Tag Archives: loans

The Flip Side of the Sub-Prime Story

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[photopress:P1000150.JPG,thumb,alignright]Who will suffer most from all of this? Will the people who honored their commitments, and who valued and appreciated the chance the lender took on them, get hurt by all of the “reform”?

No one was more surprised than I, when I got the mortgage and closed on my home. In the end, the lender wanted me to write my profile of “Who I Am” right before the loan funded. I was starting over again in a new city. No proven history of what I might be able to make long term, as an agent in a new place. Coming out of a 20 year marriage, too old to wait until I stablilized my income, arriving with only what could fit in the trunk of my car. Sleeping on the floor at my sister’s in Green Lake while I worked hard to re-establish myself after a debilitating and nasty divorce. Needing a home for my three daughters and grand daughter to come to, hoping I could woo them away from L.A. where they were not doing well, and couldn’t afford to live on their own and be safe.

I worked day and night, seven days a week, and made the payments gladly. The one day a year when all my daughters came together at Thanksgiving, the couple of weeks when my grand daughter came up and we visited the ducks up at the Marina in Downtown Kirkland. Helping them through their hard times with their car insurance and car payments and making my mortage payments. Gladly working 24/7 for the opportunity to prove to them that a woman could make it after divorce, and not just “get by” but have a nice home.

I wouldn’t trade these last two years for anything. The memories in this house with my dearest and most cherished treasures, my girls and my grand daughter. Each of them proud of me and realizing that all things are possible, and life doesn’t get you down unless you let it.

Yes, for the first time in my life I was “sub-prime”, I was “stated income”, I was 49 and starting over. I am the person sub-prime and stated income was made for, and I’ve worked hard to be the person they believed in when that loan funded. And when the news got scarier, I took a second job as Broker of BRIO to make sure I could keep going, even if I couldn’t refi, and honor my commitments.

The day they asked me to write that profile so they could take one last look at who I was to decide if they should take a chance on me, I remembered my Uncle Johnny Rosati. How no one would give him a loan for a truck for his business “idea”. How finally, one bank said yes and he started his business and busted his butt day and night to prove himself worthy of the chance they took on him. How he refused to ever use another bank his whole life, no matter how many people told him he could get more interest elsewhere. He was loyal to that bank until the day he died, because they were the only ones who believed in him when they had no reason to, and no one else would.

Every day I live in my house, every month when I pay my mortgage payments to Washington Mutual, I thank them for believing in me and for giving me my “sub-prime” mortgage. I wake up working. I go to sleep working. I work every single day. I work to be the person they believed I could be, and I worry when I read all the bad news. I worried so much I took a “second job”.

Will I never be able to convert my 2 year arm because of the reform? I don’t know. But I do know that I will pay my mortgage payment as the rate adjusts higher. I’ll work two and three jobs if I have to. I know that they took a huge chance on me, and I know it was the boldest move of my entire life when I took this on.

Every day my girls get a year older, and every day I need to have this house less and less. Every day I thank those who believed in me and took a chance on me, and work hard to honor my commitment to them. Will all this reform close the door on me? No matter. I’ve already made it to the light at the end of my tunnel.

Cocktail Party Primer

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I’d like to open this thread up to a conversation on the health of the Seattle market…

but there is a catch. I will not allow it to dissolve into a conversation about racism, liberals, RCG, or faith. If you’d like to have a reasonable intellectual conversation, you are more than welcome to participate. If you attack me, RCG, or any contributor, then I’ll happily delete your comment.

By the way, please consider this post the “anti-linkbating” post. Not only will I quickly delete any off topic comments, but more importantly, I will mark those comments as “spam”. That will allow me to ban your email, name, IP, etc. from the site after only a few off-topic comments.

Two days ago, Michael Lindekugel of Team Reba made a very interesting comment. No one ever challenged him on the merits of his argument, so I think it makes an appropriate starting point into a discussion on the health of the Seattle market:

It’s the hot topic at most cocktail parties. Is Seattle going to experience a bubble and burst? The short answer is no…..the long answer follows:

We experienced a busy market with a shortage of supply and increasing demand resulting in four or five offers and short “Days On Market

I guarantee you’re going to get this mortgage, I think.

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Why does the mortgage business seem so insane and unreliable? Well, there are a couple of reasons. One reason is there are a tremendous number of loan officers who came into the business during the boom of 2001 and have not had enough experience. A loan officer’s job is to make your loan work. When they look at a loan application, they examine all possible reasons that could be a problem. These are things like properties under construction, borrowers who are out of work, too much debt, not enough income, complex income situations, low credit scores, title problems, and much more. Loan officers with lots of experience have seen so many different situations with such complex problems, they know how to evaluate a new loan and spot potential problems. The next hurdle is with the underwriters. These folks work for the lenders and they review all of the information sent to them from the loan officer. They have guidelines and matrices which tell them what’s acceptable and what’s not. Underwriters will ask, or “condition

Not all Home Loans are Created Equal

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[photopress:14dust.jpg,thumb,alignright]If you read no futher, here are two key things you should do when getting a mortgage:

1) Get a “Good Faith Estimate” in writing!
2) Get a “Good Faith Estimate” from at least one mortgage broker and one bank.

Now, for those of you who want some more information…

When looking to finance a home, there are two general places you can look for a loan:

  • Broker
  • Bank

Also, you always have the option of paying for your home with cash. Sellers love all-cash deals. However, if you are planning on buying a home with all cash, quit reading now and call me up directly! I do backflips to keep my “all cash” clients happy!

