Will the New National Loan Originator Exam be Too Easy?

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I just took a look at the sample questions provided by the National Mortgage Licensing System for the new national loan originator exam and I must say these are so easy why even bother with a test?  Let’s take a look:

If an applicant works 40 hours every week and is paid $13.52 per hour, what is the applicant’s
monthly income?
(A) $2,163.20
(B) $2,343.47
(C) $2,379.52
(D) $2,487.68

The requirement for private mortgage insurance is generally discounted when the loan-to-value ratio falls below:
(A) 20%
(B) 50%
(C) 80%
(D) 90%

Which of the following documents itemizes all settlement costs including lender charges?
(A) Agreement of sale
(B) HUD-1 form
(C) Form 1003
(D) Forbearance agreement

A discount point is BEST described as a charge the borrower pays to:
(A) a lender to decrease the interest rate on the mortgage loan
(B) a mortgage broker at the time of application to obtain a favorable rate
(C) the seller as part of the closing costs of a loan
(D) a lender to ensure against foreclosure

Which of the following methods of disclosure does NOT meet the requirements of the Equal Credit Opportunity Act (ECOA)?
(A) E-mail
(B) Mailed letter
(C) Telephone
(D) Faxed letter

What does a loan originator use to determine the estimated value of a property based on an analytical comparison of similar property sales?
(A) An appraisal
(B) A market survey
(C) An area survey
(D) A cost-benefit analysis

But perhaps I’m being to harsh. We have a vast number of unlicensed loan originators who are working for companies licensed under the Consumer Loan Act. We call these folks “consumer loan lenders,” or “non-depository lenders.”  Rhonda Porter sometimes refers to these folks as “correspondent lenders.”  They differ from a mortgage broker because by definition, a lender is an entity that has the ability to make the loan (fund the loan) and a broker is a middleman who does not make or fund loans, but FINDS the lender for a fee.  Mortgage broker LOs are licensed in WA State but consumer loan company LOs are not.  Yet. 

Consumer loan company LOs can start to take their new national exam beginning July 31, 2009. Their real deadline is July 1, 2010 so it looks like I need to block off May and June 2010 for exam prep classes next year as predict the majority will put it off until the last possible days.

Anyone who has been originating for any length of time need not be afraid if the test questions are going to be this easy.  Once the test launches I will go take it and let you know. 

Perhaps for folks who are brand new to mortgage lending, these test questions might seem a little more challenging. That is the whole purpose of national testing and licensing: To create a minimum barrier to entry.  The regulators at the federal level have put a lot of time and care into the education portion of the new law.  Let’s hope that their chosen test vendor, Pearson Vue (who absorbed Promissor) doesn’t use the same old tired bank of test questions that’s been around for a decade.

Update: Prometric is also a test vendor for the new NMLS exam.  Here’s a link to their website.

No Big Rate Surprise with the FOMC

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The FOMC wrapped up their two day meeting leaving the Funds Rate unchanged.   The target rate is remaining at 0-0.25%.  Now that this decision has been formally announced, everyone will be reviewing the Fed’s statement for clues on when they will begin to raise the Fed Funds Rate.

From today’s FOMC Statement:

…the Committee expects that inflation will remain subdued for some time.

As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

Green Living – Authenticity

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clothes pinDoes your neighbor who just bought a “hybrid” car, complain when you hang clothes out to dry?

One of the things I like most about Seattle and The Pacific Northwest generally, is the sincere desire to improve.  Improve the environment, improve the quality of life, not only for themselves but for those around them.

…and they can smell BS from a mile away!

Seems to me that every time the subject of Green Homes comes up, there’s some new and more costly “green” improvement. Or some “green” label that is supposed to make “the product” sell at a higher price as a result. A marketing “gimmick”.

I write this post in an effort to share “real” green living tips. I am so NOT a “green” expert, and I’m very hopeful that others will join in here. I am however a strong proponent of “Waste not; Want not” and rewarding people with “the right why”.

I grew up in the days when everyone hung their heaviest clothes out to dry. We had clothes dryers, but we were also conscious of how much energy it took to dry a pair of jeans. We also knew our jeans kept their color and lasted longer if we hung them to dry vs. putting them in the clothes dryer.

