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+

We’ve Come a Long Way Baby

Posted on by
16

VirginiaSlimsThe other day, I received an email from someone who wanted to verify some surprising things he had heard about the “old days” of mortgage underwriting.   Before I go on any further about the details of the discussion, I feel the need to to give a “Surgeon Generals” type warning:  in no way do I nor Mortgage Master condone the outdated underwriting guidelines used in the “old days”.   It is interesting to see how much lending practices have changed over the years…for the better.

From Curious George:

“Heard some interesting historical information from a long time veteran of the real estate industry today.  I seems that at one time, for a woman’s income to be considered when she and her husband were purchasing a home, she needed a note from her doctor stating that she either had a hysterectomy or was going through menopause.  Apparently the fear was that if she became pregnant and couldn’t work for some time, they would not be able to pay their mortgage.  Then with the development and legalization of the birth control pill, the banks reconsidered and allowed 50% of her income to be used.   Eventually banks agreed to 100% of a womans income to be used.

Seriously though, I thought this was interesting.   Maybe you can confirm this.   It would be interesting to see how all of that affected home prices.  I’ll bet with people being to qualify for larger loans, prices got driven up.”

I’ve been trying to find information about this on-line and although I can find plenty about racial discrimination, I’m having a challenging time digging up on how women’s incomes were considered “back in the day”.   HUD and FHA’s websites glorify how their part in rescuring the American Dream during the Great Depression…I’m hard pressed to find early underwriting guidelines.

I decided to use my walking encyclopedia of all things mortgage to check the facts of this “almost unbelievable” depiction of lending history:  my 85 year old father-in-law who spent sixty years in local real estate, Bob Porter.   The first six years (fresh out of the Navy in 1945) selling real estate in North Seattle for Mutual Realty, Broadmor Realty and McPhersons while attending Seattle College (now named Seattle University).  The next twenty-two years were spent as a broker/owner of Southend Brokers with several branches in King County.  His resume continued as President of Pacific West Mortgage headquartered out of Burien and most recently as Chairman of Mortgage Master in Kent until his retirement in 2005.  Now that you know some of Bob’s background, here’s his response to “Curious George”:

“That’s right.  The industry led by FHA and VA would consider a wife’s income for short term debt such as car payments.  Professional women, teachers, lawyers, doctors and business owners income could qualify for mortgage payments on a case by case basis without a letter from their doctor.  Taking loan applications took a lot of diplomacy.  We would be sued for discrimination if we asked a woman for a doctors letter today.”

It’s hard to believe that underwriting guidelines were impacted by various forms of birth control and the progression of women’s rights.

Three months into the 2010 Good Faith Estimate…and We Still Have Issues

Posted on by
7

We’ve had three months to work with the “new” good faith estimate designed by HUD.   We had an even longer period of time to review this document, however in a mortgage originators defense, I will say that until you can use this GFE “in real practice”, you don’t truly know the nuances.   With all the updates to the RESPA FAQs, I’ll argue that HUD’s in the same boat! 

On March 18, 2010, HUD posted a new presentation “RESPA 2010 – Implementation Consistency”.  I recommend watching the video with access to the slides.  Vicki Bott, Deputy Assistant Secretary for Single Family Housing with HUD, covers the information more indepth than if you were to watch the slides alone.   During this presentation, it sounds like we should have a newly revised set of FAQs for HUD soon.  I’ve actually lost count on how many times it’s been updated…and a part looks forward to the revisions since I have hopes that some of the glaring issues will be addressed and remedied.

Here’s an email I recently received from a mortgage originator:

I have a question that I have been searching the internet for and was wondering if you might know the answer? … I have a rural development loan that I took an application for last week.  I didn’t realize before I disclosed to the borrowers that the 2% up front mortgage insurance fee did not populate into my good faith estimate.  The borrowers are aware that there is a 2% up front funding fee but since it wasn’t on my originally disclosed good faith, is there anyway to correct that?  I mean, it isn’t like I am adding a fee that goes in my pocket or anything, it is a fee that is associated with the loan itself, for anyone who gets a government loan with a funding fee or upfront mortgage insurance.

