Lessons From Tiger Woods and Rocco Mediate

With the U. S. Open Golf Championship in San Diego
this past week, there were many stories about how
the golf course had been prepared to challenge the
golfers and to identify the champion.

Tiger Woods and Rocco Mediate battled over 91 holes
with Tiger persevering for the Championship. If you
follow sports at all, you now know that he was
competing with a torn ACL in his left knee, and had
two stress fractures in his tibia and played through
the pain to win.

The drama of the golf tournament provides an analogy
to the mortgage business in today's environment.

**The USGA took the Torrey Pines Golf Course from a
forgiving layout that allowed the players to achieve
low scores, and created a new layout that challenged
the players on every decision for every shot on every
hole.

Over the last year in the mortgage business we have
seen the underwriting standards go from a lenient
approach that allowed most borrowers to be approved
on their loan requests, to a restrictive environment
that challenges borrowers and mortgage originators to
strategize every step of the process.

Because the underwriting changes have "toughened up"
the course, borrowers and originators can no longer
only rely on techniques that worked in the past. A
fresh approach to the process is required: doing new
research of underwriting guidelines and changes,
talking with the lenders' representatives and our
peers about what tactics can be successful, and dev-
eloping a new experience base in this new lending
world.

**Rocco Mediate was quoted as saying that there were
many ways to be successful on the golf course. Even
though Tiger Woods was able to hit the ball farther
than Mediate, Rocco was still able to compete by
executing the shots in his arsenal extremely well.

When we consider that the goal for the borrower and the
originator is to have a lender approve the loan request
with acceptable terms and conditions, we must also
realize that there are many ways to accomplish this goal.

As a mortgage broker, we have access to over 50 lenders,
and they each compete in many categories of lending.
Some of these lenders may be more concerned with the
property, others less so. Some lenders may be more
concerned with credit histories, others less so. Some
lenders may be more concerned with the debt-to-income
analysis, others less so. Some lenders may be focusing
on the amount of money borrowers have in checking, savings,
investment and retirement funds, others less so.

A golfer is allowed 14 clubs in their bag to be used as
tools for different situations. An old saying is that if
your only tool is a hammer, you will treat everything like
a nail.

This is always what has differentiated us as mortgage
brokers from direct lenders. When you walk into a bank
branch, as an example, they will have a limited menu
of loan choices and they will try to fit you into one of
their loan products, whether it is the best thing for you
or not. If they are even aware of a better choice for you
that the bank does not offer, it would be the rare case
for them to recommend that you seek the better loan else-
where.

As a broker, we start with understanding your goals, your
risk tolerance, your time horizons, and your priorities.
We serve as an advocate for you to the lenders. Because
we have access to so many more lenders and lending programs
than the direct lender has, we do a better job of finding
custom solutions to fit your needs.

**Tiger Woods is probably the most gifted athlete of our
time when it comes to mental toughness. One of the traits
that is so admirable is that he focuses on what he needs
to do to get the ball into the hole from where the ball
lies, and does not carry a lot of mental baggage about the
quality of the last shot that put him into that position.

He understands that he may hit the "perfect" golf shot,
but the result may not be what he wanted. He can only
try to hit the next "perfect" shot to get him closer to
his goal.

In our business right now, we have to develop that same
mental toughness.

We can develop a game plan based on your priorities and
what is important to you. We can make sure that the lender
we have chosen offers the best program for you, and
research the guidelines to develop a sense of confidence
that your loan request is compatible with what they are
offering. We can strategize about the best way to package
your loan request to show all the favorable reasons why
the lender should approve it for you.

But we can't always know if we are going to get the
"bad bounce". The underwriter may have received a
directive that morning saying that guidelines were
tightening, and it may be something that specifically
applied to your request. All our best efforts to put
together the "perfect" package did not give us the
immediate result we wanted.

That's is where we need to focus on how to get the loan
request from where it now stands to an approved status.
It takes patience, research, knowledge, experience, and
the willingness not to give up when confronted with a
new obstacle that was not able to be anticipated.

When you pick the right person to work with, you know
that they are using their best efforts to help you get
what you want. Obstacles will arise, and it may put
our hearts in our throats, just like Tiger Woods faced
repeatedly.

We are measured by our honesty, integrity, communication
skills and our tenacity to do everything we possibly
can to achieve the final goal for you. We want to put
that Championship trophy on the shelf for you!

