Mortgage Loan Facts

Home Affordable Refinance Program Update 11/15/11

2011-11-17T12:31:00.001-06:00

The Federal Housing Finance Agency (FHFA) has announced the extension of the Home Affordable Refinance Program (HARP) until December 31, 2013; therefore any loan originated on or before this date in the Refi Plus program is eligible for these new features.

The FHFA has also made changes to the Home Affordable Refinance Program (HARP) in an optimistic attempt to attract more qualified borrowers who can benefit from refinancing their mortgage loans. In these efforts Fannie Mae will make changes to their program with Freddie Mac following.

Changes to the program:

Fannie Mae will now make loan to values secured by fixed rate mortgages with a term to 30 years. This will include those loans with terms of 15 years and were previously restricted to 105% loan to value. There will not be a limit to the combined loan to value (CLTV); first mortgage and second, if applicable or home equity line total value ratio, (HCLTV).

Maximum LTV ratio limits for all occupancy and property types

there will be no maximum loan to value ratio for fixed-rate mortgages with a term up to 30 years,
105% loan to value for fixed-rate loans with terms greater than 30 years and up to 40 years, and
ARM loans with initial fixed periods greater than or up to 5 years and terms up to 40 years; will have a maximum limitation of 105% also. (when the loan program permits)

This program will begin with applications taken on or after December 1, 2011.

Current Mortgage Payment History:

the borrower cannot have any mortgage delinquency on the existing mortgage in the most recent 6 month period. No more than one (1) 30 day late payment in the months seven (7) through twelve (12).

Qualifications:

the middle (representative) credit score can be no lower than 620
maximum DTI (debt to income) ratio of 45%
income verified per policies already in place
assets to close (if applicable) will be verified as normal policy

Bankruptcy/Foreclosure:

Fannie Mae has announced that they are not restricting the borrowers on the new loan to meet the standard waiting period and re-establishment of credit criteria for bankruptcy and foreclosure. They have also removed the same guideline and requirement on bankruptcy and foreclosure for the original loan in effect at the time the loan was originated. Please remember that you must qualify in all aspects other than this for the Home Affordable Refinance Program.

As always it is necessary the you; the borrower receive a benefit from the transaction to qualify for the Refi Plus; Home Affordable Refinance.

This can be done by reducing the monthly payment, principal and interest
changing the program from an ARM to a fixed rate
reduction of interest rate or
a reduction in the loan term, ie: (30 to 20) (20 to 15)

Again, please note that sometimes the lender may have a credit score limitation that FNMA does not have but normally if it fits Fannie or Freddie guidelines and in acceptable to the Home Affordable Refinance Program (HARP) there should be no problems. As always these is a synopsis of the changes and there could be other criteria not mentioned here that applies to the lender or Home Affordable Refinance Program.

Mortgage News

2011-10-22T15:04:00.001-05:00

Well, I am back after a hiatus from writing and I am here today to voice my thoughts on all of the Mortgage News Now. I have made a new website and I am geared up to keep everyone posted on not only the Mortgage Facts U Need, but other things I enjoy writing about also. Mortgage changes are symbolic of the economy, ever changing from one day until the next and hopefully I can give some of the most important mortgage news that will benefit your needs.

Interest Rates in Mortgage News

Yes, the mortgage rates are low, running about 4.000 % +- an .125, .375; here and there. Yes it is important to watch the rates if you need to refinance you current mortgage loan, and if you can drop your rate by a significant 2 percentage points. I know, I am old fashioned, but you will not know the difference (hardly) if you can't drop your rate by at least 2.000%. You can merely pay a small additional principal to each payment you are making and it will be the same difference. In fact, you are doing yourself an injustice if you do. Okay, I know that you want better mortgage news than this because you want to save every dime you can as the economy seems to be getting worse; not better. This mortgage news will tell you exactly how you can skip the refinance (if you can't drop by 2 points) and save money. That is actually what we are after, right?

Saving money without the refinance:

If you have a rate of only 5.50% and you can get the rate of 4.000%; why would you pay three (3) % closing cost on, let's say $351K just to change your rate no more than 1.50%. Unless of course you are fortunae to have a hunk of money to either pay out of your pocket or add back to your principal balance. Why, my friend would you want to do that?

Let's say your current mortgage was $353,400 principal balance when you last refinanced. Your payment for 30 years on $353,400 would have been $2006.57 principal and interest per month. If you decided to refinance now at 4.000+-, and if you have paid $17870 on the principal in 42 months the new balance would be $335,529 and you new payment would be; $1601.87, a difference of $404.70. This sounds like a lot of money to save and it is, but you have forgotten about the 2.50 to 3.000% closing cost that you will have to either pay out of pocket, or add back to the loan. (If your appraisal dictates the value needed to add back the closing cost). If you add back the closing cost to current principal balance; $335,529 + 2.75% (being conserative) = $344,756, decreasing your equity position by $9,226. That is of course if you reamortized the loan over 30 years again. If you changed the term to a 20 or 15, your payment will be higher of course but you will save interest and payoff earlier. It will take you a 18 months to regain your equity position of 335,556.94. Oh boy; the originators will hate me for this, but it is something one needs to think about really hard and see how they can save money without refinancing.

How you can actually accomplish about the same thing without paying more closing cost..or adding it to the principal of your loan:

If you have money to burn; take the closing cost and pay down your principal and you have automatically decreased your 30 year mortgage by 20 months almost 2 years, instead of adding back years.
Take the money and just pay an additional 100 dollars a month. You are still increasng your equity position and you will pay off you mortgage early. The more principal balance you pay; the quicker you will pay off your mortgage loan. Be it $25, 50 etc.
You can also amortize you balance for a 20 year payout or 15 year payout and pay that amount each month and this will benefit you as much as the refinance. You are using your own money to pay down your mortgage without paying the additional closing cost that you would have had to pay the mortgage company up front...if you did the new refinance. This latter of course will be the best most beneficial in terms of paying off more quickly.

Mortgage News in General:

Some of the larger mortgage companies are still have foreclosure troubles and bouncing back after the fall. Bank of America is no longer doing business in wholesale. I still say that the banks did not cause the breakdown in mortgage lending. It started at the top and flowed down to the rest of the mortgage industry. If the GSEs has not followed suite with the SubPrime lending business....life would not have been as we see it now. In fact; if congress had not decided that "everybody deserves a home" (at all cost and they do, but not all cannot afford a home); which began the SubPrime lending, then we definitely would not be where we are today. Little good does it do to try and place blame so we just have to accept things as they are and the consequencies of the behaviors. A lot of people made a lot of money without any quilt.

New disclosures are still in the developing process but samples do indicate that they are to implement more transparency and simpleness. This includes the good faith estimate (GFE), truth in lending (TIL) statement and the closing statement (final HUD1). Of course now the regulatory agencies are making sure all things mortgage will benefit the applicants more than ever. My question is where were they in the early 2000's and up?

The mortgage news for the big banks is that they have reported some increased earnings, but stocks have taken a hit for their other losses such as foreclosures or repurchases. Bank of America announced $6.3 billion of new income for the third quarter. This is an increase from a $7.3 billion loss one year ago. Wells Fargo also had about $89 billion of residential loans in the third quarter, but that does not help as they increased their repurchase division by 61%. Citi reported an increase of about 50% in residential loans the 3rd quarter and Goldman Sachs reported a loss for the third quarter. The latter was only the 2nd loss that Goldman had reported since 1999.

Hopefully we can keep you up to date on the major news in mortgage lending and mortgage news worth reporting but always looking out to save you money and give you some hints you might not have thought of.

references: mortgage news daily & mortgage loan facts-u-need.

HAMP -Home Affordable Modification Program

2011-09-20T14:27:00.000-05:00

The best helpful advice for a Home Affordable Modification Program that can be given is not to expect too much, too fast. It isn't going to happen in 30 days and not likely 90 days. It is a very long process and if you make a few mistakes about your financial position; you could be denied before you are approved.

That said; I will explain. If you have lost your job, have no income, or very little income but expect to have some kind of compensation within the near future (before the mod is approved), and you are the only individual on the loan; (signed the note) do not, tell them your spouse's income if they are not on the loan. If you do, and you start receiving income again; you might not qualify for the modification should you get another job or have income coming in such as retirement, Social Security, part-time employment, or whatever the case may be. If you ever disclose another person's income living in your home, they will use the other person's income throughout the process and it could make your housing ratio sufficient to repay the current mortgage housing payment that you have been struggling to pay or 31% or less. Meaning you could not qualify in as little as one step of the Home Affordable Modification guidelines.

If you have no income coming in and do not see it in the near future; then I guess you have no other choice but to disclose spousal income. Just be sure you will not have income in the near future yourself or know that it will not be sufficient to make your housing ratio 31% and below. Meaning the mortgage payment; principal, interest plus, taxes, insurance, mortgage insurance (if applicable), and homeowners association fee (if applicable) divided by your gross income does not equal 31% or lower. Your housing ratio must be over 31% to qualify for a Home Affordable Modification, using all income that has been disclosed, regardless of who's income you have used when you did not have any income or very little. They will not just use your income at a latter date even though you are the only individual on the loan. These are facts that individuals have experienced trying to get the Home Affordable Modification Program.

This is not standard underwriting guidelines. Most people know that only the borrower's income is used in typical housing and total debt ratios, but in this modification program, they will use any income of person's not on the loan that reside in the home for qualifying purposes in the Home Affordable Modification Program.

Other useful tips regarding the Home Affordable Modification Program:

It doesn't matter that you have car insurance, groceries, child care, gasoline, utilities. These are not considered in ratios, but they do exist and can keep you from having sufficient income to pay a mortgage payment is less than 31%. It doesn't matter with the Servicing Lender...
Yes, they do want a budget, financial statement or outline of your debts, expenses and income.
They want 60 days of bank statements.
They need 30 days of current paystubs or income evidence and sometimes more.
They will request 2 years 1040's, personal tax returns.

If you have been struggling trying to get a Home Affordable Modification and keep getting denied, from one reason or the other, make sure you have read all updated guidelines. Your lender will still use any and all income that has been disclosed to them initially; regardless of whether that income comes from a person who has signed the note being responsible for the mortgage repayment or not.

Home Affordable Modification guidelines do not post every little detail and that is why I have posted this for my readers.

Simplifying Disclosures for Mortgage Loans

2011-07-20T22:45:00.000-05:00

Most mortgage professionals know that the latter Good Faith Estimate, (GFE) Truth in Lending (TIL) and the revised HUD1 – Settlement Statement did not bring closure to transparency or clearly being able to understand all the fees associated with mortgage loans. Simplifying disclosures are like any other thing in life. What might be simple for one just might not be so simple for another. The terms and explanations sometimes used bring more confusion and misunderstandings if one is not in the mortgage business or has not studied up on the mortgage process. Yes it is the originator’s responsibility to explain all things mortgage, but as always with anything, there is only so much time that can be spent explaining things; right? Well, maybe not, but that is how it is. So, to simply say we have simplified mortgage disclosures to make it easier for the consumer is not as simple as we would like and since there are many different interpretations of what simple is.