First of all, I am in no way an expert on the Good Faith Estimate and I’m not a replacement of a mortgage originators compliance department or managers.   This LO needs to immediately contact her manager and compliance officers at this point.   Emailing a mortgage blogger isn’t going to resolve her issue.

HUD does have what is called a “restrained enforcement” period which is the first four months of this year, which is touched on during this slide show.    I have no idea if this mortgage originators mistake would qualify her to call a “mullagan” or if she is obligated to pay the difference between the 2% loan fee factored into the 10% accumulative tolerence bucket.  If so, she’s paying to have this loan close…it’s a very expensive mistake that most mortgage origintors cannot afford to make.  On a $300,000 mortgage, the 2% fee is $6,000.   According to HUD’s powerpoint (slide 5):

“Restrained enforcement…is intended to provide lenders and HUD time to understand the implementation gaps and interpretation inconsistencies and resolve them while providing RESPA benefits to the consumer…. Guidance will be rolled out to the industry regarding specific areas of restrained enforcement.” 

I’m hearing  that most lenders will not allow re-issue of a good faith estimate once they’ve received it.  Mortgage originators are having to pay for upfront FHA mortgage insurance premiums (soon to be 2.25% of the loan amount) even though it was not a case of bait and switch–the borrowers knew about it and it was simply a human error.   Good faith estimates can only be modified if there is a qualified “changed circumstance” which must be documented.

Our company is currently using Encompass 360 for our loan operating system and I can tell you that it’s been a lot of effort to make sure that loan fees not only populate, but actually show up in the section they need to be.   The 2010 good faith estimate basically puts fees into 3 sets of buckets with different tolerances on how much those fees can change.   The funding fee referenced in the email above is subject to a 10 accumulative tolerence.   Assuming the rest of that mortgage originators estimate is perfect, she may be responsible for $5,400 ($6000 less 10%) assuming this is a bona fide transaction.

Mortgage originators must be very careful when issuing a good faith estimate.  We cannot rely on our loan operating systems to spit out the correct information in the specific spot required.   Here’s what I’m doing when I’m working with a client and the good faith estimate:

  • I prepare a work sheet first — IF the consumer has not yet identified a property.   NOTE:  HUD says this is acceptable unless it’s a refinance and you know the property address…ya’ better issue that GFE.   (Check out the new HUD video).
  • I’m using on-line rate calculators from my preferred title company  (who also guarantees their rate quotes).  
  • Once I have the 6 points of information as deemed by HUD, I create a good faith estimate.   LO’s–the only other choice you have is to “deny” the “application” if you do not issue a GFE within 3 days of receiving the 6 points.
  • Review–review–review that GFE before you provide it to your client.   If you need to, buddy up at your office and help each other be a second set of eyes.  
  • Especially watch out for FHA Upfront Mortgage Insurance Premiums, VA and USDA Funding Fees (which go on Block 3 of the GFE) and the Owners Title Insurance Policies for purchases (Block 5).   Also watch for excise tax if you need to disclose that in  your area.  (HUD addresses excise tax and owners policies in the recent video). 

Most fees aren’t that huge…. I’m finding that I’m typically off very slightly between my good faith estimate and HUD-1 Settlement Statement.    A little precaution will really pay off, my fellow Mortgage Professionals.

Last but not least, if you’re not getting the training you need, seek it out for yourself.  Seek many–do not rely on your employer or their educators.   Are they going to cover your 2% funding fee mistake?   Learn from many different educators and formats…visit’s HUD’s RESPA webpage often!  …this is what I recommend if you’re committed to sticking around this industry as a mortgage originator.   

Good luck!

Squatter Claiming Adverse Possession in Puyallup

Posted on by
12

I’m just watching King 5 news tonight where they are covering a story about a home in Puyallup that is in process of being foreclosed.   Sadly, that’s not news.  What is news is that a mom and her kids have decided to move in claiming “adverse possession”.  

Adverse possession typically takes 7-10 years of someone using a property to claim as their own (very rough description–please speak to your attorney).   Clearly since she has only been occupying the property for days, she has no claim.   Here’s her side of the story:

“on the phone she said she is paying rent to a property management company that she works for and that they are trying to obtain the property under adverse possession. She says she feels they are actually helping the community by living in a house that was an abandoned eyesore and they feel they’re not doing anything wrong.”