The Shape Of Things To Come?

As the ripples continue to extend from the "mortgage
meltdown", lenders, investors, rating agencies and
legislators are all trying to come up with solutions
so that this does not happen again.

The lenders, investors and rating agencies have all
become more conservative as a response to the bad
policies and judgments that had crept into their
systems.

These market forces are part of the ebb and flow of
business markets. When companies suffer losses, they
make changes to get healthy again and improve on their
products for the future.

As their balance sheets improve in the future, we can
fully expect them to become less conservative, but I
think that they have learned their lessons about letting
the pendulum swing too far toward the excesses that
they allowed in the past.

The legislature, however, will put new laws and new
restrictions in place that will not be as elastic. Once
these laws are established, it seems like they will never
be removed, only new layers will be added.

This will make the process more cumbersome, it will
institutionalize oversight that will add new
administrative costs to the process.

I am a firm believer that the bad characters need to
be removed from the system. There were many
mortgage lenders that abused their clients, took
advantage of the clients' lack of knowledge to unjustly
enrich themselves, and cared more about their welfare
that caring about matching suitable products to the
clients' needs.

The best way to get those unscrupulous mortgage
originators out of the business is to avoid them if
possible by doing your homework up front.

If you are in the middle of a transaction, give yourself
an exit strategy if you get bad feelings about how things
are going by having a backup lender in place.

And if you are forced to close your transaction because
of timing circumstances and you were taken advantage
of at the last minute, complain loudly and aggressively
until you get some satisfaction.

With that being said, let's take a look at what the
lawmakers have in mind for the future of the mortgage
business.

Senate Bill 2452, The Homeownership Preservation
and Protection Act, is designed to curb the predatory
lending that occurred with borrowers being placed in
less-favorable or most costly loans than the borrowers
were qualified for, and for fraud-related activity.

A couple of items in this bill may reach much farther
than the original intention.

The bill proposes to eliminate yield-spread premium
on the pricing of loans. You may recall from a few
newsletters ago, that yield spread premium is money
that a lender makes available in exchange for receiving
a higher-than-normal interest rate on a loan.

It is a tool that lenders and mortgage originators use
to offer no-point and no-closing-cost transactions for
borrowers. The borrower makes a choice to accept
slightly higher mortgage payments in exchange for
saving thousands of dollars in costs.

The reason this is proposed in the bill is because
the unscrupulous mortgage originators would charge
loan fees to the borrower, place the borrower in a
higher interest rate loan, and then accept the payment
from the lender for the yield spread premium. The
mortgage originator would make excessive income for
placing the borrower in a less favorable loan.

If the borrower is properly informed and they feel that
the value of the originator's expertise warranted the
income they earned, then that is a market force at
work, and no one is being treated unfairly.

However, if the borrower is in the dark about
competitive interest rates and fees, and they are taken
advantage of, that is a different story.

But, the problem is that the borrower has not done
their homework, researched loan options, and expanded
their search wide enough to know the range of options
that they should expect to hear. If they work with
one person, and don't have their paperwork reviewed by
a trusted advisor before they close, they are opening
up the possibility of being victimized.

The problem is not that yield spread premium could be
used in a loan transaction. And it seems that the
proposed legislation will be more restrictive without
really getting to the root of the problem.

Another provision of this bill are some proposed new
requirements for appraisers.

Part of this "mortgage meltdown" is that there was
conscious, systematic fraud exercised by some very
devious teams of real estate agents, title companies,
lenders, appraisers, notary persons, settlement
agents, buyers and sellers.

Appraisals were inflated to induce lenders to create
loans that were higher than the true value of the
property in some cases. Money was then distributed
to all the team members, and the lenders were stuck
with a property to foreclose upon that wasn't worth
what was owed against it.

The remedy should be to identify those appraisers,
prosecute them when possible, and get them out of
the business by rescinding their licenses otherwise.
There are plenty of laws on the books dealing with
real estate fraud.

The bill wants appraisers provide a bond for a
specified percentage of the appraised value of the
home. If there is an incident where the borrower
suffers a loss due to an inflated appraisal, and
in turn receives a financial settlement from the
lender, the lender can then use the bond that was
provided to offset some of that settlement cost.

What this means is that the appraisers will now have
a new cost of doing business to factor into their
fee structure.

