A few issues back, I wrote about a new government
regulation called the Mortgage Disclosure Improvement
Act (MDIA). It calls for new procedures to tighten
the Truth In Lending disclosures and provides the
borrower with times to digest the information they
are provided before they can close the transaction.
The regulation takes effect with applications that
are begun on or after July 30, 2009. Our lenders
have provided more detailed procedures that will
offer some clarity to everyone's expectations on
how escrow closings will now be handled.
Here are some of the key provisions of MDIA:
* No fees except a bona fide and reasonable credit
report fee may be collected from the borrower
until the lender has mailed the Initial Disclosure
and three full days have passed. The day the
disclosures are mailed is not counted as day 1.
Key Point:
This will, in most cases, delay the ordering of
the appraisal that a borrower pays for until after
the time requirement has been met.
* The law requires that the lender is responsible for
the disclosures. In those cases where we broker the
loan to the ultimate lender, the time frames will be
determined by the lender's disclosures. In the case
of our creating the loan using our mortgage banking
capabilities, we are the lender for this purpose, and
we control the disclosure timing exclusively.
Key Point:
Real estate agents have recommended for a long time
that potential buyers go through a loan application
and get pre-qualified and pre-approved, before engaging
in a home purchase. Now, more than ever, borrowers
need to heed this advice so that we can be beyond
some of these time limits and move quickly, or plan
on much longer escrows to close their transactions.
* Any time there is a change in loan terms causing the
Annual Percentage Rate (APR) to vary by 1/8% or
greater (up or down) from the previous disclosure,
the lender must re-disclose.
Key Point:
All parties are going to need to work together and
commit to their fee structures for things to go
smoothly. Escrow fees, title insurance and endorse-
ment fees, notary fees, messenger costs, in addition
to the lender fees need to be as precise as possible
to stay close to the 1/8% APR variance. A big
variable that may be difficult to nail down originally
is the pro-rated interest for the portion of the
month in which the loan funds. This figure also gets
calculated into the APR and may trigger additional
disclosures.
* If there is a re-disclosure that is necessary due to
the APR changing by 1/8% or greater, loan documents
cannot be signed until another specific 3 business
days have passed from the borrower's receipt of the
re-disclosure. The term specific business day is
defined as Monday through Saturday, with Sunday and
Federal holidays being excluded.
Key Point:
Most of the regulatory provisions talk about the
Truth In Lending documents being delivered by US
Mail. The presumption is that once mailed, they
are considered received by the borrower three days
after. So if a re-disclosure is required, three
days will pass before "receipt" and another three
days for review of terms will transpire before loan
documents can be signed.
We are seeking clarification to see if e-mail
delivery can be meet the delivery requirements to
shorten the initial 3-day "mailing" period.
All of our lenders are struggling to define procedures
that they can administer to be in compliance. Many of
the terms outlined above only came to us in the last
couple of days.
If you are involved in a new transaction over the next
30 to 60 days, you may find that your transaction will
be a test case to work out all the details.
All of us need to give realistic forecasts to help
our clients develop their expectations. It would not
be surprising to see modifications to these procedures
and all of us having to adapt to unanticipated changes.
Stay tuned...!
Wednesday, July 29, 2009
Wednesday, July 15, 2009
Customer Service in Today's Mortgage World
If you have participated in a mortgage transaction
in the last year, you probably found it to be a
frustrating experienced.
I know that those of us with long mortgage careers
have found it to be particularly annoying. In my
32 years of doing home loans, I don't think I have
ever seen the overall service in our industry drop
to this level before.
The mortgage business is not simple. But it can
be made easier to navigate when you get all of the
service providers pulling in the same direction. A
seasoned professional can make it look simple when
they have a team of service-oriented professional
seach doing their job, and being mindful that there
is always a client who has a need that must be met.
Let me go through a typical transaction to give you
an idea of what is going on today.
THE CLIENT: You have a goal or a need. You want to
purchase a home with financing, or want to refinance
your existing loan to take advantage of lower rates,
or availability of equity, or both. You use your
past experience or network of acquaintances to find a
loan originator to help you.
THE LOAN ORIGINATOR: This is my role. I succeed by
cultivating and maintaining a relationship business.
I want to be and need to be responsive to your requests
and questions. I need to have an understanding of what
loan programs are available, what it takes for a client
to qualify for them, and how to adapt your personal
qualifications to the lender's underwriting guidelines.
I need to be able to anticipate any problems, help you
brainstorm solutions, and make appropriate suggestions
as to what I think will be the best solution for you
based on your risk tolerance, time horizons, and quali-
fications.
THE LOAN PROCESSING STAFF: To put a face on it, this
would be my assistant and support staff in our loan office.
She works with me (and several other loan originators) to
facilitate the paperwork for presentation to the lender.
She and I work closely together, sharing information
about your particular circumstances and details about
the proposed lender's guidelines. We each bring to
the other's attention new information that we have
received about loan program changes so that we can
make the most efficient and thorough case for you that
we possibly can.
We are both on the same page about providing the best
possible service that we can to you, the client. Very
rarely is there a customer service breakdown at this
level, and when there is we make sure we correct it
quickly.
THE LENDER: This is where the customer service disconnect
begins. The lenders have been inundated with loan
requests. They have been slow or unable to hire sufficient
qualified staff to move the loan request through the
pipeline efficiently.
Add to this bottleneck the reality that lenders are coming
out of a troubled lending environment. Many bad
loans were created when underwriting was very lax, and
as far as the pendulum had swung toward laxity, it now
has swung the other direction to rigid enforcement of
guidelines. The lenders are very nervous about making
mistakes when approving loans.
We have even had some of our lenders tell us that every
loan needs to be reviewed by a senior underwriter. This
puts the entire pipeline through the eye of a needle!
