Category Archives: Mortgage/Lending

"Hope Now" program to curb delinquency/foreclosures fraught with problems

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The Hope Now program currently being proposed in the other Washington is designed to assist current homeowners with Adjustable Rate Mortgages (ARM’s) in which their ARM’s may adjust upward causing financial hardship. An issue of immense concern is how do you sift through the thousands of homeowners and qualify those who’s mortgages are about to recast to some ugly interest rate? Further, how do all the stakeholders and investors of these mortgages see this playing out—that’s the part Attorneys will have to fight about (what say you Attorneys?).

If the Government players in this program, including one of the lead Conductor’s in this orchestra, Treasury Secretary Paulson, have their way, the investors of these loans will have to be a good sport and play along, never mind losing copious amounts of money, nor the other legal implications.

‘The modification of existing contracts, without the full and willing agreement of all parties to these contracts, risks significant erosion of 200 years of contract law,’ said Joshua Rosner, managing director at an independent research firm in New York.

Let's Do Away with Loan Origination Compensation

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Following up with Tim’s post on getting rid of YSP, I thought I’d share my idea on just getting rid of commissions being paid to a Mortgage Originator all together.  Why stop at the misunderstood yield spread premium when the current system is flawed.   Why should be we be compensated based off of what size the loan amount is when we should be paid based on how much work and time is invested with the client.

Mortgage Professionals should be compensated based on how many hours they spend with each client.

  • This would eliminate steering to other mortgage products which might be more lucrative.
  • Assure that consumers would receive plenty of consultation from their Mortgage Professional.
  • Mortgage Professionals would be compensated for helping consumers with their credit, debt and asset management scenarios regardless of whether or not they ever finance a home using their services.
  • If a consumer really needed to reach a LO after hours or weekends; they could pay overtime to the Mortgage Professional.
  • Mortgage Professionals would change their directive from how many millions in loans they are originating to how much time is spent with each consumer.
  • Consumers could freely select one Mortgage Professional to help with getting ready to purchase or mortgage a home and another to finance the loan with no strings attached or hard feelings from the LO.   Perhaps some Mortgage Professionals would become specialist in such areas.
  • Consumers could select various Mortgage Professionals based on their experience which would be reflected in their hourly rate of pay.   This falls in line with suggestions that Jillayne has made on a having a tiered system of Mortgage Professionals.
  • No more YSP.  (Even though this is silly because mortgage bankers receive compensation on the back end and are not required to disclose it).
  • True Mortgage Planners and Consultants instead of “Originators”.

A big argument I would have against this is that I would not want someone to not call me because they’re afraid of the bill that would follow after I provide hours of advice.

Your thoughts?

Let Brokers charge what they want. Do away with YSP.

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Couldn’t the whole yield spread premium (YSP) debate with all the trimmings end with a simple solution such as allowing the broker to charge whatever they want? Let the free market sort it out. Certainly lenders would have to be on board and do away with incentives or change them somehow, but it seems to me that everyone is making it so complicated.

Yes, compliance issues, licensing and fair dealing issues are important and should be implemented in some manner.

Solution:

  • Just disclose up front what the compensation is based on the interest rate or program the borrower qualifies for. Therefore…….
    • No more the need to attend sales seminars on learning how to overcome objections, which will allow more time to attend seminars on how to provide sterling service.
    • No more awkward moments for the loan officer attending an escrow singing when the borrower questions that “YSP thingy.”
    • No more loan officers asking escrow “how will you explain YSP” to the borrower, as if escrow’s response somehow dictates whether or not they will receive future business.
    • No more agents having to watch helplessly at their clients becoming frustrated or stressed out due to lending problems associated with YSP’s and the completely preventable situation where a transaction spirals out of control at the last moment.
  • How about lenders just have a simplified schedule of programs and rates that the borrower can choose from and if they pay a higher interest rate they receive a rebate that can be used on their behalf. How about just turning the PC monitor around and showing the consumer the several programs available and then have a good old fashioned counseling session. It would save every single moving part in a transaction a lot of grief. And it would save transactions from failing at the last moment because a “nuclear bomb disclosure” by a lender about the yield spread premium a loan officer is earning that freaks out the borrower.

I can just about darn near guarantee that if a consumer knows where all the chips are on the table, they would have no problem moving forward with a transaction. Give a consumer the very best rate they can qualify for, at the very lowest fee structure you can, with all the chips clearly on the table and Bam! you have a happy client, fostering long-term value.

When will someone just give the consumer what they want? Somebody is working on it and they are going to will be very successful. Is it really more complicated? If so, sound off.

The Mortgage Witch Hunt

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Just in time for Halloween, officials from various levels of government are gathering together over the [photopress:salemexamof.jpg,thumb,alignright]frightful happenings going on in the mortgage industry. Home values were going down, mortgage payments were on the rise and consumers did not contact their mortgage professional for advice. Some were provided opportunities to own homes by using “non-traditional

Private Money Loan Recommendations?

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I had someone email me an interesting question recently:

I had a quick question about private money loans. Have their been any posts on this? I tried searching “private money”, “hard money” but nothing came up. I’m looking into rehabbing a house and conventional lending isn’t going to work for me, so I was wondering if there are any recommendations or guidelines for obtaining private money?

The closest thing I can remember is a site called Prosper (I wrote a note about it) where people can loan other people money. However, I’m almost positive they are geared toward small loans like paying off credit card debt, so I don’t think it would help for home remodeling projects. Also, when I did a bit of searching, I see Brian Bradu covered the topic of private money loans a little while ago, but his angle didn’t include any guidelines or recommendations for finding a private loan.