I have been told by one appraiser that this would
double the cost of a residential appraisal, from
approximately $400 to $800 to be able to pay for
this new bond requirement.

So, in order to help protect borrowers from the bad
guys, new legislation will now throw a net over the
entire industry.

It will eliminate useful tools to provide choices to
the borrower, it will create new layers of oversight
and protections, and the costs will pass through to
the consumers.

It will make getting home loans a more ponderous
process (is that possible?) and more expensive.

Despite the best intentions of our lawmakers, we need
the emphasis to be on enforcement of existing statutes
and less on new legislation that throws the baby out
with the bathwater.

Your best protection, as always, is work with reputable
originators. Hold them accountable, make sure you
understand the paperwork, programs and fees, and you
will have as good an experience as possible going through
the mortgage process.

Great News For The Higher Limit Conforming Loans!

There have been some recent positive changes in the
FNMA and FHLMC higher limit conforming loans that
are in effect at least through December 31, 2008.

**The interest rates and fees for the loans between
$417,000 and $697,500 (in San Diego) are now much
closer to the traditional conforming rates and fees.

**There now is an option to refinance and take cashout
to a maximum of $100,000 (based on loan-to-value
guidelines). Initially, they would not allow this or
even allow the payoff of a second loan through a
refinance on this program.

**Loans can now go to 80% of the value of the property
in certain circumstances. At the beginning, 75% was
the maximum.

You may recall that when the Economic Stimulus Bill
first became law, FNMA and FHLMC had the ability to
purchase loans above the standard $417,000 limit for
a single-family property.

The maximum that went into effect was now $729,750,
based on a county's median home price. In San Diego,
the computation created a limit of $697,500.

The initial guidelines were very conservative. Since
FNMA and FHLMC were now taking on the risk of higher
loan amounts that the private sector used to absorb,
there was a reluctance to open the floodgates.

They have had a couple of months now to assess how well
their guidelines were working. I think it was fair to
say that because their guidelines were so restrictive
that they did not receive as many new loans as they
may have been anticipating.

There is no question that this element of the Stimulus
Bill failed to produce much stimulus.

With these new changes, however, many borrowers are now
going to get the opportunity to purchase homes with
significantly lower interest rates and fees.

Many borrowers are going to be able to refinance from
an adjustable rate loan to a fixed rate loan and have
predictable payments going forward.

Many borrowers will be able to refinance their loans
which were fixed for the first 3 or 5 years and not
have to face the resets of those loans to possible
higher interest rates or have them become adjustable
rates.

Many borrowers will now have a chance to improve the
terms of their loans, which started as jumbo loans,
by refinancing them to terms that are very close to the
traditional conforming rates and fees.

Now is the time to put a strategy in place. If you, (or
anyone you know), has a loan below $697,500 in San Diego,
investigate your possibilities. Rates may be attractive
enough right now to want to take action.

If rates are not quite where they need to be right now,
we can agree on a game plan going forward.

Remember, all we can count on right now is that these
temporary conforming limits will be in place through
the end of the year. There are no guarantees (or even
any indications at this time) that this time limit will
be extended.

We are finally getting to see some of the possibilities
promised by the Stimulus Bill. Don't procrastinate and
miss out on any opportunities that this may present.

The Top Four Factors In The Mortgage Process

In a survey conducted with mortgage borrowers, there were
four factors that were determined as the most important.

In order of importance, they were:

1. Communication
2. Integrity
3. A Smooth and Complete Process
4. Competitive Products and Rates

Let's take a look at each of these and how they fit
together to help you have the best possible experience
in obtaining your new home loan.


COMMUNICATION
It has often been said that most people can deal with
what needs to be done, if they are only told what the
rules are.

In the mortgage lending field, it is so important to know
what to expect, how the process works and the details of
the specific proposals that you are asked to consider.

Your mortgage originator should be able to tell you
the steps and timing of their application process. From the
initial interview or submission of the loan application,
you should understand the time line for obtaining the
credit report, appraisal, escrow and title paperwork,
verifications of income and asset and for the submission
of the loan file for approval.

From there, you should know the turn-around time on a
submitted file in the lender's underwriting process. If
the file has been put together well and is complete, there
should not be many conditions to be satisfied on the loan
approval prior to the lender preparing the final loan documents.