It also creates the situation where we receive written
loan approval by the underwriter, and make plans with
you to finalize the paperwork that has been requested.
Then, a day or two later, we get an updated approval
that asks for additional paperwork, or expressing a
concern that we were not originally aware of. It is
always troubling to have to ask the client for more
last-minute paperwork, or to back-pedal on what we
thought was a solid loan approval.
Government regulations have not helped either. Since
May, we have had a new appraisal system that was
dictated to us by way of FNMA and FHLMC, the Attorney
General of New York. The lenders have been doing their
best to give us reliable procedures to follow. But they
have bank regulators looking over their shoulders, and
because they are concerned about being compliant, every-
thing has been moving more slowly. And the supportive
team that included competent service-oriented appraisers
has been dismantled and replaced with a panel of
appraisers with various levels of qualifications and who
have no commitment to me to perform with the care that
you deserve.
A big part of my professional approach to creating loans
for you was to have a network of representatives from
my roster of lenders with whom I could discuss your loan
file and make sure that what I was proposing was do-able
with them. This allowed me to get reliable answers at the
inception of the transaction and help you have a clear idea
of what to expect.
In today's environment, even my lender representatives
are gun-shy about offering opinions that won't be countered
when the file reaches the underwriter (or review under-
writer!). The typical answer I get now is "Just submit
the file and the underwriter will tell you if it will
work or not".
Before all of the bad loans came to light, the lenders
were very nurturing of their relationship with us loan
originators. Now that they are buried with business,
extremely conservative, nervous about the regulators,
and unsure of how to comply with the new requirements,
their focus is to have a file that leads them to a defensible
decision, whether that is an approval or adecline. So,
they put much less value on providingservice than they
do on covering their 'bases'.
Doing business in this manner is contrary to how I
have built my business. I don't like not having
answers for my clients, or to feel like we are just
twisting in the wind while we await a decision from
the underwriters.
I do appreciate those of you who have maintained confidence
in my services. I hope you know that I have not changed
my approach to business, but things have radically changed
behind the scenes. I make mistakes, but I do everything
I can to rectify them as quickly as possible, and your
interests are always in the forefront of my mind.
in the last year, you probably found it to be a
frustrating experienced.
I know that those of us with long mortgage careers
have found it to be particularly annoying. In my
32 years of doing home loans, I don't think I have
ever seen the overall service in our industry drop
to this level before.
The mortgage business is not simple. But it can
be made easier to navigate when you get all of the
service providers pulling in the same direction. A
seasoned professional can make it look simple when
they have a team of service-oriented professional
seach doing their job, and being mindful that there
is always a client who has a need that must be met.
Let me go through a typical transaction to give you
an idea of what is going on today.
THE CLIENT: You have a goal or a need. You want to
purchase a home with financing, or want to refinance
your existing loan to take advantage of lower rates,
or availability of equity, or both. You use your
past experience or network of acquaintances to find a
loan originator to help you.
THE LOAN ORIGINATOR: This is my role. I succeed by
cultivating and maintaining a relationship business.
I want to be and need to be responsive to your requests
and questions. I need to have an understanding of what
loan programs are available, what it takes for a client
to qualify for them, and how to adapt your personal
qualifications to the lender's underwriting guidelines.
I need to be able to anticipate any problems, help you
brainstorm solutions, and make appropriate suggestions
as to what I think will be the best solution for you
based on your risk tolerance, time horizons, and quali-
fications.
THE LOAN PROCESSING STAFF: To put a face on it, this
would be my assistant and support staff in our loan office.
She works with me (and several other loan originators) to
facilitate the paperwork for presentation to the lender.
She and I work closely together, sharing information
about your particular circumstances and details about
the proposed lender's guidelines. We each bring to
the other's attention new information that we have
received about loan program changes so that we can
make the most efficient and thorough case for you that
we possibly can.
We are both on the same page about providing the best
possible service that we can to you, the client. Very
rarely is there a customer service breakdown at this
level, and when there is we make sure we correct it
quickly.
THE LENDER: This is where the customer service disconnect
begins. The lenders have been inundated with loan
requests. They have been slow or unable to hire sufficient
qualified staff to move the loan request through the
pipeline efficiently.
Add to this bottleneck the reality that lenders are coming
out of a troubled lending environment. Many bad
loans were created when underwriting was very lax, and
as far as the pendulum had swung toward laxity, it now
has swung the other direction to rigid enforcement of
guidelines. The lenders are very nervous about making
mistakes when approving loans.
We have even had some of our lenders tell us that every
loan needs to be reviewed by a senior underwriter. This
puts the entire pipeline through the eye of a needle!
It also creates the situation where we receive written
loan approval by the underwriter, and make plans with
you to finalize the paperwork that has been requested.
Then, a day or two later, we get an updated approval
that asks for additional paperwork, or expressing a
concern that we were not originally aware of. It is
always troubling to have to ask the client for more
last-minute paperwork, or to back-pedal on what we
thought was a solid loan approval.
Government regulations have not helped either. Since
May, we have had a new appraisal system that was
dictated to us by way of FNMA and FHLMC, the Attorney
General of New York. The lenders have been doing their
best to give us reliable procedures to follow. But they
have bank regulators looking over their shoulders, and
because they are concerned about being compliant, every-
thing has been moving more slowly. And the supportive
team that included competent service-oriented appraisers
has been dismantled and replaced with a panel of
appraisers with various levels of qualifications and who
have no commitment to me to perform with the care that
you deserve.
A big part of my professional approach to creating loans
for you was to have a network of representatives from
my roster of lenders with whom I could discuss your loan
file and make sure that what I was proposing was do-able
with them. This allowed me to get reliable answers at the
inception of the transaction and help you have a clear idea
of what to expect.