Actually the latter disclosures were more confusion for some than the one page, legal size which was replaced. It was simply because there were three pages of bunch of mumble-jumble, with a lot of lumping all of the origination fees together. For instance; page 2 number 1 said: Our Origination Charge –This is the charge for getting this loan for you. Number 2 included any points for adjustments for the rate. So many people need this broken down into more simple terms. For instance….instead of the charge for this interest rate is included in our origination charge. Most would think this charge would be spelled out like it was on the old GFE.

The most recent form was too lengthy with too much information at some points but too little clarification of all the cost involved and especially if the loan was originated by a Broker office and not the lender who is providing the financing.

Elizabeth Warren, advisor to the Secretary of the Treasury for the Consumer Bureau has stated that, “A simple, straightforward and consistent presentation of a credit agreement is the best way to level the playing field for consumers and lenders, and among different types of lenders, and foster honest competition.”

On May 18^th, 2011, the Consumer Financial Protection (CFPB) rendered their first revised version of a simplified home loan disclosure by combining the Good Faith Estimate and the Truth in Lending forms. At that time they requested feedback for these form to make sure they knew how mortgage professionals agreed or disagree with its components and layout. They received thousands of comments and suggestions which brought about a second version which was released somewhere around June 29^th, 2011. The latest revisions and samples are ready for review for professionals from Consumer Finance to see if these documents meet the need of transparency.

The forms in question are of course mandated by the Real Estate Settlement and Procedure Act (RESPA) and the TILA (Truth in Lending Act). Comments were requested for the latest version, but due to the July 4^th holiday weekend; turned out to get minimal results. The Mortgage Bankers Association (MBA) has indicated that the Industry needs more clarification to these mortgage loan disclosures and explanations which should be geared to meet and adhere to RESPA rules. MBA wants to have a sit down meeting with Elizabeth Warren; Secretary to the President and Special Advisor to Treasury Secretary, and said that insufficient time had not been spent for comments for the second disclosures. The MBA also dictated that though the form were improved; the closing cost needed a bit more fix as they were inconsistent with RESPA rules and regulations.

Risk Retention-Qualified Residential Mortgages

2011-05-30T12:14:00.004-05:00

Most have heard or read that something new was coming regarding Risk Retention and what will be identified as Qualified Residential Mortgages (QRM). Quite simply; a 20% down payment is the first step toward having a QRM for the lender to be exempt from retaining a 5% balance of the loan for Risk Retention purposes.

The Risk Retention - Qualified Residential Mortgage rules implied by the Dodd-Frank bill eliminate loans guaranteed by FHA, VA, and USDA (United States Department of Agriculture). This means that these entities of government loans will not retain any percentage of the loan balance or have the implied rules regarding ratio and other criteria. Fannie Mae and Freddie Mac are also release from the potential of risk retention regulations for now. Of course, if and when they are released from conservator-ship the exempt status will again be re-evaluated.

The standards in tact at this writing for mortgage loans to be qualified as a QRM:

Purchase:

20% or more down payment
DTI (debt to income ratios) must be 28% housing ratio and 36% total debt to income or less
High standard for documentation; no loopholes
Past performance on mortgage, rent and other debts with no 60 day late payment within the previous 24 month period
Payment shock
loan to value
income stability and the potential for increased earnings

Refinance:

Maximum combined LTV 75% -Rate/Term
Maximum 70% for Cash Out Refi
With all other qualifying criteria met

Qualified Residential Mortgages will not include any loans which have risk potential which means those which have interest only payments, payment shock, the ability for negative amortization, or any situation which might present a future difficulty of the borrower making the payments. Adjustable Rate Mortgages have not been named at this time but could in all actuality become a problem for future payments if the borrower is not qualified at the adjusted rate of the loan.

The FDIC along with other regulatory agencies to include The Office of the Comptroller of Currency, Teasurer, Board of Governors of the Federal System, U. S. Securities and Exchange Commission, Federal Housing Finance Agency (FHFA) and HUD are the agencies who released the standards for the QRM. Therefore great thought has gone into exactly what is needed to reduce the risk of mortgage loans.

FDIC stated that one of the reason for the vast housing bubble was the fact that the Alt A and SubPrime loans were actually sold to private investors without any risk retention for default. During the years of 2005 and 2006 these loans were made in excess without regard to down payment, DTI ratios and money for closing cost. As we have discussed previously; almost anyone could obtain a mortgage regardless of their credit situation, assets or true ability to make the payments. There were many mortgage options which were hard to understand for the layman and borrowers did not know what the risk were for some products.

The regulators realize that most moderate to low income individuals cannot afford a 20% down payment; therefore they will have options to go to FHA, VA and the USDA route; if they qualify in all other areas. This actually was the purpose of FHA originally and VA was to support the housing interest of veterans.

The FDIC also implies that this is to regain confidence by investors for securitization within mortgage lending as the down fall occurred greatly with the investors being without any potential to save the mortgages which went into default...especially with the vast number of risky loans which were made. Securitization frees up more money for the lenders to make more loans.

Summary:

This ruling is to try to provide stability within mortgage lending again. It is to ensure Banks, mortgage companies and brokers provide quality loans in all areas of origination and that the Risk Potential is less.
This rule, and/or format does not leave out those who are lacking in maybe one area of qualification, and those who have otherwise strong potential for making their mortgage payments in a timely manner as we have already stated. There will always be another option for these perspective applicants. This Risk Retention for Qualified Residential Mortgage guidelines; per this writer is in the best interest to rebuild the lending industry by making everyone liable for those loans which do present a less than favorable outcome.

Risk Retention Rules

2011-03-29T13:24:00.000-05:00

Mortgage Finance- Pending Risk Retention Rules

It has been in all conversations since the mortgage meltdown that someone, somewhere should have been made more responsible with the origination of mortgage loans. I think we all agree that yes, there should have been more advanced scrutiny for the originating lender or originator of the loan, which included the vast number of SubPrime lenders and the investors who bought these loan, those Wall Street Investors and buyers. Instead of course, Fannie and Freddie decided they would join in and wanted to take a piece of the risky loans also, or should we say the $ of profit from higher interest rate mortgages which were risky to begin with. I could go back a few years and tell you exactly what some of these risky loans were but you can review yourself. Of course we know that instead of accountability; there was a flux of guidelines which helped the agencies to profit like the 'bad' guys who took the heat. Oh, let's not leave out FHA. They also changed some of their guidelines. That is facts not fiction.

That said there is a Dodd-Frank bill that is to be implemented and is being reviewed and certain explanations identified for what a 'Qualified Residential Mortgage' is. This Risk Retention bill contains provisions for every mortgage lender who makes mortgage loans more liable as they will retain at least 5 percent share of liability for the mortgage loan they have originated. This is in hopes to generate some stability to the market as this will definitely cause more audits, enforcing of guidelines and impending accountability.

FDIC is meeting today to set their standard of the phrase and it is assumed the other agencies such as The Commission, Secretary of Housing and Urban Development and the Director of the Federal Housing Finance Agencies will follow.

These agencies are actually those agencies which regulate the banks, and financial sectors who make mortgage loans. But, as always in the nation's housing system; there will be exemptions. There always is. With the FDIC set to vote and clarify today, the rule for exemptions for Risk Retention Rules and exactly what a 'Qualified Residential Mortgage' is. There are also hearings about the future of housing going on at Capitol Hill. Most of American's are saying it is about time as we have been into this process way to long now and stability for the housing industry nor the economy has taken place. Of course the banks have more portfolio than their share to get rid of since the HAMP Modification has not been a huge success.

Reports are that Mortgage Banker Association has released some documents for lawmakers which they warrant will also help (or should) with policy making and the stabilization of the housing market. The MBA is arguing that even though private capital should dominate the source of housing credit; the government role is a necessity and that all decisions should be made very carefully. This follows the news that the government is relinquishing their role in homeownership within a certain time and that Fannie and Freddie 'may' go away.

MBA sights that there should still be some foreseeable government role to ensure investor confidence, liquidity and stability to homeownership and rental housing. This would mean of course that there would have to be private investors (not Fannie and Freddie) who would furnish the money to reimburse the mortgage originators so they could have more capital to make additional loans; which of course is risky within itself.

The facts are that without a government role other than FHA, VA, USDA the other sector of loans; what we call conventional lending will be somewhat handy capped when private investors take over, completely. It is the opinion of this writer that the private sector of investors is initially really what caused the financial crisis in the first place; meaning Wall Street Investors such as AIG, Salomon Brothers, Lehman Brothers, and Bear Stearns which sold to J P Morgan Chase because it could not be save. We know that some of these took the American people's money as they were too big to fail. So we wait to hear the final ruling on the governments role in the housing industry as well as who will be exempt from the Risk Retention Rules.

Mortgage News

2011-02-01T12:12:00.000-06:00

We are always looking for something good to report about Mortgage Lending because of course; we have heard so much bad Mortgage News. It is either that all of the banks are doing nothing but get our money, without regulations and the people who take mortgage applications are all crooks.

Well, actually neither of the above are true. the banks are not out just to get our money and not all loan originators/loan officers were crooks and there has always been rules and regulations. Lots and lots of rules and regulations; especially FHA and VA.

The rise and fall of the home-loan industry was due to loose guidelines; therefore re-structuring is essential to get back at least stability within lending and if possible; what we have lost.

That said, The Mortgage Standard reported that Federal Housing Commissioner (FHA), David Steven in a New England Convention; gave a speech and his one sentence that stood out to me was this: "the reining in the home-loan industry is a natural outcome of taking down the entire United States economy."

Truer words could not have been spoken, we will all agree to that. He went on to say that "the home-loan industry needs to support the change that is being implemented by the SAFE Mortgage Lending Act and the Real Estate Procedure Act as a form of self-preservation." He also added; "it is time for us to reinvent our industry." I doubt that few disagree other than those who feel their pocketbooks squeezed by the Loan Officer compensation makeover and possibly those in the Real Estate Industry who have already begun the debate the underwriting guidelines are too touch.

The report mentioned by the Mortgage Standard also stated that the mortgage industry lost $6 Trillion in equity. In the meeting the Commissioner report that in Connecticut alone where there had been 20,000 mortgage brokers there were now only about 3,800. If that doesn't tell us a lot; what will?

It is time for change and people are always objective to change; in almost every part of life. It is unfamiliar and it may cause us a little pain. We know that the main reason for the fall was due to the loose guidelines and regulations to begin with and if the Subprime loans had not been in operation; the mortgage meltdown-mess (some call it) would not be in this predicament. The aforementioned was also similarly said by the same FHA Officer.

The licensing of all loan officers, account executives, and loan representatives will help in some circumstances as far as making sure they people who originate loans, at least have been through some type of study and not someone just off the street to pick up the compensation. The Broker office has always had licensing procedures but the guidelines were flexible. Banks did not have to get individual license but now they will.

The compensation of originators will in fact, weed out those who were looking to make the big bucks, and make all proceeds transparent, which is for the better. Not everyone will be happy, but that is part of life. Everyone made big, big bucks during the Subprime err and that is why so many fell apart when the bigger Subprime lenders started collapsing. It brought down the Brokers who were not prepared for the changes and who did not have the sufficient "good" relationships with the Prime lenders to continue originating loans.

Subprime lenders could also make Prime loans (A paper) loans if approved with a Prime Conventional Lender. At one point Subprime loans were considered B,C,D and etc. and of course the good loans sold to Fannie Mae and Freddie were called Prime or A paper.