Once the loan documents are signed and returned
to the lender, you will need to know how long it takes for
the lender to do their final quality control and to authorize
the funding of the loan to complete the transaction.

In addition to these procedural and timing expectations, your
mortgage originator should also be able to explain how their
process ties together with the escrow company, the title
company, your home inspector and termite clearance, and the
appraiser.

They also need to be mindful of the specifics of your contract,
so that they can meet any deadlines that have been agreed
upon by you and the seller. In California, there is a common
clause in the contract that calls for the buyer to
remove their financing contingency within 17 days of the
seller's acceptance. It is imperative that you have a
mortgage originator who gets the paperwork started quickly,
who puts a quality loan package together and gets a loan
approval that has few conditions.

When you are asked to remove your financing contingency and
put your earnest money deposit at risk, you want to be as
sure as you possibly can that there is not something to
prevent you from obtaining your home loan.

And, of course, you need a mortgage originator who can
listen, who can understand what is important to you, who
understands your risk tolerances and time horizons, so that
the loan programs that are presented to you are suitable
matches for your qualifications and needs.

It takes an experienced professional to present options to
you that are clear and thorough. You want someone who can
speak in language that you understand and makes sure that
you are comfortable with the final recommendations. You
will also want to have someone who can point out the positives
of various loan programs, and any negatives as well, so that
you can make an informed decision.


INTEGRITY

There are so many opportunities in the mortgage industry
for a person of low integrity to make a handsome living
and not serve their clients well.

As we saw, above, a person who wants to distort some
timelines, some facts, some attributes of loan programs - and
we haven't yet talked about rates and fees - to draw a
borrower to them has plenty of chances.

The best advice I can give is modeled after Ronald Reagan's
statement of "Trust, but verify".

If a mortgage originator makes representations, find out
how you can get some additional information to support the
statements. You can request a copy of the credit report,
a confirmation from an escrow officer or appraiser that
things were done in the timely manner promised, or a copy
of the final loan approval that outlines all of the conditions
of the loan approval. There are ways that you
can be more assured that your loan request is on track to
be completed as proposed and in the time frame that you
expect.

In my opinion, integrity and communciation go hand-in-hand.
If you have your mortgage originator go through the steps
of the application process and the escrow process and the
details of the various mortgage programs, you will get an
excellent idea of the integrity of the person with whom
you are dealing.

If the mortgage originator is unskilled, they may honestly
answer "I don't know, but I will find out". If they try
to bluff their way through an answer, you will probably be
able to detect irregularities in what they have said, and
that may point to an integrity issue.

If you are trying to understand details and you keep getting
vague answers in return, that may also point to an integrity
issue. It may be an unwillingness to give you the correct
information that is not favorable to their outcome.

If you find that a particular loan program is being touted
that does not seem to be suitable to you, you need to
understand whether that is the only solution that they have.
If there are additional choices, the presentation of an
unsuitable product may point to an integrity issue.

In my opinion, the more transparent the mortgage originator
is regarding how the process works, how the programs work,
how much you are paying in fees and who receives those, and
the willingness to admit if you have better choices else-
where goes a long way to proving their integrity.

Be sure to ask around about the person you are working with,
or to ask for referrals and testimonials from happy clients
and real estate agents. A person who has been originating
loans for a long time, and who has happy repeat and referral
clients says a lot about them being a "straight shooter".


A SMOOTH AND COMPLETE PROCESS

We've already alluded to this, especially in the Communication
section, but a skilled mortgage originator knows how to put a
package together and how to anticipate foreseeable problems.

It all starts with the loan application and collection of
supporting paperwork. I still prefer to interview my clients
whenever possible, and meeting them in person is the best
way to get things started.

In an efficient one hour meeting we can go through the data
gathering and really probe as to what is important to my client.
Knowing this information allows me to brainstorm
solutions to their individual situation and to strategize
about making their home ownership dreams come true.

I have developed systems that allow me to make a comprehen-
sive request for supporting paperwork that fits their
profile. It could be paystubs, W-2 forms, tax returns,
bank statements, brokerage statements, retirement account
information, divorce or bankruptcy paperwork, or explanatory
letters regarding special situations. Getting all of this
information up-front, rather than going back repeatedly to
the borrower for yet another piece of paper, is integral
to a smooth process.