In today's environment, even my lender representatives
are gun-shy about offering opinions that won't be countered
when the file reaches the underwriter (or review under-
writer!). The typical answer I get now is "Just submit
the file and the underwriter will tell you if it will
work or not".
Before all of the bad loans came to light, the lenders
were very nurturing of their relationship with us loan
originators. Now that they are buried with business,
extremely conservative, nervous about the regulators,
and unsure of how to comply with the new requirements,
their focus is to have a file that leads them to a defensible
decision, whether that is an approval or adecline. So,
they put much less value on providingservice than they
do on covering their 'bases'.
Doing business in this manner is contrary to how I
have built my business. I don't like not having
answers for my clients, or to feel like we are just
twisting in the wind while we await a decision from
the underwriters.
I do appreciate those of you who have maintained confidence
in my services. I hope you know that I have not changed
my approach to business, but things have radically changed
behind the scenes. I make mistakes, but I do everything
I can to rectify them as quickly as possible, and your
interests are always in the forefront of my mind.
Wednesday, June 17, 2009
New Government Regulations May Create Delays
Recently, I have written about the new Home
Valuation Code of Conduct (HVCC) that requires
the use of intermediaries to place the appraisal
assignment. The intent was to eliminate any
undue influence by the loan originators when
ordering the appraisal and to insulate the
appraisers from pressure to "hit a number".
As outlined, this new process creates more steps,
less communication, and the potential for an
unpredictable result that may cost the borrower
money with no beneficial outcome.
Once again, we have new government regulations that
will come on line with loan applications received
after July 30, 2009.
This time, it is the Mortgage Disclosures Improvement
Act (MDIA) that is intended to give consumers better
information about fees and the annual percentage rate
(APR), and to build in time for the borrower to digest
the information.
Here are some key points about the MDIA:
1. Truth-in-lending (TIL) disclosures are now required
on any loan that is secured by residential real
estate. This will now include both owner-occupied
and non-owner-occupied propertis of 1-4 family units.
Previously non-owner-occupied properties were exempt.
2. There is a new seven business day waiting period
between the date the initial TIL disclosure is
provided to the consumer and the disbursement of the
loan.
3. There is also a new three business day waiting period
between the date a final/redisclosed TIL is received
by the consumer and the disbursement of the loan.
You may know that this has been a standard requirement
on refinance loans, but this new requirement will now
apply to purchases as well.
4. No fees, other than a bona fide credit report fee can
be charged prior to the initial TIL disclosure being
provided.
5. If there is a material change in the APR (generally
defined as being more than .125% difference), we
must redisclose and start a new three day waiting
period. We are hearing from some lenders that if
fees change by more than $100, they may require a
new disclosure (and trigger a new waiting period).
6. Both the final/redisclosed and initial TIL disclosure
shall contain the following statement: "You are not
required to complete this agreement merely because
you have received these disclosures or signed a loan
application".
No matter how well-intentioned the MDIA is to eliminate
abuses and last-minute imposition of fees when the
borrower feels that they have no choice but to close,
there are going to be new timing requirements for
all parties to deal with.
Borrowers, real estate agents, escrows companies,
sellers, and of course, those of us who deal with the
loan originations will all have to adapt.
Let's take a look at a typical transaction and some
implications.
Borrower applies for a new loan.
Within three days, we must provide the TIL disclosure.
(Even if it were physically possible, the loan cannot
close for another seven days).
We cannot order the appraisal for which the borrower
is to pay for until the TIL is received by the borrower.
(If sent via US mail, the presumption is that they
have received it after three days in the mail).
If there are changes to the fees, or the proposed
interest pro-ration based on the closing date, or if
the interest rate were to change, or if the borrower
selects a different program, we must re-disclose the
new TIL and APR. Escrow cannot close until three
business days have passed after the borrower receives
the re-disclosure forms.
As you can see, transactions may be subject to serial
delays.
It will be important for borrowers to make
commitments to loan programs, interest rate locks,
and closing dates.
All service providers will need to provide fee
quotes that are not subject to change.
Real estate agents will need to counsel their clients
and negotiate with the agents representing the sellers
regarding the traditional 17-day financing contingency
removal clause.
We loan originators will need to be very precise with
our disclosures based on a team effort to get all the
numbers right.
Missing loan lock expiration dates and close of escrow
dates will only create havoc in the transactions.
Giving you advance warning of what to expect is not
designed to scare you, but to prepare you for the
changes that the government is imposing.
Everything that they are regulating is creating
more impediments to the process for all the good
borrowers and reputable lenders. I, for one, would
have preferred that they prosecute the unscrupulous
lenders and allow the quality lenders to provide
quality service to their clients.
Valuation Code of Conduct (HVCC) that requires
the use of intermediaries to place the appraisal
assignment. The intent was to eliminate any
undue influence by the loan originators when
ordering the appraisal and to insulate the
appraisers from pressure to "hit a number".
As outlined, this new process creates more steps,
less communication, and the potential for an
unpredictable result that may cost the borrower
money with no beneficial outcome.
Once again, we have new government regulations that
will come on line with loan applications received
after July 30, 2009.
This time, it is the Mortgage Disclosures Improvement
Act (MDIA) that is intended to give consumers better
information about fees and the annual percentage rate
(APR), and to build in time for the borrower to digest
the information.
Here are some key points about the MDIA:
1. Truth-in-lending (TIL) disclosures are now required
on any loan that is secured by residential real
estate. This will now include both owner-occupied
and non-owner-occupied propertis of 1-4 family units.
Previously non-owner-occupied properties were exempt.
2. There is a new seven business day waiting period
between the date the initial TIL disclosure is
provided to the consumer and the disbursement of the
loan.
3. There is also a new three business day waiting period
between the date a final/redisclosed TIL is received
by the consumer and the disbursement of the loan.
You may know that this has been a standard requirement
on refinance loans, but this new requirement will now
apply to purchases as well.