When my children were small, we had a huge vegetable garden. Way too many vegetables for us to eat ourselves. I remember having the girls fill up the little red wagon with cucumbers and tomatos and green peppers. We went door to door and gave each of our neighbors a few days worth of our produce. I also remember the surprise when the neighbors realized it wasn’t a “business” for the children, and the vegetables were gifts and free.

Given the state of the economy, I’d like to add a proponent of Cost Factor. My idea of “recovery” is to find a happy medium, not to get back to where we once were.  I actually WANT the economy to stay down, and for people to adjust their lifestyle accordingly. The Age of Greed and Excess is over. Even for those with plenty of money, it is no longer fashionable to flaunt that fact. Even celebrities suddenly realize that every dollar they waste on more bling, would have been better spent feeding a hungry child.

Yes, businesses will fail. But maybe it’s time a business that sold a baked potato for $8 SHOULD fail. What did it cost them? A dime?

The #1 thing you can do is to be authentic in your approach. Don’t spend more for something just because you can finance it. (Yes, that includes real estate commissions.) Treat every dollar you make and spend as a “public trust” to improve the world around you. It’s a lofty goal and change doesn’t happen overnight. Instead of looking down your nose at a neighbor who hangs a pair of jeans on the line outside, look down your nose at a neighbor who has a beautiful lawn that they water twice a day.

1) Remove all clothesline bans

It always amazes me that the same people who don’t want the government putting restrictions on their lives, will be the first to complain if they see a neighbor hanging a sheet or blanket on a clothesline. I’m not sure why you never see people hanging clothes out on a nice day, but if it’s because they are “not allowed” to do that…change that.

2) Grow something from the seeds of that which you have already grown.

What a wonderful lesson for children. When my children were small, we always visited their great grandparents and great aunts and uncles who lived in another State in the Fall. I am reminded of this everytime I pass by the many marigolds on display today. We used to “bring the relatives home with us” by collecting the dead flower heads…the portion that contained the new seeds. We would put them in a paper bag when we collected them, and we would plant them the next spring at our home. While we only saw those relatives once a year, we added them to our daily lives and thoughts via “seed collecting”. Here’s a good “how to” on collecting seeds and having new plants from something you have already grown.  I learned this from my mother. A wonderful tradition to hand down from generation to generation. My grandmother used to collect and cook dandelion greens (with sausage and pasta sauce), but I’m not sure we’re quite ready for that lesson 🙂

Another fabulous idea for a housewarming gift is to split your bulbs and bring a free and lasting gift to a new neighbor, or even plant them in your local traffic circle.  You want to be careful to time this appropriately, as the “green” of the plant feeds the bulbs, so you don’t want to simply “dead head” and dig up when the blossom fades. But what a wonderful gift! Nature gives you abundance by mulitplying itself! Yet how often do we dig up the bulbs and plant this new gift of nature, vs. going to the local garden store to buy bulbs? Something to think about.

3) Get some exercise while helping someone in need

There is recently a huge public outcry regarding the unkempt appearance of homes in foreclosure.  Sometimes the home is vacant. Sometimes the distressed homeowner is having difficulty paying their utility and trash bills. Even if the owner can go out and pile up the yard waste, they may not have the means of disposing that yard waste due to unpaid trash bills. (Recent example I have witnessed first hand.)

Every “help” organization: Senior Centers, Hopelink, any and all organizations that help the disabled, should have a list of people who can use a lending hand with their yardwork.  If every person traded just one day at the gym, for some honest “helping hand” physical labor, the world would be a better place. 

In many, many ways we are talking about replacing bad thoughts with good ones. Instead of complaining about the neighbor’s yard, assume there is a very good reason why they can’t do what they are not doing.

Don’t ever offer to “fix” someone’s something, as that is a negative “judgement”. Instead, ask if the neighbor might help YOU by allowing you to do some of their needed yardwork. Explain how you need more exercise, or how much you love to garden and you have no gardening left at your place that needs doing.

