Author Archives: Rhonda Porter

About Rhonda Porter

Rhonda Porter is an NMLS Licensed Mortgage Originator MLO121324 for homes located in Washington state. Her blog, The Mortgage Porter, is nationally recognized for sharing relevant information to consumers about mortgages. She has been originating mortgages since 2000 at Mortgage Master Service Corporation #40445 Consumer NMLS Website: http://www.nmlsconsumeraccess.org/TuringTestPage.aspx?ReturnUrl=/EntityDetails.aspx/COMPANY/40445 NMLS ID 40445. Equal Housing Opportunity. You can follow Rhonda on @mortgageporter, Facebook and/or Google+

Zero Down Loan? You Better Have a 620 Credit Score or Higher

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Update 11/11/2008:  This is post is more of a reflection of the times.  Zero down loans are not available with convetional financing at this time.  Private or hard money may have zero down loans available.   FHA with a loan from family members is the closest to 100% financing that I’m aware of.   As with any posts about mortgage guidelines, be mindful of when they were written as guidelines have (and will continue to) change.

I’ve been working on a zero down rate quote for Jillayne, since she requested that two weeks ago when I did my posted my first Friday rate’s on RCG.   She was curious how 100% loan to value mortgages compare based on different credit scores.   At the company I work for, we have around 80 (woops…make that 78 now) lenders we work with.   A majority of our business is handled in our credit line (Mortgage Master is a Correspondent Lender) and some business is “brokered”.  Typically this is subprime or unique loans with added risk.   As a Loan Originator, you wind up selecting 3-5 of your favorite “a money” sources, a few “alt a” lenders and of course, and I like to have around 3-5 sub-prime lenders.   These are the lenders and representatives you rely on, get to know their products and trust their underwriting.   

Back to Jillayne’s request, last night I called my three preferred subprime resources for my rate quotes…what’s the lowest credit score they will lend to at 100% ltv and is the rate and program?  Thanks to RCG’s Tim, I’ve just learned that one of those resources I’ve relied on, New Century…and the only one that I work with who did quote yesterday an 80/20 with a 600 mid-score is facing troubling times to say the least.

“New Century Financial Corp. said it’s the subject of a criminal probe and Fremont General Corp. agreed to a cease-and-desist order with bank regulators in the biggest regulatory actions to emerge from the subprime mortgage meltdown.”   To read the entire article on Bloomberg, click here.

Every day I’m receiving memos from various subprime lenders with details of (much needed) tightening guidelines.  If you currently have clients shopping for a new home and they are using subprime financing (you might know this if they’ve told you their credit is not great, if the mortgage is a 80/20 with a prepayment penalty, etc.) you just might want to contact the Loan Originator to make sure the preapproval is still valid.  If that client has a credit score below 620, they may (1) not be approved any longer or (2) be approved for an entirely different rate (much higher). 

Subprime lenders are either eliminating their zero down products all together or are raising the credit score requirements.  Previously, a 580 – 600 mid-credit score was no problem for 100% financing.   They were beating down our doors to do these loans!  Now, the new standards for mid-score (with the lenders I work with) seems to be 620.  This is a significant jump that will delay some rentsers from buying homes until they improve their credit.   Which again, I think this is good.

I’ve mentioned this before, but this is so important.  If you have clients who have used subprime financing who have purchased homes in the past 1-2 years, this could be a good reason to pick up the phone and call them.   Hopefully they received good counseling from their Mortgage Planner AND they took the advice to heart…working on cleaning up their credit usage, managing their spending, etc.  With the subprime market tightening, if those subprime borrowers have credit scores below 620 when their prepayement penalty is up and their fixed payment is adjusting towards the sky, they may be are in a very tough situation.

Jillayne, this post is all ready a bit long… I promise I’ll have your zero down rates posted soon!

Are You Financially Prepared for a Disaster?

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[photopress:2001_02_28_quake.jpg,thumb,alignright]

It’s hard to believe that just six years ago today, the Nisqually Earthquake rattled our cages. I was just getting ready to quote interest rates for a purchase at my office when I was so shook (literally) that I accidentally quoted rates for a 15 year amortized mortgage instead of the 20 year amortized that my client was interested in…needless to say, I honored my quote. You never know when an emergency might happen, whether that’s an earthquake, a tree crashing through your roof or a illness or death in your family. Life happens to all of us when we least expect it. The anniversary of this event reminds me of being prepared for such emergencies.