Something most people do not realize is that a lot of people with decent and even good credit went to the Subprime lenders before and after Fannie and Freddie relaxed their guidelines. Why? It was because the guidelines were less restrictive regarding seller paid concessions, no mortgage insurance for loan to values greater than 80 % in most cases and loan to values. EVERYBODY was out to get the largest house in the neighborhood, with the highest loan to value and will as little money down as possible, with the seller paying up to 6% closing cost; thinking there would never be a payday.... Unlucky for them; it was a payday because they opted for an ARM loan with the lowest rate that would be adjusting in 3 years to a payment they could not afford.

Okay, to close out this report; let's just say that it is definitely time for change because had the latter change not occurred; America would be in a better economical position today.

Avoid Foreclosure

2011-01-25T10:49:00.002-06:00

Fannie Mae is helping with Hardest-Hit Fund for Unemployment and Reinstatement Programs for those borrowers who are at or near foreclosure. You may be able to avoid foreclosure.

Some may not know that there are state programs which exist to help even those borrower who are about to hit the foreclosure button because they do not have jobs or income coming in and cannot qualify for a Home Affordable Modification or Refinance. Fannie Mae is continually trying to implement ways to help the hardest-hit unemployment areas of housing and especially those who still have not found employment, of course these are programs congress has approved as well. If you are living within one of the states below; and are without a job and income; get in touch with the National Council of State Housing Agencies in your state. Also speak with the lender on your loan. They will be able to tell you also about these programs; or at least they should be.

Lenders must work with Housing Finance Agencies to help those people who have come to them for assistance in helping them retain their home, while unemployed. These agencies have received monies to assist those borrower who are about to lose their home. Let's back up just a little and explain who the Housing Finance Agencies are and how this all came about..

Back in 2010, Fannie Mae and the National Council of State Housing Agencies (NCSHA) signed an agreement to help Housing Finance Agencies (HFA) meet the affordable housing communities they serve. Through this new relationship participating HFA members are granted access to a suite of distinct mortgage lending options designed to help them bridge the affordable housing gap in their state. The relationship or alliance offers the participating HFA members more ways to expand homeownership through unique benefits and special cost of the loan. Each state has their own program and the program will differ by agency and state usually.

This benefit is in addition to the Home Affordable Modification Program (HAMP). For instance; if a borrower who has a permanent modification under the HAMP program, but becomes unemployed they may use a HHF Unemployment Program to make monthly mortgage payments. If the borrower remains unemployed upon completion of the HHF Unemployment Program, the servicing lender must evaluate the borrower for one of Fannie Mae's foreclosure prevention alternatives, including forbearance.

There are 19 states that are receiving HFA funds and those states are: Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee and Washington, D.C.

It is wise to know all of your options and seek to retain your home if at all possible and endeavor to stop foreclosure, which leaves you without having experienced all options available.

New FHA Guides for Reverse Mortgagors

2011-01-16T18:40:00.001-06:00

Taxes and Insurance must be paid!

FHA – The Federal Housing Administration made an announcement early in the month of new instructions and guidelines for lenders and borrowers to follow for those loans which are designated as Reverse Mortgage or Home Equity Conversion Mortgage.

It is common knowledge these mortgages are loans to assist senior citizens who have sufficient equity, or no mortgage loan at all; to finance their home for a certain portion of their equity in their home without having a mortgage payment. It appears from this announcement; that some senior citizens have not paid their taxes and insurance on their homes, thinking, it was included in the process of making the mortgage loan. The lenders are having now to deal with these unpaid taxes and insurance by paying them so that they will avoid foreclosure.

As these items are mandatory for owning a home regardless of whether there is a mortgage payment or not, FHA is making some clear instructions for the lenders to make sure the Reverse Mortgage Borrowers understand that if they cannot pay the hazard insurance and taxes; their home can still go into foreclosure. Lenders cannot pay these items on a continued basis or indefinitely, and not be reimbursed for these funds that have accumulated.

HUD regulations have allowed lenders to make tax and insurance payments on behalf of the elderly clients from the borrower’s available mortgage funds. However, once those funds have been depleted; the lender must advance funds to pay these normally escrowed items to protect FHA’s interest and then be reimbursed from the homeowner. The homeowners have failed to understand this part of the reverse mortgage guidelines and regulations.

It appears now that in some cases these unpaid funds have become a tremendous burden and have grown to a measure that could put the FHA Insurance Fund at risk. The lender cannot pay these funds nor can FHA’s insurance cover this for an undetermined period. This being the homeowner’s responsibility, they must make efforts to repay these funds, and if this debt is not cleared with the lender/FHA, the lender has no other choice. This can result in foreclosure proceedings as these unpaid funds are out of compliance with the mortgage loan requirements and therefore HUD considers this a delinquent mortgage.

With this new problem, FHA has now implemented measures to alleviate this problem in the future by setting aside nearly 3M to housing counseling agencies. These housing counselors will also begin educating those who have become delinquent borrower by not understanding that hazard insurance and taxes must be paid and at some point, in some cases by them; the borrower. They will be offered a repayment plan and given time to clear up the deficiency.

The lenders will send out letters to those who are in a delinquent status and explain the details of recovering from their current non-paid status.

Property Values Still Declining

2011-01-05T13:13:00.000-06:00

Just read something that is really interesting to say the least and it entails that for the first time in a long time or if ever; real estate may now be considered a depreciating asset as Property Vales are Still Declining.

This is not a hopeful picture for anyone who needs to refinance with a balance that is higher than the value of their home or even those who want to purchase a home where the values are still headed downward. It has been reported that many clients are getting preliminary approval and then the collateral can't match up to the value need to get even a rate/term refinance done without mortgage insurance or even at all. This is hurting these people who bought homes at the higher price and now they are coming in at 10, 20K or more; lower in some cases. This tells me as a prior underwriter that the market at that time dictated escalated sales prices. Most of us who worked in the industry know that during the high volumes years, know that everybody made a profit. Values rose because there was such a demand and sometimes those sales prices were inflated for closing cost of 6% and possible any repairs that were needed prior to closing, on top of the real estate commission. We can't take back those years, they happened and now we have the results....kind of sad, isn't it?

What is causing this great reduction in value for so many? With the excessive foreclosures Nationwide, the banks are putting these homes back on the market. The lower prices that these homes are selling for is making the other homes in the same neighborhood have less value. In other words, everyone has to suffer the consequences of the foreclosed properties. The banks can't hold the foreclosed properties until the market "might" change.

When an appraisal report is completed, the appraiser goes into a subdivision to perform an evaluation of the property value; it must be based upon the value of the surrounding homes (within the most immediate area), the same subdivision usually. If the majority of the homes have declined in value; it will bring down the market value of those which have not had foreclosure, regardless of what the previous sales price was or value. When the homes were bought the value was based upon the market value at that time. Prior to 2007, real estate was appreciating and the seller could almost name the price. What happened at lot of the time thought during the boom; if the houses in the immediate subdivision did not give the value needed for purchase or refinance; appraisers were advised by lenders and real estate professionals to step outside the immediate area for comparables. The guidelines allowed that to happen as long as it was reasonable and the amenities were more valuable than the other homes in the immediate area.??? They did and this is part of the end results.

Possible Solution....

For those who cannot refinance your loan due to declining values, just in case no one has mentioned; you can possible get a rate/term refinance up to 97.75% with FHA. Check into it, if you haven't already. Hopefully things will take a turn for the better but it is not anticipated that it will. It appears from the millions of foreclosed properties on the market; that Property Values will Still Decline.

The List of Mortgage Questions

2011-01-03T07:47:00.003-06:00

When applying for any mortgage loan it is beneficial and imperative that an applicant ask questions so they are fully knowledgeable of the product, interest rate, origination fee, points and any closing cost that is being paid in the loan. The lender's agent/loan officer is required to know and be able to explain all questions.

It is your dollars that are going into the transaction; know what they are being applied to.

The List:

Always ask the loan representative to explain any question they ask you that you do not understand why it is being asked. There is never a dumb question; only one that is not asked.
It is imperative that an applicant understands that they should receive at least (3) disclosures within three (3) business days of loan application. If you do not get them, you should call and request them as these disclosures are required by law and you should receive explanations for the cost that is on these forms. Especially the Good Faith Estimate (GFE) and the Truth-in-Lending (TIL) forms. The third disclosure is the Servicing Disclosure which will indicate to you how much of the originators/lenders volume of loans is serviced by them or if they sell all of their servicing.
On the GFE there are fees at the top of the form which include the origination cost of the loan. It is lumped together at this present time on the form. This is the origination fee for the lender and if you are using a broker their fee will be included here also. It will also include any application fee, underwriting fee, and processing fee. You should ask the loan representative to explain all fees which are lumped together. It is law; you have the right...take advantage of this important issue.
Discount points...these points (if applicable) are listed under the origination fees. The only time you should have discount points is when you have an interest rate change. Meaning, if you chose a rate of interest that is not the going rate for the day you have requested. For example: the rate for the day without any cost would be 4.750%. You desire an interest rate of 4.500%. You will have to pay to get a rate less than 4.750%. It can be .125%, .250%, .375% .500% etc., depending upon how low you take it.
You do not have to use the closing agent that the loan originator suggest. Sometimes it can be to your advantage to do so as they may have a special relationship with the closing agent that will make the closing move faster.
Request a list of all the fees being charged by the Title Company, Closing Agent, Closing Attorney as they may be identified if you are not sure what is might be lumped together. These fees will include the following:

Attorney fee, title search, and document prep. Additional title fees will include the Title Insurance (this can run 1% of the loan amount sometimes; if you want an owners policy it is more, but much less than the lenders policy). Note: The Attorney gets a portion of the title insurance fee.
Additional fee that do not go directly to the Attorney include; transfer tax (state tax stamp fees) and recording fees.
You will have to establish and escrow account with reserves for hazard insurance, taxes and possible mortgage insurance.
Pre-paid interest will also be included in settlement charges for closing before the end of the month. For instance; if you close on the 15th of the month you will have to pay 15 days accrued interest. If you close on the 30th, you will only have that day if that is the last day of the month.
You will have to have a 12 month paid up policy of hazard insurance at closing.

Product: you should understand what kind of product you want; at least some of it.

Meaning a fix rate or ARM. If you are obtaining a fixed rate you know that the loan interest rate will stay the same over the life of the loan. An adjustable rate loan will not. Some ARMs are fixed for the initial 1, 3 or 5 years. Ask questions about the initial interest rate change date, the % of change and the remaining change dates. Each product is different for ARM and change dates vary accordingly.
If you choose an ARM loan; ask for the ARM disclosure; it is a requirement of law.
Do not just take any product you are offered to get the loan and understand that interest rate change daily and sometimes they can rise considerably over 3, 5, 10 year span. You mush know that you can make the payment comfortably if the rate does go up.
Ask about the live of loan cap. This is how much the interest rate can go up over the life of the loan.
Ask how much the rate can adjust on each adjustment date after the initial change.

Check the web for going rates. Check different sites and lenders. Know that you are getting the best deal for your financail situation. You are in charge, it is your loan and will be your home, it is up to you to get what you can afford regardless of the debt to income ratio is.

Never make any large purchase (including your home) that you cannot afford. It will come back to bite you; one way or the other. You should remember that you will possibly have higher utilities, upkeep cost, you may need a new car, the kids need to go to college and many other ordinary things. Staying within a comfortable mortgage payment is most important. You do not need to have the largest house on the block if you can't afford it. You can always buy up when your earnings have increased or you have the savings. It is better to play it safe than sorry.