What is she going to do when somebody legitimately buys the home and the appraiser comes by? Or when the title report discloses an erroneous claim to the title?

It appears as though the homeowner purchased the property in mid-2007, near the peak and financed his home with CTX Mortgage…from what I can tell from public records, it appears the home was 100% financed.  (Regardless, the squatter still has no claim of adverse possession, in my opinion simply due to the time requirement).

A Notice of Trustee Sale was recorded on May 29, 2009 to take place on August 28, 2009 in Tacoma.

As far as I can tell, there was no sale.   No new deed has been recorded (with exception to an attempt to establish a family trust).   

I’d like to find out more about the “rental company” the woman who is making the claim on the property says she is paying rent to for the home and is employed by.   

Facinating times.

Home Shoppers Unlikely to Obtain Estimated Good Faith Estimate

Posted on by
57

As the days wear on, we are learning more and more about HUD’s 2010 Good Faith Estimate.   Yes, we’ve had the 2010 GFE to review for quite some time and HUD has offered several updates on their RESPA FAQs…however it seems to be taking a lot of practice, trial and error and communicating with fellow mortgage professionals and HUD to try to interpret what is intended and/or allowed with this new document.

HUD’s last revision to the FAQs made it loud and clear, in my opinion, that they want the Good Faith Estimate to be a tool for rate shopping… however unless the borrower has a bona fide property an address, this may not be possible.   Why?   As it currently stands, HUD will not allow later identification of a property address to create a “changed circumstance”.   A “changed circumstance” (as defined by HUD)  is required in order for a mortgage originator to be allowed to issue a revised Good Faith Estimate…otherwise, the mortgage originator is bound by that Good Faith Estimate until it expires (10 business days if the borrower does not express an intent to proceed with the application).

Per the most recent HUD RESPA FAQs  from January 28, 2010 on page 17 regarding what qualifies for a changed circumstance:

Q&A 8ii:  If a loan originator issues a GFE without identifying a property address, the subsequent identification of the property address, in and of itself, is not considered a changed circumstance.

If a mortgage originator issues a good faith estimate without a property address, they do so at considerable risk as the later identification of a property address does not constitute a changed circumstance.     For example, a GFE was issued with the property address TBD and Block 8 = $0.   The borrower later identifies a property and Block 8 should have been $2,000, but the originator cannot issue a revised GFE and is bound to the original GFE.     Excise tax in most parts of King County is 1.78% of the sales price which would be a very bitter pill for a mortgage originator to swallow.   

As a side note, it’s still hit and miss if lenders are disclosing seller paid excise tax on their Good Faith Estimates in Washington State.   I’m hearing that some are making the mistake of not showing the owners title policy since it is also seller paid–this if flat out wrong–the owners title policy (even though it is paid by the seller) must be disclosed on the 2010 GFE.

I’m hoping for a revised FAQ soon (funny thing to hope for) where HUD may reconsider or clear this up.  If they truly want home shoppers to be able to use the Good Faith Estimate to shop for a mortgage before they’ve signed a purchase and sales agreement…they need to provide us with more clarification…and soon!

Coming Soon: Pacific Northwest Housing Summit and Seattle RE Barcamp

Posted on by
12

I’m very excited about two events that will be taking place next month at the Seattle Center on March 18 and 19, 2010 for the real estate community.   Full disclosure:  I’m actually involved on the planning committees for both.  🙂

The Pacific Northwest Housing Summit is on Thursday, March 18th and consists of panelist from across the country reprensenting all aspects of the real estate industry and various levels of government.

panelist
At this time, the featured panelist include (in no particular order):

  • Lieutenant Governor Brad Owen
  • David Horn with the Federal Trade Commission
  • Ohan Antebian with Realtors Property Resource (RPR)
  • Bret Bertolin with the Washington State Economic and Revenue Forecast Council
  • Spencer Rascoff, COO of Zillow
  • Stan Sidor Chairman of the Appraisal Coalition of Washington
  • Brenda Rawlins, President of the Washington Land Title Association
  • Frank Garay and Brian Stevens from Think Big Work Small
  • Marc Savitt of the National Association of Independent Housing Professionals
  • Ken Reid of Genworth Mortgage Insurance