A few months ago, I read an article from the Financial Planning Association which, among other things, discussed creating a simple three ring binder that contains your important financial information. I thought this was brilliant. In the event you need to leave your home quickly or if you have your partner in the hospital, you need to be able to access your important information quickly instead of running around your house or riffling through filing cabinets, etc.

The three-ring binder is intended for you to create a central source of answers and personal information that can help provide direction and instill hope following a disaster or other family emergency. Unfortunately, a disaster could result in death and incapacity. Accordingly, the binder is an ideal place to record your memoirs, personal wisdom, parting thoughts, and answers to questions that only you can answer. It’s important to keep this information in your binder current and always handy. It should include

  • Instructions for whom to call first, what to do first, and where to find things.
  • Personal family information: names, dates of birth, Social Security numbers, and other ID numbers and pertinent information about family members.
  • A family medical history that includes doctor contact information, current medications, allergies, and so forth.
  • A current telephone and e-mail directory that lists family members, friends and advisors.
  • A current inventory of your financial assets, including all account numbers.
  • Estate information that includes details about end-of-life wishes and arrangements.
  • A list of service contracts and warranties.
  • Detailed information about your business (if applicable).

I know…you all ready have the emergency kit with three days of water and food on your to-do list! This is just food for thought.

15 Year Mortgage Too Pricey for Normal People

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This morning, I read a commentary on seattlepi.com from columnist, Christy L. Thomas called Seattle too pricey for normal people.   It’s regarding her move from Boise and how she and her boyfriend are considering whether or not they can afford to buy what they would like to have in Seattle. 

The part that struck me, being a Mortgage Planner, is that they are selecting a 15 year fixed mortgage for their financing.   That avenue would be an expensive choice for anyone.   She mentions trying to find a home priced around $320,000 based on what she sold her Boise property.   I’m assuming that Christy and Tom (her boyfriend) are conservative folks since they’re looking at a 15 year fixed mortgage…so the following comparisons are based on putting approx. 20% down.   I’m also using the rates I quoted on Friday.

  • With a sales price of $320,000, their loan amount would be $256,000.  A mortgage amortized over 15 years would provide a principle and interest (P&I) payment of $2108.75
  • A mortgage amortized for 30 years with P&I of $2108.75 would provide a loan amount of $356,480 and an approx. sales price of $427,750.
  • Amortize a mortgage over 40 years with P&I of $2108.75, you will have a loan amount of $377,270 and an approx. sales price of $452,725.

Same payment with each scenario…except you’re able to buy $132,725 more home using a 40 year fixed over the 15 year fixed and  $107,750 more home with the 30 year fixed mortgage.    With an interest only product, such as a 30 year fixed rate with a 10 year interest only payment, the savings (or how much more home they could buy) would be even more substantial.

I hardly ever recommend 15 year fixed mortgages to my clients…unless they’re doctors or someone who makes so much money that their mortgage deduction is reduced and they all ready have all the investments they need.  

Even if Christy and Tom’s case where they want to “look around and buy the home where, if we’re lucky, we’ll grow old together”.    Why pay off your mortgage and lose one of your best income tax deductions?

Christy, Seattle is not too pricey for normal people…your 15 year fixed mortgage is.

Triggering My Hot Spot

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I have blogged about this before…it is really one of my “hot spots”.   This morning, not only did I receive an email from this company (oh, I mean SPAM) stating that this is information that I requested, which I did not, it is about something I am absolutely against: selling consumer’s information when they’ve had a credit report pulled to become preapproved.    [photopress:trigger.jpg,full,centered]

If you go to their website, they state, “Receive a daily feed of consumers in your target market that just yesterday had their credit checked for a mortgage loan approval.That ’s right, these consumers have just had their credit checked within 24 hrs, specifically for a mortgage loan approval! Now you can provide them with a pre-approval in just a few days for unlimited growth potential.”

Picture this, Mr. and Mrs. Homebuyer meet with a Loan Originator and sign many documents for the preapproval process including disclosure forms that their private information will not be sold. Within hours, they begin to receive relentless phone calls and post cards from other lenders.   It’s too bad the credit bureaus are not a party to this agreement and that it is legal for the bureaus to re-sale credit scores, addresses, phone numbers, debts, etc.

I’ll go eat a box of Valentine’s candies and go chill out in a corner somewhere.

 

 

There's No Love for the Subprime Borrower

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It’s all over the news, we’re hearing about major subprime lenders having to restate their losses and every day, lenders are coming into my office to inform us of changes to their guidelines.   This is all good, right?    It will be tougher to provide loans for home buyers who maybe should be spending more time to learn about budgeting and using their credit cards.    What about the people who are all ready in these programs?