4. No fees, other than a bona fide credit report fee can
be charged prior to the initial TIL disclosure being
provided.
5. If there is a material change in the APR (generally
defined as being more than .125% difference), we
must redisclose and start a new three day waiting
period. We are hearing from some lenders that if
fees change by more than $100, they may require a
new disclosure (and trigger a new waiting period).
6. Both the final/redisclosed and initial TIL disclosure
shall contain the following statement: "You are not
required to complete this agreement merely because
you have received these disclosures or signed a loan
application".
No matter how well-intentioned the MDIA is to eliminate
abuses and last-minute imposition of fees when the
borrower feels that they have no choice but to close,
there are going to be new timing requirements for
all parties to deal with.
Borrowers, real estate agents, escrows companies,
sellers, and of course, those of us who deal with the
loan originations will all have to adapt.
Let's take a look at a typical transaction and some
implications.
Borrower applies for a new loan.
Within three days, we must provide the TIL disclosure.
(Even if it were physically possible, the loan cannot
close for another seven days).
We cannot order the appraisal for which the borrower
is to pay for until the TIL is received by the borrower.
(If sent via US mail, the presumption is that they
have received it after three days in the mail).
If there are changes to the fees, or the proposed
interest pro-ration based on the closing date, or if
the interest rate were to change, or if the borrower
selects a different program, we must re-disclose the
new TIL and APR. Escrow cannot close until three
business days have passed after the borrower receives
the re-disclosure forms.
As you can see, transactions may be subject to serial
delays.
It will be important for borrowers to make
commitments to loan programs, interest rate locks,
and closing dates.
All service providers will need to provide fee
quotes that are not subject to change.
Real estate agents will need to counsel their clients
and negotiate with the agents representing the sellers
regarding the traditional 17-day financing contingency
removal clause.
We loan originators will need to be very precise with
our disclosures based on a team effort to get all the
numbers right.
Missing loan lock expiration dates and close of escrow
dates will only create havoc in the transactions.
Giving you advance warning of what to expect is not
designed to scare you, but to prepare you for the
changes that the government is imposing.
Everything that they are regulating is creating
more impediments to the process for all the good
borrowers and reputable lenders. I, for one, would
have preferred that they prosecute the unscrupulous
lenders and allow the quality lenders to provide
quality service to their clients.
Wednesday, June 3, 2009
The Interest Rate Roller Coaster
If you've been waiting for interest rates to go
lower, you may not want to wait much longer.
As you probably know, interest rates have been
very attractive for several months.
After dropping below 5%, they have predominantly
been in the 4.5% to 4.75% range with a one point
loan origination fee.
Then suddenly last week, interest rates rose
dramatically. Within the course of 1-2 days,
the comfortable range to which we had become
accustomed blew up and started to hover above
5%. That is quite an upward move in only a couple
of days.
Now, by all historical standards 30-year fixed
rates in the 5% range are still very desirable.
But, because there had been such good opportunities
in the sub-5% levels for quite some time, it feels
like something has been lost.
It's always difficult to determine if market moves
like this are a blip on the radar screen, or if in
fact we have reached the bottom and rates are only
moving up from here.
There is little doubt that at least for the time
being, the investors in fixed interest rate issues
like mortgage-backed securities reached a level of
saturation last week.
There is a big concern about long-term inflation,
especially with all the debt that the country is
taking on. One of the strategies for paying back
the debt is to have the Treasury print money, and
that is inflationary.
If investors are going to be paid back with cheaper
dollars in the future, they want a higher rate of
return, so that they have some chance to get repaid
the yield that they were expecting.
There is no shame in obtaining a loan that is hovering
near 5%, but if you have been watching rates in the
4.5% - 4.75% range you may feel that you have missed
an opportunity.
My suggestion would be to assess your options and consider
locking in an interest rate before they have a chance
to go higher. Some lenders will allow a renegotiation
of an interest rate lock-in if rates go lower.
As they say in the medical profession "First, do no
harm." I have seen many borrowers miss out on something
good, hoping for something better.
Don't miss out on the property you want, or a better
interest rate on a refinance in hopes that rates will
drop again to where they were. It may happen, but
the risks are significantly greater if rates continue
to move up.
Call me to discuss your situation and we can strategize
as to the best course of action for you.
lower, you may not want to wait much longer.
As you probably know, interest rates have been
very attractive for several months.
After dropping below 5%, they have predominantly
been in the 4.5% to 4.75% range with a one point
loan origination fee.
Then suddenly last week, interest rates rose
dramatically. Within the course of 1-2 days,
the comfortable range to which we had become
accustomed blew up and started to hover above
5%. That is quite an upward move in only a couple
of days.
Now, by all historical standards 30-year fixed
rates in the 5% range are still very desirable.
But, because there had been such good opportunities
in the sub-5% levels for quite some time, it feels
like something has been lost.
It's always difficult to determine if market moves
like this are a blip on the radar screen, or if in
fact we have reached the bottom and rates are only
moving up from here.
There is little doubt that at least for the time
being, the investors in fixed interest rate issues
like mortgage-backed securities reached a level of
saturation last week.
There is a big concern about long-term inflation,
especially with all the debt that the country is
taking on. One of the strategies for paying back
the debt is to have the Treasury print money, and
that is inflationary.
If investors are going to be paid back with cheaper
dollars in the future, they want a higher rate of
return, so that they have some chance to get repaid
the yield that they were expecting.
There is no shame in obtaining a loan that is hovering
near 5%, but if you have been watching rates in the
4.5% - 4.75% range you may feel that you have missed
an opportunity.
My suggestion would be to assess your options and consider
locking in an interest rate before they have a chance
to go higher. Some lenders will allow a renegotiation
of an interest rate lock-in if rates go lower.
As they say in the medical profession "First, do no
harm." I have seen many borrowers miss out on something
good, hoping for something better.