How to get a Mortgage

2010-12-28T13:42:00.000-06:00

The rules have not changed for How to get a Mortgage; but they have changed in many ways on how to qualify. Then again this question may surely include both. Mortgage lending is complex with many rules and regulations which can put an individual in a query really fast as these many guidelines sometimes make an individual who has not had a mortgage loan want to forget it. Please hold on though as it is not as hard as one might think.

Don't let the paper work get you down!!!

Before you apply for a Mortgage Loan it is best to do the following:

1. Check your credit to see what your scores are. A mortgage lender will pull a credit report from all three bureaus. They will use the middle score which is called the representative score. If there are more than one borrower; they will use the lower middle score of the two.

If you have no score; you will need to gather any information about your phone bill, car insurance, rental insurance, utilities, and rent. A credit report must be established, meaning these non-traditional accounts will become your credit history. You will need at least a 12 month history with these accounts paid as agreed without late payments. You loan will be based upon a manual approval most likely as you do not have sufficient trade line for the automated underwriting system which is usually used to give the preliminary decision. Even applying for homeowners insurance will require a credit check and your premiums are based on how good your credit is.

2. If you have credit obligations; know what your debt to income ratio (DTI) is. Meaning take all of your payments, add in your prospective housing payment (what you can afford to pay as a house payment, include taxes and insurance estimates) and divide them into your gross income. **See mortgage payment calculator this page. That is your debt to income ratio and if it is in the range of or below 45% (at this writing as guidelines are changing daily), you may be in the game for obtaining financing. Sometimes the DTI (if the loan can be run in the automated underwriting system) may fluctuate depending upon the loan to value, the credit score and the assets which is indicate on the applicant. The 45% is only a benchmark and may be lower, depending upon your entire credit file. The lower it is; the better it is in How to get a Mortgage.

3. Know upfront how much money you have to put into the purchase of your home loan. This is on important issue in How to get a Mortgage. If you have no funds, then you should step back and re-evaluate why you are applying for a mortgage loan to begin with. Why? Simply because you will have to purchase homeowners insurance, you will need to pay prepaid expenses at closing and the minimum down payment is 3% for products (Fannie Mae's new guideline will allow 3% down payment for some products and these funds may come from flexible sources). The more money you have saved the better off you are; even if you do not have all you need and have to receive a gift from a family member, grant or help from an employer.

Once you feel that you have the credit, assets and employment history to obtain a mortgage loan; it is time to do the following:

1. Gather your documentation for all applicant's, which should include but not limited to:

1 month of paystubs (address anything on your paystub such as garnishments, deductions not explained, child support payments etc.). Have documentation to back up any of these issues or other that might exist. Child support payments require: a divorce decree or paper work from the court for the amount of payments, the duration and frequency.
W-2's to cover the past 2 years. Even if you have changed employment.
If self employed; you will need to provide 2 years 1040 personal tax returns including all schedules. If the business is a corporation you may need business tax returns.
You will need copies of bank statements for all funds being used for the transaction for the previous 60 days minimum. Any large deposits must be explained and documented. If you have received a gift prior to the applying for a mortgage you must provide evidence of who gave it to you, when and it must truly be a gift and not a repayment. If you are going for an 80% loan with a 20% down payment, the entire amount may be gifted from an acceptable source.

**Please note that is much easier not to get a gift prior to applying for your loan. It is much easier once you make application for the loan representative/loan officer to give you explicit instructions on how this should be done. You must have a gift letter with the donor's name, address, phone number, where the funds are located; if they will be given prior to or at closing, and state that these funds do not have to be repaid.

Retirement accounts listed on the application must be documented also; if they are being used for closing, there must be documentation to back up the % invested amount and how the funds may be withdrawn. This includes 401K funds which most will allow for the purchase of a home.
If you have worked for more than one employer within the past 2 years, you will need to provide that information. The lender will sometimes verify all employment by sending a form to be completed directly to the human resources department or management if no human resources.
Any debts that are not listed on the credit report must be verified. You should remember to disclose all information that could affect the approval of your loan.
Usually upfront fees are your appraisal report and credit report fees. It depends upon the lender.

2. It is important to remember to make sure you have given accurate information, acceptable information and nothing pops up at the last minute. Quality Control is done before closing. Which means, the employer will receive a phone call to make sure you are still working which is called a verbal verification of employment.

3. Chose a lender who has a good repetition and one who will fully explain everything you need explained.

4. Ask questions. There is never a dump question; especially if you don't know the answer.

5. Know what kind of mortgage product you have in mind. Meaning you want a Conventional, FHA, VA, USDA loan etc. and a fixed or adjustable rate loan. This information provider does not recommend an ARM...but that is another articles. Tell the loan officer upfront if you need maximum financing. This means approximately 97% loan to value with 3% down payment unless you are getting a VA loan.

6. Look up mortgage terms/glossary prior to going to application but still ask questions.

7. Know that you should receive disclosures if you have a preliminary approval.

8. Know that a preliminary approval usually means that your credit is approved but subject to all other information to be verified is acceptable.

9. Do not take any one's word for what you need; unless you just do not know yourself and cannot investigate it. If you are offered something (a product) that sounds "iffy", or that you do not understand (ask for clarification, full clarification) and tell them you will get back to them after you have thought about it. Research it, call another lender or someone you trust. Do not take any offer that is said to be the only thing you qualify for, unless you understand it thoroughly. Know that interest only loans, means that you are not paying any principal on the debt until the initial interest only period is up and then the balance (which is the original balance since you have not paid principal) will be amortized over the "remaining" term of the loan.

10. If you get that preliminary approval; find that Real Estate Agent to start the process of finding a home you can afford.

Please note this is not every single thing you need to know. Your loan officer may ask for documentation which is from something you have submitted on the application or from something that pops up after the initial application. There are always deviations from the norm, even when you think you have every i dotted, and every t, crossed. This is to help you be prepared and get overwhelmed when you walk into an office; not knowing how any of this works. This is am important piece of; How To Get A Mortgage and hopefully not get blasted with information you are not familiar with. Good luck!

If you have any further questions on "How to get a Mortgage," leave me a message and I will give you my best answer to meet your need. If, I do not know the answer; I will find it for you."

This blog is about helping those individuals who do not understand as much about mortgage as they would like to; know more! We are dedicate to Mortgage Loan Facts!!!

Mortgage Brokers

2010-12-27T16:57:00.000-06:00

Who is the Mortgage Broker?

The Mortgage Broker is the mortgage professional who takes your mortgage loan application at a non-depository institution. He/she request your personal financial information to include your employment history, your income history, your saving ability, you financial obligations and of course will review your credit once you have authorized them to pull your credit report.

The Mortgage Broker usually owns the office and then he/she may have other loan representatives, account executives or loan experts, whichever title they possess; take the application and process the loan at times. The Mortgage Broker is the one who has the license to run the origination's office, has to put up the bond and carry errors and omission Insurance. He/she must also meet certain net worth parameters. Not only this but his/her mortgage experience is relevant and important to the approval process. The Mortgage Broker is approved at the State level. They must have so many hours of mortgage study under their belt before becoming a Mortgage Broker.

The Mortgage Broker office, has certain federal rules and guidelines as well. They must have the Fair Lending sign in the office and clearly indicate their adherence to all Fair Lending rules and regulations. These offices are not without restrictions, rules and regulations and have never been. The Loan Professionals within the office, as well as the Mortgage Broker must be licensed, have a certain amount of experience, be involved in an continued educational programs must keep up with mortgage lending changes and compliance for federal and state, within the industry. They also employ mortgage loan processors, when large enough who process the mortgage loan. These mortgage processors must also be licensed under certain circumstances (in some states); when they deal directly with the mortgage applicant obtaining pertinent financial information.

So, as we continue to discuss Mortgage Brokers; they alone did not turn the mortgage industry upside-down. It was a mixture of consequences from all divisions of the mortgage industry and offices, which is another subject.

The Mortgage Broker has their respective place in lending and those which have survived the crisis, have obviously proven that. They serve the public who are more comfortable with a smaller office concept where they can go and spill their guts, for lack of a better word, about their financial situation. They get the one one one care that sometimes may be lacking in a larger office. Meaning, usually the Broker office does not have as many request for applications as the Mortgage Banker does; therefore each applicant is more important and gets the best possible care.

The Mortgage Broker or the Loan Representative will take the financial information, pull the credit and order the credit report. They can usually tell you upfront after the credit is pulled if the file is processing worthy. What this means is that your determines your file can bee processed for further documentation of income, assets and those things you have stated on the application. In some offices, the Loan Representative will hand over the file to the processor who will, verify income, employment, bank accounts, retirement funds, any other property that may be owed and the entire questions/answers on the application. Once all information is satisfactory and it indicates this loan will be approved; the Mortgage Broker's representative will start the process of finding the right lender for you, the application(s).

The aforementioned, simply means that they go to a lender who is approved through the agencies, who will underwrite the loan, approve and will furnish the money to close loan in their name. Most of these lenders will in turn sell and assign these loans to the investors such as Fannie, Freddie or FHA. Sometimes they service the loan and the agencies pay them a servicing premium for their service of accepting the mortgage loan payments and taking care of the applicant's needs during the term of the loan. Usually these lenders are Mortgage Bankers who are depository institutions. There are Mortgage Companies who are standalone lenders who are approved but usually sell the loan immediately.

Most Broker offices do not close loans in their own name or furnish the money, only on rare occasions they may if their net worth and financial backing is sufficient to furnish the funds for closing with warehouse banking privileges and other criteria. The loans are still usually underwritten by the lender who will receive the loan once it is closed. Usually these Mortgage Brokers have been in business for awhile and have established their lending experience, with capital and employees to perform all functions. These Brokers have liability that those who do not close in their name do not have. Most Broker offices do not want the liability to close and fund in their name. These Brokers still usually sell the loan immediately to a servicing lender and/or one who will sell the loan immediately to the agencies.

With the RESPA changes, the broker fees are in with the lender fees on the good faith estimate, at this moment (although I hear this may be changing) but should be broken out for you and explained. It is under the cost to you for this loan.

This is not all inclusive nor does it give you every detail of how a Mortgage Broker can work for you. It does give you the difference in how the origination process takes place within a Mortgage Broker's office. It is still the Mortgage Broker's responsibility to get for you the most appropriate interest rate, closing cost and loan that meets your needs. In fact, they are your contact person and should looking out for you, the applicant. They are no different that the Mortgage Banker within this respect. It is their duty to provide a quality professional service by helping you understand your mortgage product, your interest rate with any fees, the closing cost fees, the disclosure that you were given and "any" thing that is to do with the mortgage transaction. The new laws dictate experience and professionalism in all areas of mortgage lending including the Mortgage Broker's responsibilities.

Mortgage Best Practices

2010-12-27T12:11:00.001-06:00

In the news lately we are seeing changes within the mortgage industry right and left and it turns out to be said it is for Mortgage Best Practices efforts. Meaning, they are striving to get all loan entities to meet certain standards; industry wide and therefore constitute sound lending practices for all. What happened? It was suppose to be this way forever and the rules and regulations were there.....what happened? We all know what happened and we do not want to return to that status as we are not out of the last one yet.