Is this a common thing? Is there a good source of information for private loans? My gut says that most private money loans are probably among family/friends, but I wouldn’t be surprised to learn that there was an existing market for this kind of thing.

Are you really preapproved or are you just prequalifed for a mortgage? Part 2

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A preapproval is the next step after becoming prequalifed.   Essentially, this means that you are supplying all of the documentation that is required to support your loan scenario.   Everything you have told the Loan Originator needs to be backed up for a “full doc

Are you really preapproved or just prequalifed for a mortgage? Part 1

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There’s quite a difference between being prequalifed for a mortgage and preapproved.   The letters that Loan Originators provide when requested for a prequal or preapproval may appear very similar.  In fact, I’ve talked to borrowers on the phone who thought they were actually preapproved, when all they really had was a Good Faith Estimate from a lender.  A Good Faith Estimate is just a rate and fee quote–an estimate is not a commitment to lend and does not indicate that someone has been prequalified.

Getting prequalifed is the stage just before becoming preapproved with a lender.   It’s a good start.  This is a great way to learn about a Loan Originator and to help you determine which Mortgage Professional you’re going to select to assist you with financing one of your largest investments.   There’s no strings attached yet to the lender, you’re investing a little of your time and perhaps a few bones for a credit report.   

The prequalification process help you determine:

  • What your mortgage payment will be
  • Available mortgage programs
  • How much home you can afford
  • How much money you will need for the down payment and closing costs
  • Your opinion of the Loan Originator (what is their skill level, knowledge, experience, available programs, etc.)

Once a prequalification is complete, you or your Real Estate Agent can request a Prequalification Letter that may be used for presenting an offer on a home.   A preapproval letter is stronger, however, a prequal can help buy you some time until a true preapproval is possible.  

When a buyer is prequalifed, this should mean at the very least, the LO has obtained their income, assets (down payment and additional savings) and credit information.   This can just be verbal—over the phone.   The information that you have provided is not necessarily verified (if you have not provided your W2s, paystubs, asset accounts to your LO, you’re definitely not preapproved).  If your information has not been ran through underwriting, you are not preapproved.  It’s possible that you have provided your supporting documentation and that the LO has submitted your information to underwriting and you may still not be preapproved, or you may be “preapproved with conditions”.

Sometimes home buyers need a little elbow grease or significant documents are still required and you don’t want to disclose it on a preapproval letter.   In this case, a prequal letter may better serve the client to buy them some time (if the listing agent will accept a prequal letter).

At the minimum, a prequal letter from a Loan Originator is simply confirming that an interview has taken place between a potential buyer and the LO.    When I write a prequal letter, it will state something along the lines of:

“Dear Agent, This letter is to certify that based upon preliminary information,   Ima Buyer has been prequalifed for conventional financing from Mortgage Master Service Corporation to purchase a home with a sales price of $375,000.   A full approval is expected after receipt of the Purchase and Sale Agreement and other documentation.  

This prequalification is based upon final verification of information supplied by borrower.  A satisfactory property appraisal & clear title must also be furnished to the lender prior to closing this loan.

Should Loan Originators Retract Preapproval Letters?

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Someone interested in buying a home interviews a couple of Loan Originators and selects one to become preapproved with. The Loan Originator meets with the buyers and takes a complete loan application, reviews their credit and obtains all of their documentation. The LO provides the buyers with all of the possible mortgage scenarios and they select which program is best suited for their financial goals. The LO then submits that loan scenario to their processor and/or underwriter for loan approval. (With our current market, I am submitting all supporting documentation to the underwriter to sign off on before issuing a preapproval. Before August, I would review the findings with the borrower’s supporting documentation and a majority of the time, I would issue the preapproval letter without underwriter review. I’m not taking any chances).

The Buyers are very excited and write an offer on a home with a real estate agent that the LO has not worked with before. The real estate agent uses the LO’s preapproval letter when submitting the offer to the Listing Agent and Sellers. The offer is accepted.

A few days later, the Buyer emails the Loan Originator and says, “Gee thanks…we’ve decided to go with the real estate agent’s preferred loan officer

A Seller's Guide to FHA

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FHA insured mortgages have received a stigma in past years for creating a challenging transaction.  Sellers seem to prefer conventional financing, even subprime financing, over an offer with an approved FHA buyer.   

The Federal Housing Administration was established in the 1930s following the Great Depression.   These innovative low down payment loans were intended to help more people become home owners with intentions of creating more stability in neighborhoods.  FHA insured mortgages are woven into American history.

Here are some reasons you,as a Seller, should consider an offer with FHA financing.

  • Preapproved FHA buyers are full documentation loans.  These buyers have been scrutinized and have provided income and asset documentation in order to have a true preapproval.  
  • FHA mortgages are not going to “disappear

I am a Mortgage Dispenser

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Over the past month, I’ve been combing through my database of my closed clients who have either adjustable rate or balloon mortgages.   I’m sending each and every [photopress:july55ad.jpg,full,alignright]one of them a letter reminding them of the terms of their mortgage.   Regardless of how much time I spend explaining how their mortgage program functions, as soon as someone has moved into their new home and they’re unpacking boxes—they’ve forgotten the fine details to the financing that made buying a home possible! 

The letters restate what is disclosed on the Federal Truth in Lending and their Note, including what their margin and caps are.    It also addresses when their first adjustment will take place and what the worse case rate and payment may be.   Worse case payments are currently not disclosed on the Truth in Lending.   

I began my mortgage career on April 1, 2000.   So far, 20% of my closed transactions have been adjustable or balloon mortgages and 3% of my total closed business would be classified as “subprime