Don't miss out on the property you want, or a better
interest rate on a refinance in hopes that rates will
drop again to where they were. It may happen, but
the risks are significantly greater if rates continue
to move up.
Call me to discuss your situation and we can strategize
as to the best course of action for you.
Wednesday, May 20, 2009
FHA And VA Are Back
For the longest time, FHA and VA were not useful
tools in the San Diego market. Sales prices
were too high to allow FHA and VA financing to be
viable alternatives for borrowers.
With the drop in home values, they are back and
many borrowers can now use them as effective tools
to finance their home purchases.
Let's take a look at some of the features and
benefits of these two programs.
VA
These loans are available to eligible veterans.
They require that the veteran obtain a Certificate
of Eligibility from the Veteran's Administration
that shows they have met the minimum service
standards of 181 days of active service and have
not had a dishonorable discharge.
VA loans are available for single veterans, a
veteran and spouse, or two unmarried veterans
buying together. There is no provision for a
veteran/non-veteran loan unless for a married
couple.
VA loan limits currently allow a qulaified veteran
with full eligibility to receive a loan with no
down payment up to a loan amount of $417,000.
At times, and subject to market conditions, VA
loans may exceed $417,000 with some down payment
required. VA guidelines allow for these higher
loan amounts, but the appetite by GNMA (Government
National Mortgage Association) to purchase these
loans is the determining factor for them to be
offered.
VA does require a funding fee from the veteran,
which helps defray some costs of administering the
program. For a first-time user of their eligibility
and with 100% financing, the funding fee is 2.15%
of the loan amount. Instead of the veteran having
to pay this in cash, VA allows for it to be financed
on top of the 100% loan.
For example, a home price of $400,000 would allow
for a no-down VA loan of $400,000 to a veteran with
full eligibility. The final loan amount would be
$408,600 after financing the VA funding fee.
VA does help protect the veteran by limiting some
of the closing costs that they are allowed to pay,
and makes broad allowances for a seller, or other
party, to pay expenses on the veteran's behalf.
VA's goal is to help as many veteran buyers as
possible succeed with home ownership by guaranteeing
the loan for the lender through the VA program.
If you think you are eligible for a VA loan and
want more details, get in touch with me so we can
discuss your individual circumstances.
FHA
FHA loans allow borrowers with good qualifications
purchase homes with a lower down payment than
conventional loans require.
FHA loans are generally available to any qualified
buyer and property, and are not limited like the VA
program is.
The basic FHA program allows a borrower to buy a
home for their residence with as little as 3.5%
down payment.
Similar to VA, there is a requirement for the payment
of Mutual Mortgage Insurance to help cover the costs
of the program. These loans are insured by the FHA
program to the lender.
The cost of the MMI is 1.75% at closing, which can
be financed, and .50% per year. The loan limits are
similar to VA. FHA allows for loans up to $417,000
and at times may exceed that amount if GNMA will
purchase the loans. Availability changes from time
to time.
Let's look at an example of a purchase price of
$400,000. This would require a down payment of
$14,000 (3.5%). The up front mortgage insurance
premium of 1.75% can be financed, bringing the
final loan amount to $392,755.
The mortgage payments will include the principal
and interest payment, an amount for property
taxes, property insurance and the mortgage insurance
premium (which comes to $163.65 in this example).
There are many details in obtaining an FHA loan.
They are in many ways easier to qualify for, but
attention to all the fine points is a must.
If you are hopeful to find a home, and have limited
funds for down payment and closing costs, let's talk
about how FHA might work for you.
tools in the San Diego market. Sales prices
were too high to allow FHA and VA financing to be
viable alternatives for borrowers.
With the drop in home values, they are back and
many borrowers can now use them as effective tools
to finance their home purchases.
Let's take a look at some of the features and
benefits of these two programs.
VA
These loans are available to eligible veterans.
They require that the veteran obtain a Certificate
of Eligibility from the Veteran's Administration
that shows they have met the minimum service
standards of 181 days of active service and have
not had a dishonorable discharge.
VA loans are available for single veterans, a
veteran and spouse, or two unmarried veterans
buying together. There is no provision for a
veteran/non-veteran loan unless for a married
couple.
VA loan limits currently allow a qulaified veteran
with full eligibility to receive a loan with no
down payment up to a loan amount of $417,000.
At times, and subject to market conditions, VA
loans may exceed $417,000 with some down payment
required. VA guidelines allow for these higher
loan amounts, but the appetite by GNMA (Government
National Mortgage Association) to purchase these
loans is the determining factor for them to be
offered.
VA does require a funding fee from the veteran,
which helps defray some costs of administering the
program. For a first-time user of their eligibility
and with 100% financing, the funding fee is 2.15%
of the loan amount. Instead of the veteran having
to pay this in cash, VA allows for it to be financed
on top of the 100% loan.
For example, a home price of $400,000 would allow
for a no-down VA loan of $400,000 to a veteran with
full eligibility. The final loan amount would be
$408,600 after financing the VA funding fee.
VA does help protect the veteran by limiting some
of the closing costs that they are allowed to pay,
and makes broad allowances for a seller, or other
party, to pay expenses on the veteran's behalf.
VA's goal is to help as many veteran buyers as
possible succeed with home ownership by guaranteeing
the loan for the lender through the VA program.
If you think you are eligible for a VA loan and
want more details, get in touch with me so we can
discuss your individual circumstances.
FHA
FHA loans allow borrowers with good qualifications
purchase homes with a lower down payment than
conventional loans require.
FHA loans are generally available to any qualified
buyer and property, and are not limited like the VA
program is.
The basic FHA program allows a borrower to buy a
home for their residence with as little as 3.5%
down payment.