Remember that when you help someone, you do so by asking them to help you..because the real joy is in the giving.

New Condo Buyers Seeking Out of the Contract: “Whiners” or Respectable Citizens?

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There’s been some “buzz” lately about buyers of new construction condos who purchased pre-construction now wanting out of the deal with a return of their earnest money. Motivations vary: they are no longer able to get financing (“WHAT? I need a down PAYMENT!? Since when??”); their life situations have changed (baby + one bedroom condo = problem); or they simply don’t want to be under water the moment they close (those 2007 prices are not so attractive now…). Regardless of the motivation, though, the developer’s response is almost always the same: “Go pound sand. The earnest money is mine.”

Luckily for buyers, there are various federal and state laws designed to protect consumers that may give the buyer a right of rescission (and thus the right to a full return of the earnest money). For example, several decades ago the federal government enacted the Interstate Land Sales Full Disclosure Act (known to its afficionados as “ILSA”), 15 USC 1701 et seq. specifically to protect buyers of new construction. Generally speaking (its a complex statute), a developer must register the project with the Dept of Housing and Urban Development (HUD) and provide buyers with a comprehensive set of disclosures. However, the developer is exempt from the registration and disclosure requirements if it contractually obligate itself to complete the building within two years.

For reasons unknown, many of the new condo developments in the area decided to structure the purchase and sale agreements to fall within this “two year” exemption. Unfortunately for the developers, it is more difficult than first appears, and most of the contracts at issue at least arguably fail to qualify for the exemption. Thus, the buyers of those condos arguably have the right, under ILSA, to rescind the contract and receive a full return of their earnest money. (My partner Marc Holmes and I recently prevailed in an action against WA Square on this basis, so in at least one case its no longer “arguable” — the developer failed to comply with the statute and the buyer had a right of rescission.)

All of this raises an interesting question: Is it unethical for a new construction buyer to seek a legal basis for getting out of the contract with a full return of the earnest money? Our very own Ardell has argued that, if a buyer simply changes her mind about the purchase, the buyer should lose her earnest money. Other people have voiced a similar opinion. Is that right? Is it morally wrong for a buyer to seek a return of the earnest money? Does the buyer’s motivation in seeking to get out of the contract even matter?

I think the answer to that question can be determined by flipping it around. New condo developers are large entities typically owned by sophisticated multi-millionaires. What if one of those multi-millionairre owners signed a contract that required her to perform her contractual obligations two years later, and when the date for performance arrived she stood to lose substantial money if she performed? What if the owner just changed her mind for some other reason? In either case, I think its safe to say that the owner would not perform her obligations. Rather, she would hire a lawyer to identify each and every possible basis for avoiding her contractual obligations. The lawyer would then approach the other party to the contract and see if the parties could reach a compromise. Rich people got rich for a reason: they don’t intentionally make a bad business decision, and when faced with a situation that will cause them to lose money, they hire an attorney to negotiate their way out of it. They use the law in every way possible way to protect and advance their interests.

Which is, of course, the purpose of the law. It only works when it is applied to a particular situation. ILSA was designed to protect consumers. Developers should comply with this law. If they don’t, the law gives consumers the right to avoid their contractual obligations. There is nothing immoral or unethical in using the law to protect and advance your interests. It’s what is expected of every citizen, and its certainly what is done by every citizen who can afford legal counsel. If you’ve decided to not buy that condo –for whatever reason — then you should determine whether the law is on your side. It’s what every person should do — and what wealthy people do all the time.

Longer Waiting Period to Evict Tenants After Foreclosure in WA State Effective July 26, 2009 and Free Legal Aid for WA Homeowners Facing Foreclosure

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There was a new law signed by Governor Gregoire this past legislative session,  SB 5810. Here is the link to the legislative page for the bill. Click on the “final bill report” for a quick summary.  The law gives TENANTS 60 days to vacate a residential home after foreclosure. Currently it’s 20 days (scroll to the very bottom of this page for details.)  Althought I sympathize with the tenants, it’s important to point out that lenders will think about this as they price new mortgage loans in Washington state. Today, any tenant renting a home or condo must wise up fast and do a thorough check on the landlord so their first, last, and damage doesn’t end up taking a walk with the seller.