The guidelines for all mortgage loans cannot be changed to fit a particular group without something going wrong. FHA is classified to be for the middle and lower income individuals. Yet we know in the past few years; after SubPrime, that many, many borrowers went to FHA and obtained financing for the lower down payments and flexible source of funds with 6% seller concessions, who were not classified as middle income. Of course we now know that FHA will only allow 3% seller concessions to meet with the industry standards; they say. With that being said; changes are still occurring daily, some for the good and betterment of our Country, some are due to excessive default from allowing individuals financing without truly qualifying. Just like any other organization; there must be rules to go by and those rules should not have been broken to begin with.

All agencies have changed rules and regulations and starting to sound like they did 20 years ago. Those who qualify, qualify; those who do not; do not. Bottom line. That might sound less than compassionate, but with all due respect; that is how it should be and then we would not have so many people in so much financial pain as they are now. No jobs, no home and possibly from over extension of their credit obligations. It had to change somewhere.

Additional Headlines

FHFA Federal Housing Finance Agency....

has made a rule of significance, they have issued rules which will be beneficial to women, minorities and those with disabilities. This one is issued to Fannie, Freddie, and Federal Home Loan Banks and is the following:

The Federal Housing Agency has issued instructions for compliance to these standards (adhering to women, minority needs in housing and those with disabilities) to: Fannie Mae, Freddie and Federal Home Loan Bank Housing Goals entities. Better said; The Federal Housing Finance Agency (FHFA) has made the rule that the agencies promote diversity and the inclusion of women, minorities and individuals with disabilities in all activities. It states that the rule requires each entity to establish an Office of Minority, Women Inclusion and those with disabilities or designate an office responsible for carrying out the requirements at every level of the organization; to include management, employment and contracting.

So, at this point we do not know exactly what this means but we will see what these changes are about and exactly what they will include for the future of Mortgage Best Practices.

First Time Homebuyer Mortgage -Conventional

2010-12-06T12:04:00.000-06:00

Conventional First Time Homebuyer Loan: This indicates it is in this case Fannie Mae guidelines as Freddie has not joined in yet for this financing.

If you are a First Time Homebuyer and need a mortgage loan, you are in better luck than a month ago. I will explain why. Starting December 13, 2010; details are at; Fannie Mae is changing some guidelines. This is one step that is definitely in your favor. What this information will tell you is that now Fannie Mae is offering some advantage they did not offer before. FNMA did have the Flexible 97% mortgage that is being retired from their line up of available products. Wait, if you have read the above article, don't panic; it gets better and you will see that Fannie is now making available 97% financing on certain other products which can be run in their automated underwriting system. This is definitely a plus for First Time Homebuyer Mortgage-Conventional loans.

Wait...we are not through here: there will also be flexible source of funds for those who qualify and do not have the 5% of their down payment from their own saved funds. These will be for loan to values of less than 80% for 1-4 family unit owner-occupied properties and for loan to values greater than 80% for only 1-unit single family, owner-occupied properties. This is something that Fannie appears to be doing to gain more First Time Home-buyers as FHA has been doing the bulk of these within the past couple of years. There will be restrictions and certain criteria that may apply but this is one great First Time Homebuyer advantage that is now in place. This will eliminate the upfront MIP that one must have with a FHA loan.

Up until now, FHA lending was the option for First Time Homebuyers most of the time because of the flexible source of funds. Fannie had the Flex 97% and the MyCommunityMortgage, but with limited guidelines concerning income limits etc. Now, with these new changes you can now obtain a higher mortgage amount for 1-unit single family, owner-occupied home-ownership. The MyCommunityMortgage has always allowed flexible source of funds with a income limit.

As a First Time Homebuyer Conventional Loan; you should know the following:

FNMA's new guidelines will allow for 3% down payment for flexible source of funds for all 1-unit properties which are owner-occupied.
FNMA as the MyCommunityMortgage with 3% down payment from flexible source of funds for 1-unit properties which are owner-occupied.
Source of funds may be from personal gifts, gift or grant from an entity, employer assistance
Credit should be good, with minimal derogatory issues, which can be address as non-recurring and will be approved by the automated underwriting system.
Reserves will be dictated by the AUS (automated underwriting system) and will depend upon the strength of the file in question. This will include, debt to income ratios and credit scores.

Gifts allowed criteria:

Personal gift may be from a relative, a spouse, child, mother, or father, and blood relative by marriage, adoption, or legal guardianship, fiance', fiancee or domestic partner. Any party to the transaction is not acceptable. Meaning Broker, Real Estate Agent, Builder etc.
Gift funds must be documented with a gift letter, indicating the gift donor; their name, address, and phone number. The dollar amount of the gift, when the funds will be transferred and that no repayment is to be expected from the applicant.
The best solution for gift funds is for the fund to be gifted at closing with a certified check from the donor. So many time people go ahead and transfer funds prior to loan application or closing and do not have all of the paper that this entails. It is highly recommended that one wait to transfer funds until instructions from the lender of choice. Sometimes people lose documents which are vital to a final approval.
The lender must verify the donors ability to give the dollar amount. This includes the following: 1) A copy of the donor's check and a copy of the deposit slip. 2) a copy of the donor's withdrawal slip and a copy of the applicant's deposit slip. 3) a certified check to the closing agent or 4) HUD1 settlement statement showing the gift given by the donor.
Remember that a lender's guideline may vary somewhat from these Fannie guidelines. They could ask for further guidelines to suit the situation at hand. If funds have been transferred prior to applicant, you might have to dig up your documentation to prove who gave the gift, etc. The transfer from the donor to the applicant must always be documented.

Other criteria required for high ratio loans:

Mortgage Insurance is required for any loan to value greater than 80%. It is in the monthly payment or it may be financing in certain circumstances.
Employment should be a minimum of 24 months history, but less is acceptable with a transcript from a university or technical school.

*Source: FNMA. Please note that certain restrictions, guidelines and criteria may apply and may not be listed here in the summary of qualifications. Please refer to your lender of choice for full details and any area of your personal credit situation which may exist.

Fannie Mae Changes - Programs and Borrower's Source of Funds

2010-11-26T20:15:00.003-06:00

As new home sales have declined and with most first time mortgage borrowers struggling to pay the current 5% down payment requirements from their own funds; we are about to see Fannie Mae Changes, Programs and the Borrower's Source of Funds guidelines. These changes will begin with all standard products with the cancellation of the Fannie Mae Flex 97% program, with one exception. Don't panic! The loan to value ratios of 97% will still be in effect but will not be named, Flex 97%, with one key exception. That is, the loan must be eligible for preliminary approval though Fannie Mae's automated underwriting system (DU). The flexible source of funds that were allowed for Flex 97 loans, will now be allowed with the standard FNMA products. That is the great news and something tells me this is to be more competitive with FHA guidelines and boost new home sales up again and the market into a more performing status. These changes will occur December 13, 2010.

Let me remind you that Fannie Mae does not lend money for loans. They issues the guidelines, products, and the Mortgage Bankers and/or lenders sell their mortgages to Fannie and Freddie which opens up more funds to make new loans. Fannie and Freddie then put these loans into pools and make them into Securities and the flow of a mortgage loan keeps on making money in those Securities. The lenders must adhere to these agency guidelines; most do, and if they do not, then they must service and retain the loans in their portfolio.

Fannie Mae Changes to all Standard Products that are DU eligible:

All products will now allow for mortgage up to 97% loan to value and remember these loans cannot be a file that must have manual underwriting. If the file is a manual underwrite, it will be limited to 95% loan to value ratio.

There will be no changes to the loan to value, combined loan to value ratios, and home equity combined loan to values over the original 95% up to 97%. The 97% loan to value will be available as a standard eligibility with the following benchmarks:

one-unit properties
principal residences
purchase and limited cash-out refinances, and
fully amortizing fixed-rate and all standard ARM products.

Not acceptable:

high-balance mortgages
interest-only loans
manufactured homes
construction loans, and
co-op properties

Flexible borrower funds/contributions for all loans:

80% or less loan to value = no minimum borrower own funds required for 1-4 unit principal residence. Funds may be gifted or grant from entity, employer assistance and community Seconds. **Second Homes do not allow for contributed funds as gift, grants, etc. and maximum loan to value is 90%.

81% and higher loan to values = no minimum borrowers own funds required for 1- unit principal residence (is not allowed for high-balance mortgage loans).

The latter will definitely benefit those borrower who need 95 to 97 % financing with little or no saved funds and are buying a 1- unit, owner occupied dwelling. There will be mortgage insurance for loan greater than 80% as usual however, this conventional loan will allow for flexible source of funds (life FHA) and will eliminate the upfront MIP that is added into the loan for the FHA product. Especially since FHA has changed their MIP factors. MI may be financed if needed.

**With loan to value greater than 80% for - 2-4 unit principal residence, Second homes, and High-balance mortgage loans:

minimum contributions of 5% from own funds and after minimum requirements are met; flexible source of funds may be used.

**MyCommunityMortgage with loan to value great than 80% - 2-4 unit principal residence, Second homes and high-balance loans:

minimum contributions of 3% from borrower's own saved funds; after which flexible source may be used for down payment and closing cost.

Here you have some of the latest changes, with more to follow that are taking place within the Conventional realm-Fannie Mae Changes, Programs and Source of Funds and it is state that Freddie will follow suit.

Source: Fannie Mae. **Certain guidelines and restrictions which may not have been mentioned may apply; these highlights may not be all inclusive, and fit all situations which borrowers may have.

Mortgage Banking Terms

2010-11-25T15:51:00.000-06:00

This is a list of Mortgage Banking Terms which are frequently used within the industry. This list is not all inclusive nor is it in alphabetical order.

Mortgage Banker: A firm or individual who originates loans for sale to other investors (such as Fannie Mae or Freddie Mac )and usually is also a depository institution. They usually service the loan also. A mortgage bank is a state-licensed banking entity that makes the mortgage loan directly to the consumer. The mortgage banker unlike the mortgage broker; funds their own loans with its own capital.

Mortgage Broker: A mortgage broker is an originator of loans for a mortgage banker/lender. They act as a go between for the lender who will actually fund the loan and the loan is closed in the lenders name who furnishes the capital to close.

Lender: A lender is an institution who meets certain guidelines and regulations with certain investors such as Fannie Mae, Freddie Mac, FHA, and VA. They are one in same as the mortgage bankers; they originate loans, process loans, underwrite their loans, close and funds the loans with their own capital. These lenders allow brokers to submit loans to them for approval as brokers normally do not fund their own loans.

Mortgage: A formal document; sometimes called a Deed of Trust in some states; which is executed by an owner of a property; pledging that property as collateral for payment of the debt. A non-borrower spouse must sign the mortgage/deed of trust to relinquish their right; should the loan default and go into foreclosure.

Deed of Trust: In some states, the document used instead of a mortgage. A security instrument conveying title in trust to a third party covering a particular piece of property. It is used to secure the payment of the note. A conveyance of the title land to a trustee as collateral security for the payment of a debt with the condition that the trustee shall re-convey the title upon the payment of the debt, and with power of the trustee to sell the land and pay the debt in the event of a default on the part of the debtor.

Note: This describes a kind of paper or document signed by the borrower of a loan that is acknowledging a debt and a promise to repay the debt. When it is secured by a mortgage/deed of trust; it is called a mortgage note and the mortgagee is named as the payee.