There are situations that arise that are not foreseeable,
and we all need to make allowances for that possibility.
This has been even more true in the last year as the
mortgage industry tries to get back to more conservative
underwriting of loan files. However, there are many
obstacles that need to be recognized and discussed and
strategized over.

A smooth process is also a result of knowledge, experience,
skill, communication and integrity.


COMPETITIVE PRODUCTS AND RATES

Interestingly, this is not at the top of the list.

I think it is interesting because so many borrowers call
up for information and the only thing that they are interested
in is "What are your rates?"

Accepting a direct answer to that question is naive on the
borrower's part. There are so many factors that go into
determining the right program for a borrower, and the
interest rate and fees to be quoted, that the information
provided is not appropriate or possibly a deliberate lie.

In order to do a good job for our clients, and to treat
them properly, we need to remember an old adage: Prescription
without diagnosis is malpractice. Simply put, if we don't
ask the proper questions and just offer a "one size fits all"
solution, we are not doing the best thing for our clients.

We should know if the new property is going to be their
home and how long they intend to own it.

Are they salaried or self-employed?

Do they qualify by proving all of their income, or do we need
to consider stated-income alternatives?

What are the credit scores?
What is the purchase price, how much down payment, and is any
of it coming from a gift?

In addition to the new housing debts, how much do they owe in
other obligations?

These are some of the questions that are important to know
the answers to so that a proper loan program and accurate
interest rate and fee quote can be presented.

I know that I have lost the opportunity to help a lot of borrowers
because when they shop rates and fees only, the
person that tells them the lowest numbers will get the
opportunity to do the business.

The mortgage originators who deliberately deceive a borrower
to get the loan application process started with them know
that there will be a point where the borrower will continue
with them despite what the final terms are. And the final
terms are almost never the low quoted rates produced at the
beginning.

The pain of starting a new application process with someone
new and the time that it takes will jeopardize most purchase
transactions. And the deceptive originators know this. And
the borrowers usually fold. And the borrowers develop the
thought that all mortgage originators are the same, so what
difference does it make?

Nothing could be further from the truth.

The survey answers provide a solid basis for anyone shopping
for a new home loan.

The progams and rates need to be competitive, but they will
rarely be the lowest. Getting the lowest rates is more good
fortune that by scientific design.

If the process is not smooth and complete, it will leave you
with a bad feeling- possibly forever.

If you are working with someone without integrity, there is
no basis for anything else working well.

And if communication is poor or non-existent, you can expect
nothing but problems in all areas of the transaction.

Getting a home loan is a big decision. You have a lot to
lose if you don't try to maximize these four factors when
you decide with whom you want to work.

YSP - Why Is it Important In The Mortgage Process?

YSP is an abbreviation for Yield Spread Premium. Like most
"verbal shorthand" that is industry shop talk, it's not immediately
obvious what is stands for, or why you would care.

Let me take a moment to set a foundation regarding mortgage
rate and fee pricing.

Lenders will typically offer interest rates that cover a range of
roughly one to two percent. For example, in today's market,
lenders may have quotes in 1/8% increments from 5.5% to
7.25%.

So, if lenders are offering 5.5% and 7.25% loans, why would
anyone ever take a 7.25% interest rate?

Lenders (and investors) want to achieve a particular yield or
rate of return on putting their money to work. In order to
achieve this yield they may charge loan points with the lower
interest rates (discount points) or credit loan points with the
higher interest rates (rebate or yield spread premium). As
a reminder, one loan point equals one percent of the loan
amount paid as a fee.

Here's an easy way to think of this: If the lender get something
of lesser value (a lower interest rate) they will charge fees to
increase the value. If the lender gets something of higher value
(a higher interest rate) they give something back to create a yield
equivalency.

A rough rule of thumb for a 30-year fixed rate loan is that a
1/8% change in interest rate corresponds to a 1/2 point change
in loan fee. So if you want an interest rate that is 1/4% lower,
it would cost you approximately one point in loan fee. This
gets a little distorted as you move away from the center range,
like a bell curve.

If the borrower accepts a higher interest rate, there could
be surplus YSP over and above the origination fee that could
be applied toward the borrower's closing costs.

This would be the major reason why someone would take a
higher-than-normal interest rate - to have the lender pay most
or all of their other closing costs.