Similar to VA, there is a requirement for the payment
of Mutual Mortgage Insurance to help cover the costs
of the program. These loans are insured by the FHA
program to the lender.
The cost of the MMI is 1.75% at closing, which can
be financed, and .50% per year. The loan limits are
similar to VA. FHA allows for loans up to $417,000
and at times may exceed that amount if GNMA will
purchase the loans. Availability changes from time
to time.
Let's look at an example of a purchase price of
$400,000. This would require a down payment of
$14,000 (3.5%). The up front mortgage insurance
premium of 1.75% can be financed, bringing the
final loan amount to $392,755.
The mortgage payments will include the principal
and interest payment, an amount for property
taxes, property insurance and the mortgage insurance
premium (which comes to $163.65 in this example).
There are many details in obtaining an FHA loan.
They are in many ways easier to qualify for, but
attention to all the fine points is a must.
If you are hopeful to find a home, and have limited
funds for down payment and closing costs, let's talk
about how FHA might work for you.
Wednesday, May 6, 2009
The Home Valuation Code of Conduct (HVCC)
In January, I referenced an article by syndicated
columnist Kenneth Harney about the planned
changes to the appraisal process.
On May 1, the changes have gone into effect.
Here is a summary of what we are now facing when
coordinating your appraisal for your home financing.
The HVCC was part of a settlement involving New
York Attorney General Andrew M. Cuomo, and
Freddie Mac (FHLMC) and Fannie Mae (FNMA)and was a
result of an investigation of FHLMC and FNMA for
alleged appraisal overvaluations, and evidence
of illicit pressure on appraisers to "hit the
numbers" needed to close loans.
Appraisers found themselves facing the prospect of
delivering appraisals at predetermined values, or not
being hired again to perform appraisals by unscrupulous
loan originators.
Part of the standards was to create Appraisal Management
Companies (AMC) to insulate the appraiser from any one
having a direct interest in the valuation and the outcome
of the process, including lenders, mortgage brokers, or
real estate agents.
The HVCC will effectively eliminate all of the business
relationships that have developed over years of working
together. Instead, mortgage loan officers, who tradit-
ionally would be the one to make the appraisal assign-
ment, will be forced to shift the assignment to third-
party AMCs.
It actually bans brokers from any involvement in
selecting appraisers, or having conversations with them
that could be construed as trying to influence the value.
Even the innocent practice of asking an appraiser to give
a range of what the raw data indicates before asking the
borrower to pay for a full appraisal will not be allowed.
There are some significant consequences for borrowers
if the HVCC goes forward and is implemented.
* The fee that you pay for the appraisal will actually
be split between the appraisal management company and
the appraiser. A professional appraiser typically
earned about $400 for a single-family (non-custom)
home appraisal. Now, the AMC will receive a good
portion of the fee, and the appraiser will probably
be asked to work for about half of what they earned
before. Or, the AMC will add their fee on top of the
traditional fee and the cost to you, the borrower,
will go up.
* Experienced, career appraisers may be priced out of
the market if they are not willing to work for about
one half of what they normally earned. This will
put many more inexperienced appraisers on the rosters
for the AMCs to select from. Appraisers who are
less experienced may create less reliable valuations.
* The AMC is promoting their value by expediting the
process and offering quick turn-around times. If
Appraiser A does not respond quickly to a request,
they will move down to Appraiser B, and so on until
they find someone who can get the job done within
their time frames. The appraisers who are the busiest,
which may translate to being the most experienced
and in demand, may not get the assignment. The
appraiser waiting for the phone to ring will get
the business.
* The appraiser may be asked to complete their evaluation
more quickly and not have an opportunity to do all of the
research that is warranted to assess the comparable proper-
ties, sales contracts and local market trends. This
will not lead to a better valuation process.
* Professional appraisal groups have argued that the AMCs
place quality last while they press appraisers to finish
the appraisal quickly, many times within 24 to 48 hours
from the time of the assignment. If the appraiser does
not have time to verify the important details of their
assignment, the result will be unreliable.
* Low appraisals will reduce a borrower's ability to
negotiate an acceptable refinance, and force buyers
to come up with larger down payments. It is much less
likely that an appraiser will err on the side of being
too high on a valuation.
The old system worked very well for honest loan originators
and appraisers. If the lender used their quality control
systems to discover a concern over the valuation presented,
they always had the opportunity to request a review
appraisal by someone that they trusted and compare the
results.
This new AMC system puts more barriers in place to have
business conducted with effective communication, and it's
hard to believe that any of us will be happier with less
communication about something as important as your home
financing.
columnist Kenneth Harney about the planned
changes to the appraisal process.
On May 1, the changes have gone into effect.
Here is a summary of what we are now facing when
coordinating your appraisal for your home financing.
The HVCC was part of a settlement involving New
York Attorney General Andrew M. Cuomo, and
Freddie Mac (FHLMC) and Fannie Mae (FNMA)and was a
result of an investigation of FHLMC and FNMA for
alleged appraisal overvaluations, and evidence
of illicit pressure on appraisers to "hit the
numbers" needed to close loans.
Appraisers found themselves facing the prospect of
delivering appraisals at predetermined values, or not
being hired again to perform appraisals by unscrupulous
loan originators.
Part of the standards was to create Appraisal Management
Companies (AMC) to insulate the appraiser from any one
having a direct interest in the valuation and the outcome
of the process, including lenders, mortgage brokers, or
real estate agents.
The HVCC will effectively eliminate all of the business
relationships that have developed over years of working
together. Instead, mortgage loan officers, who tradit-
ionally would be the one to make the appraisal assign-
ment, will be forced to shift the assignment to third-
party AMCs.
It actually bans brokers from any involvement in
selecting appraisers, or having conversations with them
that could be construed as trying to influence the value.
Even the innocent practice of asking an appraiser to give
a range of what the raw data indicates before asking the
borrower to pay for a full appraisal will not be allowed.