We are still adding panelist to the event–I’m pretty amazed at how its all coming together!   It will be interesting to hear from these folks what they see for the near future of our housing market.   The Pacific NW Housing Summit has been approved for clock hours (some pending approval).    If you pre-register, you can save ten bucks (that’s 2 or three lattes!) vs. signing up at the door on the day of the event.    Registration includes a gourmet boxed lunch from Gretchens on Thursday.

This event is brought to you by Washington Realtors and the Washington Association of Mortgage Professionals.

barcamp-logosmallRE Barcampis no stranger to Seattle.   This will be the third Seattle REBC (not counting Bellevue’s mini-REBC last year) and what I appreciate about RE Barcamps is that each one is unique and has their own personality.  I think this happens because the volunteers vary and even more so because the event is planned based on the attendees.    I’m betting that since this RE Barcamp is taking place the day after the Pacific NW Housing Summit, that we’re going to see more sessions on issues far beyond social media.   This won’t be your “typical” REBC…at least that’s not what I’m expecting.   No lunch is included on Friday–but with all the great restaurants located near by, you won’t have to travel far.   Even though REBC Seattle is free–your rsvp is greatly appreciated.

The venue for both days is going to be great.   It’s located at the Northwest Rooms at the Seattle Center with tons of parking.   The rooms are designed for conferences and will easily handle both days formats…and there will be free wi-fi!    

I look forward to seeing everyone next month!

Loan Originators: Stop Your Crying…Let’s Love the Good Faith Estimate

Posted on by
22

Okay, I admit…I’ve been groaning, sniveling and bitching along with many other mortgage originators about HUD’s 2010 Good Faith Estimate.   The document has it’s faults and was created pretty much because of the faults of loan originators who used the GFE as a tool for bait and switch.   We’ve had a month to mourn the loss of the old good faith estimate, which was an asset in how I explained scenarios to my clients…it’s gone.  Get over it.

I’m hearing from consumers that many mortgage originators are refusing to issue Good Faith Estimates — even if they have provided the “six points of information” which HUD uses to define a loan application.   A mortgage originator has three business days to provide you with a good faith estimate or deny your “application” if you have provided the following:

  • the borrower(s) name
  • monthly income
  • social security number to obtain a credit report
  • property address
  • estimated value of the property
  • loan amount

HUD has added an additional item (which can be vague):  any other information deemed necessary by the loan originator.

Per HUD’s most recent RESPA FAQs that were updated on January 28, 2010, a mortgage originator cannot refuse to issue a good faith estimate if they do not have supporting documentation (such as income or assets documentation) or verification disclosures signed by the borrower.   If after providing a GFE to a borrower, it is discovered that their income they provided is not how an underwriter would view it, this may constitute a “changed circumstance” allowing a revised good faith estimate to be issued.    If you read the FAQs, you can tell that HUD is well aware that consumers have been having a real challenging time getting their hands on the 2010 GFE.

Update from HUD’s RESPA FAQs (page 11, #33)

“In order to prevent over burdensome documentation demands on mortgage applicants, and to facilitate shopping by borrowers, the final rule specifically prohibits the loan originator from requiring an applicant, as a condition for providing a GFE, to submit supplemental documentation to verify information provided by the applicant on the application…

Similarly HUD has long supported a public policy goal of creating a circumstance where consumers can shop for a mortgage loan among loan originators without paying significant upfront fees that impede shopping”.  (Only a credit report can be charged to a borrower at this point).

So dry your eyes, my fellow mortgage professionals, the Good Faith Estimate IS a tool for consumers to use for shopping…whether we like it or not.  It’s time to open our arms wide and embrace it.valentinescandy 

PS LO’s:  This post (and any of my articles) are not a replacement to your employer’s compliance department or legal advice.