This new change to 60 days is only good for tenants occupying a home that was sold during foreclosure. If a homeowner is occupying the foreclosed property, they will have to vacate in 20 days.

It looks like the law was also changed to add an additional 30 days to the foreclosure process in a residential, owner occupied foreclosure. This adds a step: The lender MUST make a detailed attempt to contact the homeowner and must make a declaration that they have taken steps to contact the homeowner. 

NEW SECTION. Sec. 2. A new section is added to chapter 61.24 RCW to read as follows:
(1)(a) A trustee, beneficiary, or authorized agent may not issue a notice of default under RCW 61.24.030(8) until thirty days after initial contact with the borrower is made… (b) A beneficiary or authorized agent shall contact the borrower by letter and by telephone in order to assess the borrower’s financial ability to pay the debt secured by the deed of trust and explore options for the borrower to avoid foreclosure…(c) During the initial contact, the beneficiary or authorized agent shall advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the beneficiary or authorized agent shall schedule the meeting to occur within fourteen days of the request. The assessment of the borrower’s financial ability to repay the debt and a discussion of options may occur during the initial contact or at a subsequent meeting scheduled for that purpose. At the initial contact, the borrower must be provided the toll-free telephone number made available by the department to find a department-certified housing counseling agency and the toll-free numbers for the department of financial institutions and the statewide civil legal aid hotline for possible assistance and referrals.

There are some exceptions to the new law. Follow this link and click on “bill as passed by the legislature” to read along with me:

Subsections (1) and (5) of this section do not apply if any of the following occurs:
The borrower has surrendered the property as evidenced by either a letter confirming the surrender or delivery of the keys to the property to the trustee, beneficiary, or authorized agent; or the borrower has filed for bankruptcy, and the bankruptcy stay remains in place, or the borrower has filed for bankruptcy and the bankruptcy court has granted relief from the bankruptcy stay allowing enforcement of the deed of trust.

This section applies only to deeds of trust made from January 1, 2003, to December 31, 2007, inclusive, that are recorded against owner-occupied residential real property. This section does not apply to deeds of trust:
(i) Securing a commercial loan;
(ii) securing obligations of a grantor who is not the borrower or a guarantor; or
(iii) securing a purchaser’s obligations under a seller-financed sale.

This law will go into effect July 26, 2009.  Will it help?

There are some good things we can say about getting in the defaulting homeowner’s face with more correspondence.  The letter sent to the homeowner will provide information on how to contact the Dept of Financial Institutions, HUD-approved housing counselors, and information on how to connect with the WA State Bar Association, which recently launched a community outreach program to offer FREE legal services to homeowners facing foreclosure.

The Washington State Bar Association (WSBA) is pleased to announce that its Home Foreclosure Legal Aid Project is accepting clients. In response to the current foreclosure crisis in our state, the WSBA is partnering with the Northwest Justice Project (NJP) to provide free legal assistance to Washington residents in danger of losing their homes. The goal of the project, which will last through May 2010, is to help Washington homeowners avoid foreclosure and stay in their homes. Homeowners in need of help who are unable to afford a lawyer can sign up by calling a toll-free number, 1-877-894-HOME (4663)

Information is also available on the WSBA website here.  I am hopeful that a measurable percentage of homeowners in default will open that letter and contact the Bar Association. Maybe this will help homeowners avoid predatory loan modification salesmen and foreclosure rescue scams. During the bubble run-up, we had many homeowners who used stated income loans and flat-out lied about their income. We had homeowners who lied about occupancy. We had non-English speaking homeowners who were duped by people from within the industry and some of who knowingly lied to their lender. I could think of at least 10 more examples but these three will do. I hear that some of these folks are afraid to talk to their lender. They get phone messages from the default department and they see the letters, however, they are afraid that if they talk to the lender they might be confronted with evidence that might lead to negative consequences, so they ignore all communication and let the lender foreclose.