There are some significant consequences for borrowers
if the HVCC goes forward and is implemented.
* The fee that you pay for the appraisal will actually
be split between the appraisal management company and
the appraiser. A professional appraiser typically
earned about $400 for a single-family (non-custom)
home appraisal. Now, the AMC will receive a good
portion of the fee, and the appraiser will probably
be asked to work for about half of what they earned
before. Or, the AMC will add their fee on top of the
traditional fee and the cost to you, the borrower,
will go up.
* Experienced, career appraisers may be priced out of
the market if they are not willing to work for about
one half of what they normally earned. This will
put many more inexperienced appraisers on the rosters
for the AMCs to select from. Appraisers who are
less experienced may create less reliable valuations.
* The AMC is promoting their value by expediting the
process and offering quick turn-around times. If
Appraiser A does not respond quickly to a request,
they will move down to Appraiser B, and so on until
they find someone who can get the job done within
their time frames. The appraisers who are the busiest,
which may translate to being the most experienced
and in demand, may not get the assignment. The
appraiser waiting for the phone to ring will get
the business.
* The appraiser may be asked to complete their evaluation
more quickly and not have an opportunity to do all of the
research that is warranted to assess the comparable proper-
ties, sales contracts and local market trends. This
will not lead to a better valuation process.
* Professional appraisal groups have argued that the AMCs
place quality last while they press appraisers to finish
the appraisal quickly, many times within 24 to 48 hours
from the time of the assignment. If the appraiser does
not have time to verify the important details of their
assignment, the result will be unreliable.
* Low appraisals will reduce a borrower's ability to
negotiate an acceptable refinance, and force buyers
to come up with larger down payments. It is much less
likely that an appraiser will err on the side of being
too high on a valuation.
The old system worked very well for honest loan originators
and appraisers. If the lender used their quality control
systems to discover a concern over the valuation presented,
they always had the opportunity to request a review
appraisal by someone that they trusted and compare the
results.
This new AMC system puts more barriers in place to have
business conducted with effective communication, and it's
hard to believe that any of us will be happier with less
communication about something as important as your home
financing.
Wednesday, April 22, 2009
Breaking News! & Differences Between Mortgage Banking and Mortgage Brokerage
First the News!
We finally got word today from one of our lenders
with whom we broker loans that they will start
accepting registrations for the new conforming-
jumbo loan limits to $697,500 in San Diego
beginning April 27.
The conforming limit is currently $417,000.
The Economic Stimulus Act of 2008 allowed FHLMC
and FNMA to purchase loans up to $697,500 in San
Diego. At the end of 2008, that figure was
reduced to $546,250 in San Diego.
The 2009 American Recovery and Reinvestment Act
(ARRA) was passed in February and allowed for
the reinstatement of the higher $697,500 limit
in San Diego. We have been waiting for two months
to see that the guidelines have been finalized
and that lenders would start accepting applications
for the higher limits.
The reason this is a big deal for borrowers is
because the jumbo loans - those above $417,000
traditionally - have not been readily available
and when they have been offered, it has been at
significantly higher rates and fees.
The conforming-jumbo loans at the higher limit
will allow more borrowers to finance at affordable
interest rates, and that is going to help a lot
of people.
MORTGAGE BROKERAGE AND MORTGAGE BANKING
As I work with clients and facilitate their
requests for home loans, there are a couple
of different ways I can represent their interests.
As a mortgage broker, I serve as an advocate for
you, the borrower, with the lender.
I help you complete the mortgage application,
educate you as to available loan programs and
costs, and counsel you on any concerns and
possible solutions that could affect your loan
approval.
The lenders make their loan products available
to us through what they call their wholesale
division. It is called that because they
offer their interest rates and fees at a
"wholesale" price to us and allow us to earn
our compensation for the work we do.
When lenders create loans directly, that is
commonly called their retail operation. The
rates and fees that they charge are competitive
with what we charge as mortgage brokers. They
then pay their staff for the work that they
do for the lenders as employees.
So, you should find that the quotes you receive
from the lenders directly or through mortgage
brokers to be very similar. If that were not
the case, one or the other would not be able to
compete and would cease to be a player in the
mortgage market.
Based on our knowledge, experiences and resources,
we package your loan for presentation to the
lender. We do not have any direct ability to
approve your loan, but we are well-versed in the
guidelines for your loan request and can often
persuasively influence the underwriter to approve
your loan if there are differences of opinion.
The lender will approve the loan, draw the loan
documents, and fund the loan.
If we are unable to gain approval with Lender A,
we can take the same package that we have put
together and submit the request to Lenders B, C,
D, etc. if necessary to work toward approval.
Although it may be maddening at times to have
lenders give us so many different opinions and
viewpoints when it comes to getting your loan
approved, it is also the major advantage that I
have in helping you.
If every lender gave us the same answer at all
times, there would be no need to have multiple
sources with which to place your loan request.
So, having some lenders who will say "yes" when
others say "no" is actually a good thing, and
we do our best to find the "yes" lenders as
early in the process as possible.
If you were to apply through a lender's retail
operation, and they said "no", you would have
to generate a new loan request with another
lender. This would take significantly more time
and effort on your part, since you would have
to regenerate the loan application repetitively.
Also, you may have additional fees for duplicate
appraisals of the home since most retail lenders
do not find another lender's appraisals acceptable.
Being able to assist borrowers as a mortgage broker
is a very valuable resource for you. My experience,
my knowledge, and my ability to match your qualifi-
cations to the available loan products saves you
time and trouble at competitive rates and fees.
In addition to mortgage brokerage, I also have
the resources to offer mortgage banking.
Mortgage banking is distinct from mortgage broker-
age because the banking operation allows me to
have the loan underwritten, loan documents prepared,
and the funding of the loan all under the control
of our company.