If you can find a top-notch mortgage broker, hold onto him/her and don’t let go. A good broker has access to hundreds of loan opportunities and can find deals that just won’t be offered by your local bank. However, the downside of using a broker is that you’ve added one more person to the food chain that expects to make some money off your home purchase, so make sure that you comparison shop and that your broker earns their commission. If you are wondering where to start looking for a broker, I’d be happy to offer you some advice based on people I’ve worked with. Or, try the following acrobat (*.pdf) file that lists the members of the Seattle Mortgage Bankers Association. Some of the brokers I’ve worked with (and like) include:

  • Alla Strok, potential bonus: she’s fluent in Russian

Just about every major bank (and smaller ones too) offers mortgage loans. In addition, the competition has spread to on-line banks with eTrade and Schwab now offing very competitive loans. I see no downsides to getting a “good faith estimate” from Schwab. They claim they will even give you $500 back if someone can beat their good faith estimate. Some banks to consider include:

Or, if you prefer, here is a full list from the google directory of banks that operate in Washington: banks and institutions

Some Mortgage Terminology
We might as well clear up some mortgage terminology so that we are all talking about the same language.

  • Good Faith Estimate: The law requires that each broker or bank give a “good faith estimate” regarding the details of their loan. In practice this means that each broker or bank will give you a quote (based on an analysis of your finances including credit history) in a very similar format that makes cross comparisons quite simple. These good faith estimates are shockingly easy to read, so demand one from anyone that tries to give you a mortgage loan. Are you having trouble reading the good faith estimate? Have your broker explain any questions to you. If he doesn’t take the time to explain the details, go with another broker.
  • Points: Fees paid up-front on your mortgage loan in order to lower the interest rate. Paying points make the most sense if you are planning to keep your loan for an extended amount of time. If you are planning to refinance or sell in the near future (less than a five years), points probably don’t make a lot of sense.

Loan types

  • 15- or 30-year fixed loans lock in an interest rate for an extended amount of time. The beauty of these loans is that the interest rate you paying will not go up for the life of the loan. For buyers looking to stay put for a while, these can be a take the guess work out of the future.
  • 3/1, 5/1 or 7/1 ARM loans lock in an interest rate for a short time frame (typically 3, 5 or 7 years depending on the type) and then change to an adjustable rate that changes based on the Federal Interest Rate. The loans are best for people who want some short-term security regarding their rate, but are willing to accept potentially higher rates in the long-term to save some money now. These loans tend to work well for people who are planning to move in a few years or whose income is still on the rise. If your income is likely to rise in the future, you can probably accept higher interest payments later in order to lower your payments in the near future.
  • 1-Year Adjustable loans are just an extreme version of an ARM. These lock in interest rates for a year, and then change to an adjustable rate that changes based on the Federal Interest Rate. Again, these loans are best for people who want some short-term security regarding their rate, but are willing to accept potentially higher rates in the long-term to save some money now. These loans tend to work well for people who are planning to move in a few years or whose income is still on the rise. If your income is likely to rise in the future, you can probably accept higher interest payments later in order to lower your payments today.
  • Jumbo loans are loans for over a specific amount (I believe the amount is tied to the area that the loan is being given in). According to the Seattle Times, the current amount is $322,700. They charge more because the bank’s investment has more to lose with larger investments.
  • Interest-Only loans are for a select few individuals and investors that are willing to add some risk to the situation. The idea is that you pay only the interest payments on the loan so that the principal balance does not go down. If you are in a neighborhood where prices have gone up considerably over the last few years, then an interest-only loan might have been a good option. Some times investors use these interest-only loans so that they can invest more but keep their monthly payments at an acceptable level. Interest-only loans are too risky for me, but that doesn’t mean they won’t work well for your situation. UPDATE: I was shocked to read that interest-only loans represented 1/3 of all home loans (nationally) last year. I knew that they were popular, but I hadn’t realized the extent. Politics in the Zeros. LA Times

Where do you start your search for a loan?
The process is really quite simple. Assuming you live in Seattle, check out the Seattle Times Mortgage Rate chart. (every major newspaper publishes something similar if you live elsewhere). This will give you a general feel for the rates that you can expect to find. However, note that this list is not comprehensive, and the banks are always finding ways to attach strings to these loans they advertise, so be skeptical of the data as presented. The next step is to demand that a Good Faith Estimate from at least one broker and one bank. Compare the results. Continue to ask for Good Faith Estimates until you are comfortable with the results.

The Power of Competition
There is so much competition in the home mortgage business, you could easily be lulled into believing that all the loans are nearly the same. However, my experience has shown that brokers and banks can often dig a little deeper and find a better rate if prodded. For example, when I went to get a mortgage for my home in Ballard, I had both a broker and Schwab bank give me a Good Faith Estimate. Schwab Bank clearly had the lowest rate, and when I showed the rate to the broker, he reevaluated the loan portfolio he had developed and found a much better deal. I showed his new loan proposal to Schwab and they beat his estimate by over 0.1%. I returned to the broker with Schwab’s new rate, and he admitted that he simply couldn’t beat it. Over the life of my loan, adding a little competition to the process saved me hundreds, if not thousands, of dollars.

General Tip
Be realistic about your credit rating. If you have excellent credit then you can expect better options. With bad credit you may have to search harder to find a deal. With that said, a good broker can find a loan to finance just about anyone. If you go straight to a bank, the loan officer’s there are not always so forgiving.