The most common use of yield spread premium as a loan
pricing tool is to offer borrowers a "no-point" loan. If we
assume that the typical loan origination fee is approximately
one point, then the borrower would accept an interest rate
about 1/4% higher in order to have the lender pay the origination
fee. The other choice would be to accept a lower interest rate
and then the borrower would pay the origination fee as part of
their closing costs.

As a result of the "subprime crisis" mortgage meltdown, there
is a lot of discussion about the abuses of the yield spread
premium in the mortgage community, and how borrowers have
been taken advantage of by greedy mortgage originators. The
most common discussion point is that borrowers were put
into loans at higher interest rates than those for which they
qualified.

A borrower could have been victimized if they were poorly
counseled, lied to, or failed to shop around to know what was
available in the market. Their loan could have been created
at an interest rate that paid a yield spread premium to the
originator and the borrower may have paid loan points as
well.

If the compensation received by the originator was
excessive for the service they provided, then the borrower
did pay too much (in interest rate and/or fees) for their loan.
This would be especially true if the borrower did not under-
stand how much they were paying, or did not shop around
enough to understand what the prevailing interest rates
were.

The responsible use of yield spread premium is to clearly
disclose options to the borrower, and to have the compen-
sation received by the originator be fair in the marketplace
for the service provided.

There are proposals coming from government to eliminate
YSP's because some originators have been unfairly enriched
by using them. But if these proposals succeed, then borrowers
will not be able to negotiate "no point" or "no closing cost" loans.

This would create an increased burden on a borrower who
is strapped for cash to pay these fees, or who is refinancing
a loan that is at the maximum loan in relation to the value of
the property who cannot increase the loan amount to cover
the fees.

The more loan programs and tools that we have to create
customized solutions for a borrower is a good thing. It is
our responsibility at originators and the borrower's respons-
ibility as consumers to have all the important facts, all the
costs, the risk tolerances, time horizons, goals and priorities
identified and discussed as we work together.

Closing Costs -Fair or Excessive?

You are ready to buy your home. You've saved for the
down payment and you know that you have to have some
money left over for reserves. You also know that there
will be some costs for various services to support your
transaction.

Then you are presented with a long list of fees and
charges. You don't know if they are necessary. You don't
know if they are reasonable. They are confusing and
mysterious and unclear.

Even after you are able to determine that the charges
are acceptable, you still want to be as sure as possible
that you won't be presented with additional charges just
prior to close of escrow.

The best way to assure yourself of this is to work with
someone you trust. You should actively seek referrals from
others who have gone through the mortgage process recently
and from your real estate agent.

Despite the press coverage of the unhealthy relationships
between unethical real estate agents and unscrupulous mort-
gage originators, the vast majority of real estate agents
are interested only in successful closings with the buyer
being well-served with honest dealings, competitive loan
terms and no-nonsense communication.

The professional real estate agents will know the mortgage
originators who are able to deliver quality service.

When you interview your prospective mortgage originator,
prepare some tough, direct questions for them. Assess
how they answer the question. If they are evasive, you may
find that you have someone who is unknowledgeable or
worse, someone who is deceptive.

You should be looking for someone who is transparent
about the process and who isn't defensive or evasive.
Clear communication should be an item high on your list.

The lenders are required to send you a "Good Faith Estimate"
of closing costs shortly after you submit a loan application.

It will include charges that are called recurring closing costs
that will include pro-rated interest on the new loan, pro-rated
property taxes, property insurance costs and the premium
for private mortgage insurance if required. If you have an
impound account for collection of taxes and insurance as
part of the monthly payments, your initial deposit to create
that account will also be shown.

A list of transactional costs, or non-recurring closing costs
will include loan points for discount and origination, escrow
fees, title charges, appraisal fee, credit report cost, loan
processing fees, underwriting charges, document prep-
aration fees, bank wire charges, courier fees, a charge
for notary/document sign-up and a few others.

When you receive this Good Faith Estimate, you should
review it right away. If you have questions or concerns,
contact your mortgage originator. They should be able to
answer your questions about the lender-related charges
at least. If they are experienced, they should be able to
give you a good overview of all the items on the Estimate,
the services that are being provided and an explanation
as to why they are necessary. Or, they should be able to
direct you to the appropriate escrow and title persons to
speak for their portion of the charges.

Once you have a clear idea of what to expect, let your
mortgage originator know that you expect to be informed
about any significant changes to the Estimate as soon
as they know. You can determine for your own purposes
what is significant, but make it clear to them what your
expectations are.