Happy Valentines Day

Major Bank No Longer Allowing Mortgages with Zero Points/Zero Costs

Posted on by
25

Technically this is still a rumor in my book because I have not heard this directly from the bank in question…you can watch this video from Think Big Work Small where they state they have learned that Bank of America has all ready started doing this on the retail level and that Wells Fargo is rumored to follow.

The email that I saw today stated that BOA is only offering “par pricing”.   This means that there is no rebate pricing.   Many people have villainized rebate pricing (such as yield spread premium)…it’s become a real dirty word and that’s really too bad.   Rebate pricing is how a mortgage originator is able to price a mortgage rate with “zero points” or “zero costs”.  The mortgage originator is not paying for this stuff out of his or her pockets, they’re using the rebate pricing (ysp) paid by lender for offering a rate slightly above par.   Typically pricing a mortgage with zero points means your rate is higher by about 0.25.   It often  makes more sense for the consumer to have a mortgage priced with zero points depending on what their financial plans are.   Paying a point may take years to “break even” on that cost.

This appears to be a preemptive strike from the banks for what may be coming down the line with Congress proposing a bill which eliminates YSP… this is really ludicrious when the 2010 Good Faith Estimate gives the YSP as a credit to the borrower…so why take it away now? 

It’s not that the loan originator is not getting paid, it’s that the borrower’s cost just went up for that mortgage if they’re working for.   The borrower is losing more options for how their mortgage is structured, right down to the pricing.   The borrower should have the choice of having their mortgage priced with or without points…and they currently still do just perhaps not with every lender.

It’s Official: FHA Upfront Mortgage Insurance to Increase in April

Posted on by
16

Yesterday at The Mortgage Porter, I wrote about changes that HUD had confirmed via a press release for FHA insured loans.   Seasoned mortgage professionals know that the HUD lady hasn’t sang until a Mortgagee Letter is issued and this morning, HUD did just that with ML 2010-02.

Effective on FHA insured loans with case numbers assigned April 5, 2010 or later, the upfront mortgage insurance premium will increase.  Typically the FHA upfront mortgage insurance premium is financed, however it can be paid as a closing cost  (which is how the 2010 GFE discloses the premium). 

FHA insured mortgages for purchases and non-streamline refinances will increase from 1.75% of the base loan amount to 2.25% and streamlined FHA refinances (refinancing an FHA underlying mortgage) will increase from 1.5% to 2.25%.

According this Mortgagee Letter, HUD states that the “annual premiums will not change at this time“.   The annual premiums are what consumers pay in the monthly mortgage payment…and I do believe we will see risk based pricing utilizing credit scores impact FHA’s monthly (annual) mortgage insurance premiums in just a matter of time.

According to HUD’s Press Release yesterday, the following changes should take place with FHA insured loans in early summer:

  • Seller contributions towards allowable closing costs reduced from 6% to 3%.
  • Increasing the down payment requirements for lower credit scores (risk based underwriting).   The Press Release states that those with a 580 score would need a minimum of 10% down payment.   Lenders all ready have underwriting “overlays” which will not permit this scenario so this “toughening” of the guidelines is a bit lost…unless things are loosey goosey again this summer (I’ll eat two shoes).  

HUD’s press release also stated they will “implement a series of significant measures aimed at increasing lender enforcement”.

The upfront mortgage insurance premium increase will go into effect just 25 days before a home buyer needs to be “in contract” to qualify for the home buyer tax credit.

Home Buyer says dealing with the new Good Faith Estimate is “Close to Living Hell”

Posted on by
28

We’ve heard plenty of rants from mortgage originators about the HUD’s Good Faith Estimate.   Because the new HUD required GFE is so new, most consumers and real estate agents have not had a chance to witness one first hand beyond  sample on a website.   Right now I’m dealing with a buyer where we began the preapproval process late 2009 and wouldn’t you know it, they bought a house this week.  Yesterday I prepared my first “official” HUD Good Faith Estimate since this is a bona fide transaction (we are using a detailed form for pre-GFE clients).    The comment I received from one of our readers is so timely, I had to share it as a post.

I am a home buyer caught in the transition between the old and new GFE and it has made the last three days something close to a living hell. We started the loan process the last week in December and will close the end of January. These new forms damaged the very good relationship I had with a good and reputable lender but reading some of the blogs has confirmed that the seeming crazy things my lender was telling me are in fact true.