Mortgage Note: A document which is a written promise, sometimes called a promissory note; to pay a sum of money at a state rate of interest during a specified term. This note is secured by a mortgage.

Mortgagor: The borrower or owner who has signed a mortgage note/mortgage/deed of trust and pledges the property as security for the debt.

Mortgagee: The lender in a mortgage transaction.

Originator: A person who solicits builders, brokers, real estate agents and other to obtain applications for mortgage loans. Origination (taking of the application and processing the loan request) is the process by which a mortgage banker or direct lender bring into being a mortgage secured by real estate.

Origination Fee: This is the fee the lender charges for the origination of the mortgage application to prepare the file for closing. This may include; processing, underwriting, preparation of documents, verification of employment, verification of assets, credit checks, and inspections. Usually it does not include the appraisal fee and sometimes does not include the credit report. But, all fees must be disclosed to the applicant, as to what makes up the origination fee. Any broker fees must be included and within tolerances.

Borrower: One in same as the mortgagor; an individual who applies and becomes approved for a mortgage loan.

Co-Borrower: A co-borrower is usually the secondary borrower who applies with another borrower to obtain mortgage financing. They do not have to be married to be borrower and co-borrower.

Conventional Loan: A loan that is made by a lender with a maximum loan amount not higher than $417,000 for a one-family dwelling in certain states. It is a mortgage loan not insured by FHA or guaranteed by the VA or Farmers Home Administration.

Non-Conforming Mortgage loan: A mortgage loan in which the loan to value ratio, the term or other aspects of the loan exceed permissible limits specified by regulations within the conforming loan requirements put out by Fannie and Freddie. **Sometimes also referred to as a Jumbo loan because of the loan limits being exceeded.

Jumbo Loan: A loan that exceed the maximum loan limits of Fannie and Freddie. Loan that are greater than, $417K for one unit single family dwelling and $625,500 in high cost areas for loan limits for 2011.

Contingency: A clause in a contract that requires the completion of a certain act or the occurrence of a certain event before the contract is binding.

Convertible Mortgage: A mortgage in which the funds, in the form of a loan as supplied by a lender, convert into equity or a share of ownership after a prescribed period of time. **In a ARM loan; this can also mean that the mortgage loan interest rate may/can be converted to a fixed rate loan at a certain interval and after a certain period of time.

FHA Loan: A loan that is insured by the Federal Housing Administration; sometimes called a government loan. This loan has upfront MIP (mortgage insurance premium- which is default insurance and monthly/annual MIP).

VA -Veterans Administration: Federal Government Agency created in 1930. The Servicemen Re-adjustment Act of 1944 authorized the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life. The VA home loan guaranty program is designed to encourage lenders to offer long-term, low-down payment mortgages to eligible veterans by guaranteeing the lender against loss.

MIP- Mortgage Insurance Premiums: The amount paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance company (MIC).

MIC- Mortgage Insurance Certificate: The certificate issued by HUD/FHA as evidence that he mortgage has been insured. This certificate is the evidence that a contract of mortgage insurance exists between HUD/FHA and the lender, incorporating the HUD/FHA regulations identified in the cert.

Mortgage Insurance: This is a type of term life insurance often bought by mortgagors. The amount of coverage decreases as the mortgage balance declines. In the event the borrower dies while the policy is in force, the debt is automatically satisfied by the insurance proceeds.

Fixed Rate Loan: A loan that carries a fixed interest rate for the entire term of the loan.

ARM- Adjustable Rate Loan: An adjustable rate loan is one that carries a rate of interest that adjust at different intervals depending upon which ARM preselected index. The terms, adjustment schedule, and index to be used can be negotiated by the borrower and the lender. Some ARM loans have a rate that may fluctuate every six months - 12 months. Sometimes the loan has a fixed rate period for the first 12, 36, or 60 months and then it becomes an adjustable rate changing every 12 months.

Attorney In Fact: One who holds a power of attorney from another to execute documents on behalf of the grantor of the power. It is terminated upon the death, relocation, or court-decided incompetence of the grantor.

Power of Attorney: A legal document authorizing one person to act on behalf of another. **For Mortgage Lending: This is when a borrower gives another person the power to sign the mortgage instruments in their behalf. It is usually a here is Specific Power of Attorney and General Power of Attorney. A Specific Power of Attorney is for one specific issue such as signing mortgage instruments on their behalf if they are not available to do so themselves such as servicemen, a borrower who is out of the Country for any reason, and illness, etc.

PITI: Principal, Interest, Taxes and Insurance which makes up the full mortgage payment for the borrower. This may include mortgage insurance.

Interest Only Payment: This is a payment option that usually exist for the first 10 years of a loan. It is exactly what it says; Interest Only and there is no principal paid during this time. The mortgage loan payment after the interest only period is then amortized over the remaining life of the loan.

Assets: accumulation of property that is useful and/or has a value and can be converted to cash.

Liquid Assets: property, funds or paper that has been converted to liquid and/or cash on hand which is ready for use. Liquid assets are usually in the form of money that is deposited into checking, savings accounts.

Money Market Accounts: The financial market that brings investment capital and short-term money instruments (those maturing within a year) such as treasury bills, notes, commercial paper, etc.

Negative Amortization: A loan payment schedule in which the outstanding principal balance goes up, rather than down, because the payments do not cover the full amount of interest due. The unpaid interest is added to the principal.

Purchase Agreement (Contract): A written proposal by a buyer to purchase real estate that become binding upon the acceptance of the seller. *this contract/purchase agreement must be signed by all parties of the transaction, to include, the Realtor (if applicable), buyer/purchaser(s), and seller(s).

Verification of Employment: A designated form which is used in mortgage lending to send directly to a borrower's employer to be completed with regard to the borrower's hire date, position, monthly or annual salary, year to date earnings, date of last salary increase, hourly rate if applicable, base number of hours worked each week, two previous years earnings total and the likelihood of continued employment.

Verification of Deposit: A designated form which is used in mortgage lending that is sent directly to the borrower's bank to verify the assets they have listed on the application. The type of accounts, the current balances, the average balances, the dates the accounts were opened and if there are any loans in the borrower's name at the institution.

Closing Agent: This can be an attorney, or title company who does the preliminary work up of the title. They search the title to make sure all prior liens or encumbrances have been cleared and released. This can mean that all prior owners have been released from the title. Title insurance is ordered and that the lender's and buyers interest in the loan is considered of full entitlement without exceptions.

Title Insurance: A contract by which the insurer, usually a title insurance company, agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee, or otherwise. A mortgage lender will have insurance and the mortgage application/borrower can also have title insurance. It is called lender policy and owner policy respectively.

Title Search: An examination of public records, laws, and court decisions to disclose the past and current facts regarding ownership of real estate. The search is completed to make sure there are no liens outstanding that have not been released or paid off. In buying real estate; one wants to make sure that they have a clear title and a lender will not provide funds without a clear title.

Tenancy by Entirety: The joint ownership of property by a husband and wife where both are viewed as one person under common law that provides for the right of survivorship.

Tenancy in Common: In law, the type of ownership created when real or personal property is granted to two or more persons, without express words creating a joint tenancy: There is no right of survivorship.

Tax Lien: A claim against property for the amount of its due and unpaid taxes.

Tangible Assets: Physical assets such as electrical fixtures as opposed to intangible assets such as customer goodwill.

Sweat Equity: Equity created in a property by the performance of work or labor by the purchaser or borrower.

Subject to Mortgage: A taking of title to a mortgaged property without assuming personal liability for the mortgage debt.

Subordination: The act of a party acknowledging, by written recorded instrument, that a debt is inferior to the interest of another in the same property. Subordination may apply not only to mortgages, but to leases, real estate rights, and any other type of debt instruments.

Settlement Cost: Cash paid at closing by the borrower and sellers to constitute the closing of a mortgage loan. The seller portion is usually deducted from the sales price at closing with net funds after cost; disbursed. This normally includes origination fee, discounts points (if any) title insurance, survey, attorney's fees, and such prepaid items as taxes and insurance escrow payments.

Seller-Servicer: This is a term which Fannie Mae and Freddie Mac use for an approved corporation/lender, mortgage company, or mortgage banking institution that sell and service mortgage for them.

Secondary Mortgage Market: This is the process of lenders and investors who buy existing mortgage which are closed loans or mortgage-backed securities, and in do this, provide greater availability of funds for additional mortgage lending by banks, and mortgage bankers. Fannie Mae and Freddie Mac are considered the Secondary Market.

Securitization: The process of pooling loans into mortgage-backed securities for sale into the secondary market.

Security Instrument: The mortgage or trust deed that evidences the pledge of real estate security as distinguished from the note or other credit instrument.

Satisfaction of Mortgage: When a loan is paid in full; the instrument given by the lender will evidence payment in full of the mortgage debt and is recorded. The borrower is released from liability to the mortgage company. The debt no longer exist. You are not released from liability until the release of mortgage is recorded and the lien will show on a title examination until it is released by the lender.

Ratio Analysis: DTI (debt to income ratio): An analysis in the underwriting of a mortgage loan which calculates the proposed housing expense, plus other long-term debt expenses as a percentage of monthly income. The standard benchmark housing is 28-31%; the total debt to income is 36-41%. **these calculation may be greater if the loan is run in the agencies automated underwriting systems and is preliminary approved through these. This is dependent upon the overall credit and financial quality of the file, including credit, assets, and loan to value.

Right of Survivorship: This is co-ownership of property where if one owner dies, the undivided estate then passes to the surviving owner(s) in the case of joint tenancy and tenancy by entirety (husband and wife).

Right of First Refusal: This is a provision in an agreement or contract that stipulates that the owner of the property must offer the first opportunity to purchase or lease a property to a specified person or company before offering it to others.

Replacement Cost: The cost to replace a structure with one of equivalent value and function, but not necessarily identical in design or material. A mortgage lender usually requires hazard insurance to be either; the full amount of the loan or replacement cost.

RESPA: Real Estate Settlement Procedure Act: RESPA is a federal law that requires lenders to provide home mortgage borrowers with information of known or estimated settlement costs.

HUD1: The document used to prepare and close the loan with the buyer and the sellers cost of closing and is signed by both parties. This form and its contents must meet RESPA guidelines.

Regulation Z: A regulation written by the Federal Reserve Board to implement the Truth-In-Lending Act. It is a comprehensive regulation, containing a full reinstatement of all the requirements of the act and is enforced by the Federal Trade Commission (FTC). Both new real estate loans and assumptions of existing loans come under Regulation Z.

Release of Record: The act of recording a release deed or satisfaction of mortgage to release or eliminate the lien of the mortgage on the public records.

Release of Liability: An agreement by a lender to terminate the personal obligation of a mortgagor in connection with the payment of a debt.

Quality Control: Methods, procedures and policies used to maintain acceptable and dependable levels of quality in the production, selling and servicing of mortgage loans. **this is the measure which are undertaken, prior to and after closing such as verbal verifications of employment to make sure a borrower is still employed, checking asset information etc.

Quitclaim Deed: This is a deed relinquishing all interest, title, or claim in a property by a grantor, but not representing that such title is valid, nor containing any warranty or covenants for title.

Warranty Deed: A deed in which the grantor or seller warrants or guarantees that good title is being conveyed, as opposed to a quitclaim deed which contains no representation or warranty regarding the quality of title being conveyed.