The escrow company will be pulling together figures from
all of the service providers as they approach the closing
date. You will be presented with a "Borrower's Estimated
Closing Statement" so that you know how much money
you need to bring in to close the transaction. Your escrow
officer can also tell you if the charges that are presented
are common for most lenders.

You will want to compare this to your Good Faith Estimate
to see how close the numbers are. If there are new line
items or if significant changes are now appearing, you will
want to contact your mortgage originator for explanation.

There are times when unforeseeable events occur that
affect closing costs. Contact your real estate agent as well
to determine that the new item was truly warranted
and unexpected. If it was foreseeable, or if the estimates
are not close, hold your mortgage originator accountable.

After all, they are the ones that deal with this every day and
they should be giving you a fair estimate at the beginning.

You do not want to have a request for additional money
to close presented to you just prior to your close of escrow.

If you follow this plan, you should be able to feel confident
that you have done everything you can to be prepared for
the closing. You will have a good idea of what to expect,
have a plan for being kept informed, been clear with your
originator that you will not tolerate significant inaccuracies,
and have found someone that you are comfortable with.

Update To The FNMA Higher Limit Conforming Loans

The initial program guidelines have been published for the
new "Conforming Jumbo" loans that FNMA will purchase above
the traditional $417,000 conforming limit and the new,
temporary San Diego limit of $697,500.

Here is a summary of some of the program parameters:

*Maximum Loan Amount: $729,750. San Diego's is $697,500.

*Loan Programs will include 15-year and 30-year fixed rate
loans and 5/1 ARMs (30-year loans fixed for the first five
years). The 5/1 ARMs will allow for interest-only payments
in the first 10 years.

*These loans must be originated by 12/31/2008 under the
current regulation. There is always a chance that Congress
may extend the time period, but there are no proposals to do
so at this time.

*Purchase loans can go as high as 90% Loan-to-Value (LTV) on
a primary residence. Up to 80% LTV requires a credit score
of 660 or higher, between 80%-90% requires a credit score of
700 or higher.

*Purchase loans on second homes or investor properties can be
included up to a 60% LTV maximum with a 660 or higher credit
score.

*Refinances can go to 75% LTV with a credit score of 660 or
higher on primary residences. They will not allow cash-out to
the borrower. Also, consolidation of any second loans into
the new first loan is not allowed. We would have to have the
existing second lender agree to subordinate their loan to
a second position behind the new loan, meaning that the
borrower will have a new first loan and the same second loan
after the refinance.

*Borrowers cannot have any late payments on their existing
mortgage in the last 12 months.

*All loan packages must be full documentation providing proof
of sufficient income and assets to qualify. "Stated income"loans
are not available.

*Property types can include single-family homes, planned unit
development units and condominium units that meet condo
guidelines.

When the announcement was made that FNMA was expanding their
loan purchase amounts as part of the Stimulus Package, we
were all hoping that many of the loans between $417,000 and
$697,500 would be able to improve their situation with tradtional
conforming interest rates and fees.

We are finding that the rates for these "Conforming Jumbo"loans
are being priced higher than the conforming loans, but
not nearly as high as the jumbo loans have risen.

Before the Subprime Crisis and the lack of performance of the
mortgage pools that investors had purchased, the spread
between conforming loans and jumbo loans was only about
.25% to .50%. In other words, if conforming loans were 5.5%,
jumbos were about 6.0%.

Because the investors have no confidence in the quality of
the mortgages that they are purchasing, the spread now between
conforming and jumbo loans has been about 2.0% to 2.5%.

Based on today's pricing with one of our major lenders, conforming
loans were at 5.625%, conforming jumbos were at
6.5% and jumbo loans were at 8.125%. All of these were with
a loan fee of one point.

We are fully expecting some of these guidelines to change
as the lenders/invetors discover the level of risk that they
are willing to accept. If they get too many requests in a
particular category, we may find that they cut back. If they
find that response is less than expected, they may loosen up
the guidelines to accommodate more borrowers.

If you are one of the borrowers that fall in the new loan
limit category, or if you know of others that need to find
out what they can do, please get in touch with me. It is
important to take a look at every request individually and
to research it in light of the current guidelines (and as
they may change from time to time).

That is the only way to make sure that we are not making
assumptions that may cost you the opportunity to improve
your situation.