. The Short Sale Negotiator is demanding that the homebuyer sign an agreement that the homebuyer will be responsible for paying the $9,000 fee. The homebuyer emailed me asking what I thought of this additional fee and could I offer some advice.

The first thing I did was to find out the name of the Short Sale Negotiator company, the owner of the company, and the person who is doing the short sale negotiating. I discovered that the negotiation company is owned by the same person who also owns the real estate firm where the listing agent works. I also ran the name of the short sale negotiator and discovered that this person IS a licensed real estate agent.

Readers please note that WA State’s regulators recently changed the real estate licensing laws and there’s a great FAQ section here that answers the question: Does a Short Sale Negotiator have to be a licensed real estate agent? The answer is yes, or a licensed loan originator or otherwise exempt from licensing such as an attorney. (Clicking through from the link, scroll down to “doing business” and see the second question.)

So we have a licensed real estate agent who is earning money as a short sale negotiator who works for a company owned by the same person who owns the listing agent’s real estate company.

There are a couple of things that come to mind here. First of all, isn’t there a bit of a conflict of interest for the real estate broker/owner of that company? Where are your duties? To the home seller, whose listing you’re charged with overseeing, or are your duties to the buyer, a client who signs the agreement to pay your other company $9K? What are the duties of disclosure to BOTH the seller and the buyer?

For example, if I’m the seller in this transaction, charging a buyer an extra $9,000 out of pocket might preclude a number of qualified buyers to make an offer….unless I hold back this information until after the buyer has emotionally fallen in love with the home and is already arranging the furniture in his/her mind. That seems manipulative. Why not tell all possible prospects up front what the short sale negotiator’s fee is: Make it mandatory to display this extra fee in the PUBLIC comment section of the multiple listing service.

You might be thinking: “Yes we could disclose this god-awful fee to the public this but that’s not in the best interest of the home seller.” Well, okay but what happens if you end up attracting a lot of buyers but they all walk when told of this high third party fee? Now the listing agent has wasted everyone’s time. It’s like if someone asks me out on a date and then later he tells me he’s married. Come on! Hey, some women might say yes and it’s nice to know up front how big of an a-hole a guy is. I say the listing agent would actually be attracting the right kind of buyer if they disclosed that their Short Sale Listing comes with baggage. It seems to work fine for the married guys who post personal ads on craigslist day after day.

More: If there is an affiliated business arrangement going on between the two companies that are owned by the same person/people, then a RESPA-required Affiliated Business Arrangement disclosure form should ALSO be required so that the home seller and home buyer are aware of the dual company ownership. Part of that AFBA disclosure form should state that the homebuyer understands that buying this home means he/she does NOT have to use this particular short sale negotiation firm and is free to select another short sale negotiation company to do the same or similar work. However, since a ‘short sale negotiator fee’ might not necessarily be classified as a “settlement service” then this rule might not apply. HUD are you listening? It’s highly possible that the next time a federal regulator makes it out to Washington State, the Seahawks will have won the Superbowl. Knowig this, we should look to the state regulators for assistance.

For a home buyer, a big red flag would be if the listing agent demands that you use this affiliated short sale negotiator. Demanding that a buyer use a real estate broker’s affiliated company is a licensing law violation as well as a violation of federal law when those companies are a title, escrow, appraisal company, and so forth. So why not a short sale negotiations company also?

Even more: Is the listing agent receiving part of that $9,000 fee? One way of structuring this is for the owner of both companies to promise the listing agent something like this: “if the lender cuts your commission, don’t worry, I’ll give you a portion of that $9,000 negotiator fee.” Unearned fees are not allowed under RESPA.

Even worse: Is the short sale negotiator splitting the $9,000 with the home seller? How fast can you say “Mortgage Fraud is now a Class B Felony in Washington State?”

The other logical problem that comes up for me when I see an additional fee of $9,000 is this: what work is being done for NINE THOUSAND DOLLARS? That’s an awful lot of money. I could install all new vinyl windows in my 1959 house with that kind of money. I could put this in my teenager’s college fund. I could accomplish a lot with $9,000 so why would I want to pay that kind of money to a short sale negotiator? Is this like extortion/payola in order to get that particular house for that price?

Maybe not. What is this third party negotiations company doing for their $9,000? Wait, let me go find out. I’ll read their website. Gee, there’s nothing on the website telling a consumer what their company actually does for that fee but the pictures of their team tell me they’re all good looking guys under 30. Not that there’s anything wrong with doing business with good looking guys under 30 but it should make us wonder how much experience the negotiator has at short sale negotiating. In 2009 I believe we added ten million “short sale experts” in the real estate industry.

My advice to the consumer: Negotiate that fee down to somewhere around $1,000 to $2,000. If the home is that close to the auction date, tell your real estate agent that you’re going to buy the home at the auction if the lender won’t approve the short sale and if the negotiators won’t go for a reduced fee. Most of the third party short sale negotiators out there are paid much less than $9,000.

Here’s some help with the math: I asked the consumer to ask the short sale negotiator how many hours he’s spending on this file v. how many hours he’s working on those biceps. Consumer says the SSN said he’s spent 10 hours so far on this transation! !! !!! Wow! Well! Okay then, let’s divide $9,000 by 10 hours. That’s a going rate of $900 per hour. That’s probably close to the hourly rate charged by the Johnnie Cochran law firm for litigation cases and I’m fairly certain that this licensed real estate agent negotiator doesn’t have as much experience or education as the JC legal team. Counter back with $100/hour and settle around $200/hour max.

I am betting they’ll take the $2k.

Ask for the negotiator’s $2K to be put on the HUD I Settlement Statement as a seller’s closing cost. There’s a chance the lender will pay it. If not, the buyer needs to as himself: Is this house worth $2k out of pocket at closing? It’s also important for the buyer’s new lender to know about this additional fee. Insist that it’s paid out through escrow and shows on the buyer’s side of the HUD I Settlement Statement if the lender refuses to pay it as a seller’s cost.

Buyers: do not agree to pay any money after closing, on the side, without disclosing this additional amount to all parties including the lender.

Predatory Short Sale Negotiators: The world is watching you. I wonder if your dreams are haunted the way I was haunted after watching The Hurt Locker. Soon your predatory fees are going to explode in your face. Oh, and loan mod salesmen thinking that being a short sale negotiator is the next big way to “make six figures with no experience,” please go back to the used car lots. I’m sure there are some openings at the Toyota dealerships.

The post Predatory Short Sale Negotiators appeared first on Rain City Guide.