First, allow me to explain the basic dynamics of these loans.  Many of these mortgages are zero down, 80/20s (80% of the loan to value for the first mortgage/20% of the value for the second mortgage).   The first mortgage is typically offers a fixed rate for 2-3 years with a prepayment penalty (the standard is six months interest) that matches the fixed rate period.   In addition, the mortgages may be interest only or amortized at 30, 40 or 50 years.    The rates on these mortgages are completely dependent on credit score. 

When I meet with Mr. and Mrs. Subprime, I advise them of their options of buying now using this type of subprime mortgage or that they can work on their credit, job history, etc. and buy later with a better mortgage program.   Because there are no guarantee of what rates will be (or maybe because they know there’s not guaranteed they’ll clean up their act) and because they want to buy a house now, they often opt for the subprime mortgage.   Once this happens, I heavily stress (or Jillayne would say, I lecture 🙂 —which I’m sure I do) to Mr. and Mrs. Subprime that they have 2-3 years to change their spending habits because once their fixed period rate is over, their mortgage is going to adjust and do so big time.    I let them know that I want them to be in the best position for a refinance into permanent financing (or to have a better mortgage should they decide to sell the home assuming they have any equity) and that the subprime mortgage they are using to obtain their home is temporary financing.  

Many of my clients in these mortgages have done very well and I’m proud of them.   They have taken the responsibility of owning a home and having a mortgage to heart.  I’m able to restructure the original mortgage and improve their situation greatly.   The concern is for Mr. and Mrs. Subprime who just didn’t get the hang of it.   They continued to charge up their credit cards, they bought or leased a new car to go in their new driveway and maybe a new TV, too.   They’ve been sliding ever since the holidays and are now having a tough time paying their mortgages on time.   Maybe they just have one mortgage late.   Their credit is rough at best.   Their fixed period (and prepayment penalty) is over and now they really need to refinance fast because their mortgage has adjusted for the first time—their rate is now 2% higher.  Their situation has gone from bad to worse.    With all the tightening in the subprime market, even if their credit scores and scenarios are the same as when they bought, there may not be a program for them to refinance out of now.   They will be forced to sell (hopefully they have enough equity to pay commissions and other closing costs) or to somehow manage to choke down their increased payments.

I guess this post is a plea of sorts.  If you currently have a subprime loan (especially the type I described) please contact your Mortgage Planner to have your credit reviewed to make sure you’re on the right track to be able to refinance (or have a better loan for when you sell) when the time is due.   Do not assume there will be a program for you if you have not made significant changes to your spending and use of credit cards.   If you’re a real estate agent or loan originator, check in on your subprime clients to let them know of the changes in the industry…see if they need guidance to stay or get on track so they don’t wind up stuck with a higher mortgage payment, being forced to sell or foreclosure.

Confessions of a Zero-Down Lender

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This is a two part (well so far I’m planning a second post…their could be more) series of a couple of clients (names changed to protect identities, of course!) who have purchased homes utilizing 100% financing.   Both parties utilized similar programs but they wound up in entirely different situations.  

Mr. and Mrs. Spender eagerly wanted to purchase a home.  They were tired of renting and had two kids with one on the way.   They didn’t have a lot of money in savings and their credit had a troubled past (some of it was medical and some was plain irresponsible).    They live paycheck to paycheck but they are anticipating receiving raises and bonuses from their employer.   Their credit report shows that they rely on their credit cards and you can see on their bank statements that they dine out a lot and spend their money on frivolous extras.  

Based on their credit scores, I was able to provide them with an 80/20 from a sub-prime lender who does not verify where their funds are coming from for closing and would allow for the seller to pay up to 6% of the closing costs.   I structured their preapproval with the seller paying all the closing costs.  In fact, at funding Mr. and Mrs. Spender receive a check back for a majority of their earnest money.