In this case, we have a select number of lender
relationships, currently about 5-10, that are known
as correspondent lenders.
This means that our company has developed the trust
and the relationship with these lenders for us
to make the loan decision on behalf of the lender.
We have arranged for lines of credit to create
these loans - these are commonly known as warehouse
lines, because after the loan is funded they are
"warehoused" until the lender for whom we created
the loan purchases the loan from our company.
Being able to offer loans within a correspondent
lending relationship gives me the added ability
to have your file move more efficiently through
the process. I have more access to the underwriter,
the document preparation person and the funder of
the loan to try to facilitate special situations
or timing issues.
In today's lending environment, many companies that
were previously able to offer mortgage banking have
had to give it up because their warehouse lines of
credit have not been renewed. Being able to main-
tain these lines of credit requires frequent re-
qualification, and as the mortgage business hit
so many obstacles in the last couple of years,
a lot of companies could not maintain their quali-
fications.
When you are ready to take action to purchase a
home or refinance existing home loans, be sure to
check in with me. My many resources, access to
competitive lending programs, and my 31 years of
experience can be of tremendous benefit to you.
We finally got word today from one of our lenders
with whom we broker loans that they will start
accepting registrations for the new conforming-
jumbo loan limits to $697,500 in San Diego
beginning April 27.
The conforming limit is currently $417,000.
The Economic Stimulus Act of 2008 allowed FHLMC
and FNMA to purchase loans up to $697,500 in San
Diego. At the end of 2008, that figure was
reduced to $546,250 in San Diego.
The 2009 American Recovery and Reinvestment Act
(ARRA) was passed in February and allowed for
the reinstatement of the higher $697,500 limit
in San Diego. We have been waiting for two months
to see that the guidelines have been finalized
and that lenders would start accepting applications
for the higher limits.
The reason this is a big deal for borrowers is
because the jumbo loans - those above $417,000
traditionally - have not been readily available
and when they have been offered, it has been at
significantly higher rates and fees.
The conforming-jumbo loans at the higher limit
will allow more borrowers to finance at affordable
interest rates, and that is going to help a lot
of people.
MORTGAGE BROKERAGE AND MORTGAGE BANKING
As I work with clients and facilitate their
requests for home loans, there are a couple
of different ways I can represent their interests.
As a mortgage broker, I serve as an advocate for
you, the borrower, with the lender.
I help you complete the mortgage application,
educate you as to available loan programs and
costs, and counsel you on any concerns and
possible solutions that could affect your loan
approval.
The lenders make their loan products available
to us through what they call their wholesale
division. It is called that because they
offer their interest rates and fees at a
"wholesale" price to us and allow us to earn
our compensation for the work we do.
When lenders create loans directly, that is
commonly called their retail operation. The
rates and fees that they charge are competitive
with what we charge as mortgage brokers. They
then pay their staff for the work that they
do for the lenders as employees.
So, you should find that the quotes you receive
from the lenders directly or through mortgage
brokers to be very similar. If that were not
the case, one or the other would not be able to
compete and would cease to be a player in the
mortgage market.
Based on our knowledge, experiences and resources,
we package your loan for presentation to the
lender. We do not have any direct ability to
approve your loan, but we are well-versed in the
guidelines for your loan request and can often
persuasively influence the underwriter to approve
your loan if there are differences of opinion.
The lender will approve the loan, draw the loan
documents, and fund the loan.
If we are unable to gain approval with Lender A,
we can take the same package that we have put
together and submit the request to Lenders B, C,
D, etc. if necessary to work toward approval.
Although it may be maddening at times to have
lenders give us so many different opinions and
viewpoints when it comes to getting your loan
approved, it is also the major advantage that I
have in helping you.
If every lender gave us the same answer at all
times, there would be no need to have multiple
sources with which to place your loan request.
So, having some lenders who will say "yes" when
others say "no" is actually a good thing, and
we do our best to find the "yes" lenders as
early in the process as possible.
If you were to apply through a lender's retail
operation, and they said "no", you would have
to generate a new loan request with another
lender. This would take significantly more time
and effort on your part, since you would have
to regenerate the loan application repetitively.
Also, you may have additional fees for duplicate
appraisals of the home since most retail lenders
do not find another lender's appraisals acceptable.
Being able to assist borrowers as a mortgage broker
is a very valuable resource for you. My experience,
my knowledge, and my ability to match your qualifi-
cations to the available loan products saves you
time and trouble at competitive rates and fees.
In addition to mortgage brokerage, I also have
the resources to offer mortgage banking.
Mortgage banking is distinct from mortgage broker-
age because the banking operation allows me to
have the loan underwritten, loan documents prepared,
and the funding of the loan all under the control
of our company.
In this case, we have a select number of lender
relationships, currently about 5-10, that are known
as correspondent lenders.
This means that our company has developed the trust
and the relationship with these lenders for us
to make the loan decision on behalf of the lender.
We have arranged for lines of credit to create
these loans - these are commonly known as warehouse
lines, because after the loan is funded they are
"warehoused" until the lender for whom we created
the loan purchases the loan from our company.
Being able to offer loans within a correspondent
lending relationship gives me the added ability
to have your file move more efficiently through
the process. I have more access to the underwriter,
the document preparation person and the funder of
the loan to try to facilitate special situations
or timing issues.
In today's lending environment, many companies that
were previously able to offer mortgage banking have
had to give it up because their warehouse lines of
credit have not been renewed. Being able to main-
tain these lines of credit requires frequent re-
qualification, and as the mortgage business hit
so many obstacles in the last couple of years,
a lot of companies could not maintain their quali-
fications.
When you are ready to take action to purchase a
home or refinance existing home loans, be sure to
check in with me. My many resources, access to
competitive lending programs, and my 31 years of
experience can be of tremendous benefit to you.
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