Source: Mortgage Bankers Association of America

Mortgage Loan Facts - The Benefit of a Real Estate Agent

2010-11-15T11:58:00.001-06:00

In Mortgage Loan Facts- it is important to know that The Benefits of a Real Estate Agent has almost become a must with the declining market areas that exist. If you are looking at homes where the property values are declining your sales price/home value may decline also.

A Real Estate Agent is: A licensed individual who has taken hours of training and testing to perform work for a Real Estate Firm. They are trained in market conditions, housing conditions, the concept of a mortgage loan, appraisal concerns, inspections of property, and many other aspects of real estate; to mention some of their expertise. They are your source in finding a home. The seller of the home usually pays the commission for the Realtor.

After you have prepared yourself for a mortgage loan, and obtained a pre-qualification from a lender; it is then time to start the house hunt...yes, you should know what price home you can afford prior to getting The Benefit of a Real Estate Agent. There is no need to waste your time or theirs. Why? Simple...if you start looking for a home and do not know what you can afford; you might find disappointment when you get to the bottom line of what you can really afford. For instance; just like the times we see all the pastries in the bend and we think we can eat the largest one, only to find out; we can't. It looks so appealing and wonderful, we just have to have the largest one....it will not be that wonderful when you can't make that payment in six months, or six years, if you buy something that you really cannot afford.

A Real Estate Agent in there to help you once you have been approved by a lender, not before or they will not know what houses to show you. It is of no good to you to look at homes with sales prices in the 400k range, when you can only afford 300k. You are setting yourself up for disappointment and the inability to be satisfied with what you really can afford.

We now know since the mortgage meltdown, that the art of getting approved and maintaining a loan that performs,one must be qualified to make the payment, not for the initial period of the mortgage only, but for the long haul. The Real Estate Agent is there to assist you with finding the right house, with the right payment and understands the make up of the loan and will not lead you into something other than what your pre-qualification dictates.

This is The Benefit of a Real Estate Agent:

They will show you homes that are within the price, using the down payment from your pre-qualification and within the payment range.
You furnish the Agent with the criteria you would like, square footage, number of bedrooms, baths etc.... and they try to fit it into the home which they show you. It is not always an easy task; because most of us want everything to our expectations, and yet can't afford as much as we want. Why, we get it into our head that since this is a major purchase; the largest one we will ever make; it is up to the Agent to find what we want regardless. They can't perform miracles. They can only show you what you can afford and beyond that it is out of their hands. If the features you want are not in the 300K house and that is all you can afford; you might have to suffice for plain kitchen cabinets rather than custom...remember life goes on even when we do not get exactly what we want. You can always same money to build those custom cabinets or either, find a house with those cabinets and do without another feature you desired. All in all The Benefit of the Real Estate Agent is that you do not get something you can't afford; hand in hand with the lender they are advising you to stay with the affordable.
They will sometimes suggest a lender that they are comfortable working with; this is not a step you have to take. You can use the lender of your choice and I can grant you; that they will not lose the loan because you want to use another lender. Of course if you are informed that a lender if over-charging; then it might be something to look into, but you should have gotten more than one quote to begin with....
The Realtor will usually only show you three home to begin with, hoping that you will be totally satisfied with one of the three. Then more if necessary. When you start looking at more than three homes, you can get confused.
The Realtor pulls the comparables for all of the home to show you what the amenities of the homes in the neighborhood, the values and when they were sold. They have expertise in the market conditions, how many purchases, if they are foreclosures, short sales, deed-in-lieu etc. They do what they do really well.
They can tell you if you are looking at a purchase in a declining market area and give their expert advice about what they know concerning market conditions for the exact area of which you are interested in buying. These are the things you usually do not know without The Benefit of a Real Estate Agent.

Don't leave home without a Realtor to advise you in finding the home of your choice...there may some give and take in what is affordable but The Benefit of a Real Estate Agent will also help with what amenities are really essential over what you merely want.

Mortgage-Preparing for a Mortgage Loan - Part 2

2010-11-13T12:27:00.000-06:00

Mortgage-Preparing for a Mortgage Loan - Part 2

Mortgage - Preparing for a Mortgage Loan

2010-11-13T12:26:00.000-06:00

Mortgage - Preparing for a Mortgage Loan

Mortgage Fraud

2010-11-10T12:37:00.004-06:00

We have read it everywhere and still some believe that Mortgage Fraud is still in the air. There is not a company that exist that truly wants Mortgage Fraud in their work place, unless of course they are nuts. It will eventually be caught one way or the other. Yes, it has existed and sometimes, the person in charge probably turned their head if it meant loosing a Realtor or client; something minor of course. Mortgage Fraud is never fashionable nor is it acceptable.

The question we have is why anyone would allow themselves to give someone a loan; they do not need and on top of that commit Mortgage Fraud? It starts with an applicant having their hopes up to get a home loan. They really do not know what is on their credit report. Sometimes, it can be cleared up, if it is negative and then sometimes it cannot. Then it continues with someone who might not have sufficient income to qualify and they are devastated with this fact and then they have no funds to put into the mortgage loan so....they do not qualify in any aspect of the qualification process. So, what does a loan officer do? With all due respect to the mortgage applicant; the loan should be declined before it ever reaches an underwriter. It is always better to get the news of a decline upfront instead of getting deeper into the loan process and having tons of documentation; that is really no good to anyone. Mortgage Fraud is sometimes undetectable for the consumer, as they might be told that they are going to get their home and they are about to receive help regardless of what the facts appear to be. This is unacceptable and not what any lender wants within their company.

The facts that kill a loan upfront:

Unacceptable credit- insufficient credit lines paid as agreed. 30, 60, 90 day late payments on more than one or two account within the past most recent 12 to 24 month period that are not isolated. Rental history with 30 days late payments. Previous mortgage history with 30 day late payments. Excessive public records; collection accounts, judgments, tax liens, civil liens etc. No evidence that the client has managed their credit in the past 24 to 36 months with any integrity or consciousness. ** Please note that sometimes there are extenuating circumstances which cause derogatory credit ratings. This is when there must be documentation and re-established credit lines still must exist within the past 12 to 24 months following the derogatory ratings. The cause of the extenuating circumstances must be documented and it must be reasonable and there must be evidence that it is unlikely these circumstance will occur again. All of aspects of the file must be acceptable as well, employment, income and assets. This would require a manual underwriting review with extensive analyzing of the situation.

No funds or saving to put into the loan (especially conventional loans) Government backing will allow more for gift funds. Fannie Mae does allow for Flex 97 financing and Community Homebuyer loans which allow for gift. If someone has a 20% down payment, Conventional Fannie Mae loan; the funds may be gifted.

Unacceptable employment history. Five jobs within the past 24 months, with only 6 months here and there..this is not stability and especially if one is hoping from one profession to another. Contract jobs that are not consistent. Rental income from someone who lives in the house with them.

An applicant who is dependent upon a second job income with less than a 12 month history.

An applicant who is dependent upon tip income but has not reported it to the IRS; no history.

An applicant who is dependent upon child support income and/or alimony that cannot be documented.

Debt to income ratios above the normal and normal might be different for each individual depending upon their savings ability or reserves after closing. Total debt to income normally ranging from 36 to 45; again depending upon the entire file, credit scores and repayment ability analysis.

Insufficient income to meet the new debt without causing hardship to the consumer.

Please note that these things are all analyzed upfront for the short term, if there are areas that may be corrected; so be it, but if several or all of these exist, not any loan officer should drag you through the meal when there is no hope of correction. If someone has the audacity to say; I will fix this; you had best run. This is when Mortgage Fraud is about to happen and no one should be a part of that; even if it is your best friend.

All mortgage companies are audited. Things pop us and grab the auditors attention. No one wants to be a part of Mortgage Fraud. Mortgage Bankers do not allow a loan officer to make up VOEs (verifications of employment), pay stubs, play with assets for a borrower etc. If someone does this; it should be report to the lender and to the State and Federal Government. This is not acceptable behavior for any mortgage professional. Again, there are bad apples in every basket but that does not mean that all loan professionals have the same intent nor do they want to give someone a loan who cannot afford one. The latter should be the main focus.

The agencies are coming down hard on lenders who are not paying attention to making sure that all loans which are being made are made with honest, accurate and credible documentation.

Types of Fraud

Misrepresentation of income or employment

Misrepresentation of credit

Misrepresentation of assets

Misrepresentation of occupancy

Undisclosed liabilities/debts

Identity theft or Social Security numbers

Misrepresentation of property values/appraised value

Mishandling of escrow funds

Misrepresentation of closing funds being distributed to persons other than whom applicable

Undisclosed title issues and the list could go on......

Who can participate in these types of Mortgage Fraud? The borrower, the lender's representatives, the appraiser, the real estate agent, the closing attorneys, builders, lenders and title companies. There is a difference in mistakes and Mortgage Fraud. This does not mean that one should be suspicious of everyone they meet within the mortgage process. The duty is for the Mortgage Banker, Lenders and Mortgage Companies to ensure the people they are working with are legitimate professions who take their work seriously and pick up on anything that is not within the guidelines and regulations. This is where quality control comes in.

The above may not be all inclusive, but this gives you some idea as to what the auditors are looking at when a loan goes to quality control, state or government auditing.

Not any consumer should allow themselves to get caught up on a process that could eventually hurt you and these kinds of acts can come back to haunt you. Mortgage Fraud is preventable. It is preventable for the lender by hiring qualified, experienced personnel. The new Mortgage Licensing Requirements is working to present qualified mortgage professionals; with loan qualifying procedures that can prevent Mortgage Fraud.

Mortgage Underwriter and Processor

2010-11-09T23:28:00.002-06:00

What You As the Applicant Should Understand About Mortgage Underwriting and Processing

Having seen so much of the changes that have occurred in the last couple of years, and especially just recently, I thought I would give you some heads up on why the Mortgage Underwriter and Processor keep asking for more documentation. It seems like a mountain of information that is needed to get a loan to approval these days and we all know why. Let me remind you, yet again, though it seems excessive, it is necessary to fully implement due diligence and determine whether someone really does qualify for a loan. The underwriter usually gets blamed for declining a loan, regardless of what the issues are and just recently something was written online about Real Estate Agencies requesting less strict underwriting guidelines. After all we have been through as a Nation, let alone the many homeowners who could face never owning another home, how could anyone request something like this?

It has been stated that the Agency Underwriting and Processing guidelines are going backward to some degree, toward the manual underwriting process, one small effort at a time and the rules and regulations are being made to ensure that an applicant can carry the increased debt they are about to embark upon. Fannie, Freddie, and FHA are all emphasizing that it is the lenders responsibility to verify anything that is questionable with regard to the mortgage applicant's application. Anything that might prevent the performance of a loan must be questioned and documented. They are being upfront with the fact that there are instances when there must be additional information verified to make certain loan applicants have the willingness, capability and capacity to pay back the mortgage loan.