Not long after closing, the Spenders discover that the gas heater in their home was defective (apparently this was missed on the home inspection?).   It just so happened that the repair company they called to repair it had previously serviced it and informed the previous owners that it needed to be replaced.  Mr. and Mrs. Spender decided to take their Seller to Small Claims Court and their Agent attended with them.  I had asked them what the results were, here is their edited response:

“Yes we took them to court and even though we had all the documents showing that the (sellers) knew the furnace needed to be replaced and needed to be fixed the judge did not find that we had proved our case… so we got nothing.. (the Real Estate Agent) came with us and she was just as shocked…  She too was amazed that all the paperwork we sign to protect us from buying a home with flaws, the (Sellers) even stated and had to initial that there was no problems with the heating system and even though we had documentation to show that they knew there were problems and didn’t disclose it… we got screwed to be honest…. They knew.. They didn’t care… and the judge just wanted to get out of there… It was a joke…

Calling All Patches Pals

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Tomorrow is a VERY BIG DAY for all Patches Pals.   If you grew up in the Seattle area, you must know JP Patches, the one and only Mayor of the City Dump.   Beginning at 10:00 a.m. at the Red Door Ale House in Fremont, JP and friends (including Gertrude) will be present for the unveiling of the scale model of the statue that will be built to honor this local treasure.   Last year, JP was featured in an article in the Seattle Times about why this clown deserves such recognition.

Yes.  I’m a bona fide Patches Pal.  We actually had JP hired to perform our marriage ceremony at our home last April 1, 2006.   But when our small wedding began to to turn into a circus, pun intended, we decided to elope…so no JP nuptials.

A few fellow Patches Pals at the Northwest Academy of Television Arts and Science have been raising money to build this statue.  At tomorrows event, you will have the opportunity to purchase “Patches Pavers” that will surround the statue by dropping your donation into the ICU2TV.   Any moneys raised beyond the building of the statue will be donated to Childrens Hospital.  

I wouldn’t miss this for the world…I hope to see you there!

Quick Update on Loan Originator Licensing

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Since I’ve covered Loan Originator licensing before on Rain City Guide, I thought I should provide this update.   Apparently DFI is loosening up on their previous decision to not allow LOs to take loan applications if they did not submit the required information prior to the original January 31, 2006 deadline.  

So if a Loan Originator did not follow the new simple rules before January 1, 2007, they can still practice business if they just complete DFI’s online application, the MU4 form and submit their fingerprints for the background check.    As a Licensed Loan Originator who was able to take time out of my busy schedule to comply with DFI’s requirements, I’m just a little concerned and I hope this is not a trend.

 

 

Children, Can You Say "Suitability"

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If Congressman Barney Frank has his way, all mortgage originators will have to utter those words in the back of their minds when considering loan options for their clients.   Frank is not just any member of Congress, he happens to be the new chairman of the House of Financial Services Committee and his top priority is to create national laws to protect consumers from predatory mortgage practices.

Recently, on The Perennial Borrower post, I was asked by RCG readers how do I determine what loans are right for clients with all the options that are available in today’s mortgage marketplace.  It takes a great deal of determining what the available financing options are, what their financial plans are and then what mortgage makes the most sense, or is the most “suitable”.   This doesn’t happen automatically for every borrower with every loan originator.   Which is why states like Washington are now licensing Mortgage Brokers and Congress is looking into the same on a nationwide basis.  Currently, when we have subprime lenders calling on our office, they promote “how low they can go” in the borrower pool.   55% debt to income ratios are common–heck, you hardly have to be re-established out of your bankruptcy if you don’t mind the interest rate.  Can’t document your income, assets…don’t have a job but your credit is good–fantastic, we have a loan for you!  It’s true, there are a lot of mortgages that seem crazy and while they may not make sense for some, they do for other clients.  Suitability.

According to Kenneth R. Harvey’s article last Saturday, “…a new national standard might require loan officers to determine an applicant’s suitability for a particular loan program based on:

• Employment status, income level, assets and likelihood that income or employment could change;

• Other recurring expenses and the effect they could have on the borrower’s capacity to repay;

• The potential for higher future monthly payments based on the structure of the loan.

A suitability standard might also ban brokers and others from steering less-sophisticated borrowers to higher-cost mortgages than they qualify for, such as pushing them into complicated higher-rate subprime loans when they could qualify for prime rates and simpler programs.”

This sounds great…however; there is always another side to the story.  NAMB is concerned this could “lead to accusations of discrimination.”  I agree, I mean, are loan originators to provide IQ test to borrowers before determining if they truly understand a more sophisticated loan?  Who are we to judge?   Many times, this surprises me, I may not physically meet my client.  The entire transaction may take place over the phone or internet.  You do get a “feel” for whether or not a person understands the mortgage product by the questions they ask, but how do you really know?   If you’re a borrower who wants an option ARM and a lender (deciding you are less-sophisticated) insists on giving you a 30 year fixed, have you been discriminated against?

2007 should be a very interesting year in the mortgage industry.