In class this week, an agent told me that 95% of all available listings under $300,000 in Kent are short sales.  I’m afraid the foreclosure train has left the station and is rolling down the tracks towards the mid to upper price tiers.  The 60 day eviction waiting period is going to slow down REOs returning to the market, adding more hold-time to the lender’s balance sheet losses and pushing the housing bottom out longer.  Score one point for the tenants, zero points for the lenders, and two points for homeowners who get to stay in their home payment free for another 30 days. Maybe we can justify giving the lenders half a point if they get to collect rent from the tenant for the 60 days.

We will pay the piper on this one: Higher rates and bank/lender fees are in our future.

The legislature also slipped in something interesting: The foreclosing bank must prove that they hold the note before the bank can foreclose.

What you may be missing about a short sale

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Below is a simple diagram of a “normal” sale.  Buyer makes offer AFTER verifying  everything is in order to close, except the appraisal. Downpayment funds in bank? Check. Pre-approval for mortgage? Check. Cash for closing costs in bank? Check. Ready to make offer. Appraisal comes in at the sale price. Buyer ready to close.

We’re just following the money here. We don’t need to show the Earnest Money, as Earnest Money is not “additional” amounts needed by the buyer. It’s just an advance against monies later needed at escrow to close.

Ardell_Normal_Sale

In the example of a “normal” sale, the amount provided by the buyer is in excess of the amount needed by the seller to pay all seller costs and payoff all monies owed on the property, including lienable utilities.  As long as the amount offered exceeds the amount the seller needs, the sale closes.

Now let’s look at all the things that go wrong, creating a “short sale” situation, in the graph below.

Ardell_short_sale

First notice that the main reason the buyer is often impatient and confused is that everything the buyer does is exactly the same in a short sale as it is in a normal sale.  Everything that goes wrong, and everything that may or may not be done to fix it, is out of the buyer’s control.

That is why you often see questions like:

1) How can I contact the seller’s creditors?

2) How can I contact the seller?

3) How can we find out exactly what is going on!?!?

Now look very closely at the diagram above.  I want you to go to the last box on the right. Aha… that’s the part everyone seems to be missing.

Just because the value of a property is obviously less than the amount owed, that does not mean that the seller’s lienholder is going to approve the short sale. In most cases no one involved in the transaction knows what is in that last box.  Escrow doesn’t know, the agents don’t know and very often everything proceeds for months as if what the seller has in assets and cash outside of the sale of the property is meaningless.

Now ask yourself this: You lend your friend $10,000 to buy a car. He decides to sell it when he still owes you $8,000.  He tells you someone is willing to pay $5,000 for the car and he wants you to take $5,000 as payment in full.  You look at his offer, you find out he he has $15,000 in a savings account.  You find out the blue book value for the car is $6,500. The person who wants to buy the car for $5,000 is getting impatient wating for an answer. What would you do?

That’s a “short sale” pure and simple.  Do you take the $5,000 because you can get it in a few days? Oh but wait, your friend won’t sell the car to get you the $5,000, unless you agree, in writing, that you won’t EVER come after him for the remaining $3,000 you owe him. Should you just take the car and try to sell it for the $6,500 or better, so that you can still collect the amount your friend owes you after you sell the car?

Tell me, what are the odds in that situation that you are going to say “sure, I’ll take the $5,000 and leave you alone”?  If you know there is $15,000 in the bank AND the car is worth more than $5,000, why WOULD you say…sure, no problem.

Almost never do you see anyone talking about why the bank WOULD NOT approve the short sale, because they are always talking about how the bank should be happy to get a fraction of what is owed, and $60,000 or more less than what it’s worth.

But what about the owner’s money in the bank? What about the owner’s $120,000 income a year, but he moved and bought a new house and stopped making payments on the old house? What about the equity in the seller’s other house…oh and he made that big downpayment on his NEW house by refinancing (taking the cash out of) this one that is now short.

So if you are buying a short sale and are simply waiting for the bank to say yes, remember it sometimes takes a really long time for someone to say YES to something that they don’t want to say yes to. On the other hand if all you want is a fast answer, anyone can pressure the bank to say NO in a matter of days.