-My first shock was how much higher the settlement charge total compared to the closing costs total. After three days of call and emails I see that my costs have risen a little due to increases from my lenders service providers but at least not the $1,500.00 that I originally thought.
-I still have not been able to determine my “Estimated Cash Required at Closing

Home Buyers: Please Be Aware of the Owners Policy on the GFE

Posted on by
37

HUD had dramatically revised the Good Faith Estimate to a uniform document with summary of fees.  If you compare a GFE issued prior to 2010, one big difference is that buyers will not see a charge for the owners title policy–why? Because they generally do not pay for the owners title policy–the seller does!  Please don’t ask me why this is on the new GFE and why, if it’s not charged in our market LO’s must disclose it…I don’t have an answer…and don’t have the answer for why mortgage originators are held to the 10% tolerance when quoting this fee when it has nothing to do with mortgage origination.

The fee for an owners title insurance policy is much more than that of a buyer’s policy. Typically the Seller pays for the owners policy and the buyer pays for the lenders policy which has a reduced rate (simultaneous issue). There are also various coverages available with an owners policy and the coverage that is required should be specified in the purchase and sales agreement.

Here’s an example of title fees for the owners (seller) and lenders (buyer) policies based on a $500,000 sales price (FYI LO’s: the owners policy is based on the sales price not the loan amount) and a loan amount of $400,000. Examples below do not include sales tax.

FEES BELOW NOT SHOWN ON GFE PRE-2010

Homeowners Policy (1998 ALTA): $1,192
2006 Standard Owners Policy: $1,053
Extended Coverage Owners Policy: $1,937 (not commonly requested)

 ALWAYS SHOWN ON GFE (because the buyer pays for it)

Lenders Policy (simultaneous issue): $647

So with a purchase price of $500,000 and a loan amount of $400,000; I would disclose $647 plus tax for my estimated title insurance fee for the borrower on my GFE–both now and before 2010.  Now I need to add over $1000 to this scenario on my good faith estimate even though the buyer isn’t paying for it…my closing costs on a purchase appear $1000 higher!  

And to add insult to injury, the title owners policy is included in HUD’s 10% tolerance bucket of charges.

The Talon Group offers this tip to mortgage originators quoting an owners title insurance rate (when you don’t know what the specified coverage will be on the purchase and sales agreement):

Lenders should quote the 1998 ALTA Homeowner’s Policy rather than the less costly Standard Owner’s Policy in block 5 of the GFE. The local Purchase and Sale Agreement defaults to the Homeowner’s Policy because of it’s superior title coverage. There is as much as a 12.5% difference in price between the two policies.

The lender’s policy (and escrow/settlement charges) are included in Block 4 of the Good Faith Estimate and the owners policy is included on Block 5.

According to HUD’s RESPA FAQ’s last updated December 30, 2009:

Q&A #3 page 27:

If the borrower requests an enhanced owner’s title insurance policy or an endorsement to an owner’s title insurance policy after the loan originator issues the GFE, the loan originator may choose to treat such a request by the borrower as a changed circumstance.  The loan originator may then choose to provide a revised GFE to the borrower to disclose the increased charges.  If the increased charges do not exceed tolerances, the loan originator may opt not to issue a revised GFE.

I take this as saying that if the borrower decides they want more expensive coverage after I have issued a GFE and I do not re-disclose the cost difference and it exceeds the 10% tolerance, I just paid for the difference…even though it’s a seller cost!

With a purchase transaction, if the borrower accepts the title insurance company as selected by the real estate agent or seller (assuming the company is not on my “list of providers”), then there is no tolerance as HUD views this as the borrower selecting the service provider (same is true with escrow companies).    Regardless, even quoting from my preferred provider, the fees on my good faith estimate look $1000 higher based on this scenario. 

At least until consumers and mortgage originators are accustomed to using the new GFE (and unless HUD makes additional changes) this is going to take some getting used to!

For the record, this post all of my posts are my interpretation and my opinions–this is not a substitute for your legal staff or your compliance department!