There’s a lot more to a short sale approval, and most of it has to do with whether or not the bank is willing to forgive the remaining debt, or the seller is willing to sign a note agreeing to pay the remaining debt.

No one asks this question, before they make an offer. No one knows the answer to this question while they are waiting for approval. Most of the time the delay is because the owner wants forgiveness of debt, and the lender needs the owner to prove current and long term “hardship” in order to release them from the future obligation to pay.

Top 3 Reason to Love Facebook Pages

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We already know the folks at RCG love twitter, and while I like twitter, the marketer in me has completely fallen for Facebook Pages (note: these are a very different beast than Facebook profiles)… and if you’re running a small business, there are many reasons you should be interested in FB Pages too.

The three main reasons I’m been putting a ton of energy into building out Facebook Pages for my clients lately are:

  • Traffic: at this point traffic from social media feeds (like twitter’s stream and Facebook’s newsfeeds) are generating more traffic than RSS feeds for almost every website I run.
  • Engagement: For new sites, it’s becoming harder-and-harder to build a “community” on your own site without tapping into the communities where they already exist (Twitter, Facebook, etc.)
  • Reach. Unlike Twitter, Facebook Pages allow you to get into the highlights and recommendation sections of fans… allowing you to reach the often elusive “friends of fans.”   For most small businesses, the friends of your fans are a ridiculously relevant audience and even more relevant than traditional SEO traffic.

rain city guide on facebook

By the way, I was inspired to create this post because I JUST created a Facebook Page for Rain City Guide and of course, I’m hoping you’ll join up and become a fan.

Similar to the Rain City Guide blog, I’m going to be using the page to engage with folks about Seattle real estate.   It’s not that we “need” another place for a conversation, but rather an experiment to see what it will look like when we take the typical RCG conversation to the Facebook audience.

Of  course, many of the stories on the Page will be about RCG articles, but truth be told, I’ll be looking to link out to any real estate articles I think will interest people interested in Seattle real estate.  So, if Facebook is the place you’d like to engage, join the conversation by becoming a fan of RCG!

And if you’re interested in a seeing a more developed implementation of Facebook Pages, check out the business page I created around my social media consulting and speaking.  In just a few months, it’s grown to over 1200 folks who are consistently engaging in ideas around using social media to generate business.

Is Your Open House In The NWMLS For ALL To See?

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FrontThe last few weeks have been extremely busy open house wise for us in Seattle – mostly in the $400,000 and under price range or close to it.  Agent hits on the NWMLS for those listings has also soared and the web traffic in general has increased for this price point.   The buyers are definitely out there poking around!

Many of  my recent open house visitors have been Redfin buyers.  They seem to expect to be treated poorly by other agents at opens.   Maybe this is just my own perception, but they are physically cringing upon entrance.  I guess it could be my outfit or my hair, but more likely it must have to do with the typical reception a Redfin buyer might get.  The point of an open house has always been for the hosting agent to meet, network, and possibly pick up new clients.  Although it is also great exposure for the listed property, very rarely does the open house sell the home – at least it didn’t used to. 

Enter Redfin. 

Redfin arguably has one of the nicest real estate search websites and their open house feature is probably second to none.  I can’t keep up with their changing business model and have no idea how effective or not they are for their clients, but do love their site and always welcome Redfin buyers to my open houses.  Redfin buyers seem to almost always be actively looking for a home.  They meticulously schedule and map out the open houses they plan to visit and they come with questions prepared.  In short, they are serious.

One little problem: 

Open houses that show up on the site are swept from the NWMLS when a listing agent enters the information in the “public open houses” field of their listing and not all listing agents do this.  Some companies prefer to hold on to that information and only enter their open houses on their corporate site alone.   Soon enough, though, most agents will hopefully catch up and realize that not entering their opens for all to see is a disservice to the seller.    Just looking at Seattle stats alone in the NWMLS, Redfin has sold 62 residential properties and 9 condos since the beginning of the year.  Redfin buyers are clearly putting a dent in the inventory. 

Redfin aside, it is just smart business and good representation to enter your open house into the NWMLS so that you expose your seller’s property to as many potential buyers as possible.