The agencies both have automated underwriting systems and these systems are initially run by the processor to see what the minimum documentation is and then anything questionable must be documented also. The underwriter then uses their expertise to further analyze the file, the documentation and the overall risk factor that may exist. The automated underwriting systems spit out minimum documentation requirements from what has been entered into the system. It is a machine so it cannot see with the human eye and only uses information it has been given by the human; therefore, there is room for error. When something changes after it is documented; (income, assets, liabilities, after being verified) the automated underwriting system must be changed along with the new information and new underwriting requirements review yet again. As with any process; sometimes this has not been done properly; therefore, underwriting decisions can be made that are not actually the true story as it has been verified. These systems are governed by humans and as we all know humans make mistakes and even though there are explicit guidelines that should be followed; there are still errors made that can change the approved status to a declined status. Mortgage Underwriters and Processors have decided that it is best to fully document a file and then there are less risk and more prudent analysis done.

These are some facts about processing and underwriting a loan that any Mortgage Underwriter or Processor must consider:

large deposits on bank statements
small deposits on a regular basis which are not income related
reserves and the ability to accumulate savings is evaluated, does the borrower have sufficient income and assets to afford the payment that might be increasing from the rent he/she now pays or mortgage payment
bank statements are evaluated for balance versus previous balance
savings ability and liquid funds after closing plays a role as a risk factor and these accounts; 401K accounts, CDs, Stock, Mutual funds, IRAs, Money Market etc. are evaluated. Usually someone who has a proven ability to accumulate savings will demonstrate less risk and has the ability to continue the payments as agreed or pay off the debt should there be a loss of job, illness or extenuating circumstances
money for down payment and closing cost must be the borrowers own funds unless the product allows for gifts such as FNMA Flex 97 or Community Home Buyer and for FHA. Most products call for a 5% down payment from own funds (conventional)
deductions on pay stubs
a person who just gotten a recent raise and the income must be calculated in a consistent way
verification of employment forms completed by someone other than the human resources department
a verification of employment that is not consistent with pay stub or W-2
year to date lower earnings versus the hourly rate or salary (it can mean a borrower has been off work for some reason)
earnings that increased drastically from previous years which have not been explained as a salary increase or if in self employed gross sales increased. The latter will be present in the schedule C.
bonus income must be analyzed and must be averaged over the past 24 months as a general rule but, *sometimes last 12 mos history is used
commission income must be an average of the past 24 months but *sometimes last 12 mos.
tip income must be averaged over the past 12 to 24 months and should be consistent with the job
any discrepancies in a pay stub from W-2 earnings must be analyzed
child support payments as income must be documented for consistency and length of time and alimony payments
credit reports must be analyzed for the frequency of late or delinquent accounts, the number, how recent, excessive or infrequent, what type of accounts
excessive inquiries on the credit report must be analyzed for the past 6 months for new loans if current that might not showing on the credit report and previous for excessive credit searches
a person who has multi revolving charges with their current balance as high or near the high balance or maximum balance is considered as not conservative spender and a higher risk
a person who has any history of public records such as, bankruptcy, foreclosures, collections, judgments, tax liens, or deed in lieu is considered a higher risk and extra precautions, rule, guidelines and evaluation with documentation must be performed
a person without credit must be evaluated for non-traditional credit such as phone bills, car insurance, utilities and any debt that can be verified for the past 12 to 24 months
research has shown that a person who has never had a mortgage loan presents a higher credit risk per the agencies than some who has a proven track record of paying a mortgage payment
rental history must be verified and have no late rental payments; these are analyzed just like a mortgage history
when tax returns are required; the income is average over that past 24 months as a general rule, all schedules must be present. If a person who is self employed writes everything off (expenses) and there is little or no income to be utilized it is not within the Mortgage Underwriters ability to use anything but the bottom line real income. The net income plus depreciation may be added back and then is averaged over the 24 months.
a sole proprietor is responsible for the entire debts/liabilities of the company
self employment less than 12 months is usually not allowed
self employment income must be analyzed for consistency over a period of time; the income and the company must be evaluated for indication that it is a reliable business that will be in operation for the foreseeable future
an applicant who works 2 jobs; must have a history of working 2 jobs, usually at least 12 months and the income must be consistent and likely it will continue
the applicant's debt to income ratio is analyzed to make sure that the new mortgage payment does not overload the borrower's ability to pay their obligations in a timely manner, usually anywhere from 36 to 45% as long as there are sufficient reserves and assets to allow for the higher 45%
the loan type plays a role in the risk factors of a loan approval
down payment amount (equity after the loan closes) plays a role in risk factors

The above is not conclusive but represents why so much is at stack in the evaluation of a mortgage loan and the analysis which must occur before an approval is rendered. There are and has always been many aspects to the approval of a mortgage loan. It is a very detailed process and many concerns sometimes arrives after the application is submitted and must be address. It is imperative that any applicant should tell the Mortgage Processor everything that is relevant in their financial or credit history, upfront.

Some call for more common sense underwriting, but common sense means that you make sure what you see in front of you is the real deal and not something concocted up for the loan that is being pursued. This is of great importance to the Mortgage Underwriter and Processor and everyone should respect their role in complying with quality standards and regulations; yet they do not.

Mortgage Facts Nationwide Licensing System for Professionals

2010-10-26T21:20:00.000-05:00

Just read something interesting, the article was obviously written by a mortgage professional and the title was "Mortgage Professionals Still Considered Scum," and my thoughts went to another new article that announces that all states have joined in the Nationwide Licensing System. I thought and simply just shook my head and understood the person's feelings but knew why this is such a touchy subject.

Before we get into the Nationwide Licensing System, let me say that all mortgage professionals are not the "bad" guys. As I have written other places and possibly here also; there are bad apples in every basket. The blame game doesn't resolve the issues. It started with the signing of the purchase agreement and flowed downward or should I say upward. There were rules and regulations in place, there were quality control measure in place but hey the state and federal government made the laws so why not charge the 6% closing cost? It boils down to ethics and the fact that so many people were willing to pay these prices to just have a home. Sometimes it was due the lack of education of by the homeowners because I have known of individuals who got up and left the closing table because the fees had changed drastically and outrageously.

Still, this was allowed because it was within the limits as specified by each state and local government and the federal government said; everybody deserved a home. Well, that is true but I will say this for the umpteenth time; everybody cannot afford a home. Now, that is Mortgage Facts right on the nose, even though it may sound harsh.

Now to the news of Nationwide Licensing System....

It has been reported from Washing, D. C. that Hawaii became the last state to join the Nationwide Mortgage Licensing System. This is to ensure improved supervision of non-depository mortgage lenders, brokers and mortgage loan originators maintaining licensing through a single system shared by all state mortgage regulators as reported by the Mortgage News Daily.

In simple terms; all loan officers must be licensed if the institution is not a bank that is governed by FDIC. More specifically it means that in each state they must comply with certain test, evaluations and experience in order to have licensing to become a mortgage loan officer, broker or mortgage representative. The institutions have further standards all on their own and this does not include become a broker or mortgage company; it is the person who originates the mortgage and takes takes the applicant and receives compensation.

Further clarification on a loan officer who is an employees of a federal insured depository institutions or an owned and controlled subsidiary of such depository institution that is federally regulated does not have to comply with licensing laws. This has been in effect and has not actually changed but the final rule indicated that the Agency-regulated institutions must require their employees who work as mortgage loan originators to comply with the S.A.F.E. Act's requirements to register and obtain a unique identifier. This means they will comply with the written policies and procedures to ascertain compliance with these requirements. It is said that these loan originators will be required to obtain a unique identifier (specific job title and position) and maintain a register on the National Mortgage Licensing System in early 2011.

Now, let's discuss what the S.A.F.E. Mortgage Licensing Act is. This act specifies what education a MLO (mortgage loan officer) must have. This applies to both the non-federal regulated mortgage company loan officers and as stated above for the federally regulated loan officers.

20 hours of NMLS (National Mortgage Licensing System) approved pre-licensing education to must be completed. This requirement is in force regardless of the number of states in which one is licensed. Each agency may required more than the designated 20 hours.
Certification: the employer must certify that the loan officer has completed the required, acceptable pre-licensing education program that is in forced by the state and complies with the SAFE act.
Continued education annually; the act requires at a minimum of 8 hours of continuing educated to be completed each year. The states may require more but this is the minimum for SAFE Act.
SAFE MLO Test: This act requires licensees to pass both a National and State components of the SAFE MLO test. The National component, passed once satisfies all state requirements. The state component must be passed for each state that the originator plans to originate loans in .
A criminal background check: this means that the loan officer must be fingerprinted and those prints checked by the FBI.
A credit report must be pulled through NMLS. The credit report will be available only to regulators.

**this information source is from National Mortgage Licensing System and the PDF is found there.

Most of these guidelines and requirements; some of us have done previously. In fact I have been licensed, and fingerprinted more than once. I have taken test and had the necessary hours of continued education; even with my 30+ years in mortgage lending; so not all of this is new and in fact I don't see anything that is really new as I have done all of these. In saying that; this will in fact weed out those who are not willing to put in the 20 hours pre-licensing education. In the past; some states have allowed experience as the pre-education requirement but still tested.

Mortgage Facts U Need Before Buying

2010-10-23T13:43:00.001-05:00

No one can express enough the importance of consumers knowing the Mortgage Facts U Need Before Buying or purchasing a home. It is singularly the most important fact and this is because the more you know the less you are likely to get a product, closing cost or anything that inappropriate for your needs.

Since the meltdown of the mortgage industry, FHA (Federal Housing Association) changed of lot their Mortgage Loan guidelines to accommodate the borrowers who need a higher loan amount. Since HUD allows a higher loan to value and they had less money to put into the transaction (conventional lending requirements are 5% from own funds) and a few other non conventional requirements which these borrower needed to qualify for a home loan; they have made substantially more loans during this time.  Just recently FHA has changed the seller concessions to make it a industry standard of 3% instead of the 6% that was so lucrative for buyers. FHA has insurance a total of 37 million plus loans since 1934.  That is a lot of loans and this is made up with single family and multi-family dwellings. Understand FHA's role and Fannie Mae/Freddie Mac as well is also part of the Mortgage Facts U Need Before Buying.

Why:

Understanding why you need a FHA loan over a conventional loan is necessary. Fannie Mae has a program for lender that allows for 3% downpayment and flexible source of funds for down payment and closing cost.  This program is for first time homebuyers and there is an income limitation but it is called The Community Homebuyer Program. With this program you do not have a upfront MIP that is added into the loan and the annual/monthly premium also. With this program you have monthly MI in your loan only. FHA"s annual MIP premiums have changed and it will initiate higher mortgage payments to some extent and the loan amount is already higher due to the upfront MIP being added into the loan.

Conventional Lenders have changed also and it is not as easy as it was prior to the meltdown to get approved for a mortgage loan but it is still imperative that everyone knows the Mortgage Facts U Need Before Buying. Lenders still need to make mortgage loans but they must have prudent lending practices and that is why the guidelines are changing to more strict criteria. In fact is has been said that the Quality Control starts prior to the loan being closed. Meaning, just before closing another VVOE (verbal verification of employment) is completed. This is necessary and let me tell you why.  It has been know that applicants have lost their job before loan closing. This is serious business for the first months of any mortgage loan. This is to keep clients from making a mistake of getting a house they cannot pay for and the mortgage company getting a loan that cannot perform. Guidelines are tougher and stronger and it is for the benefit of all America and the world as a whole. Steps to improve and help you know Mortgage Facts U Need before buying a home.

Let me start out with Steps you need to take if pursuing a Mortgage Loan:

1. How much house can you afford?

This will depend upon your income, credit rating, current monthly expenses, down payment and the interest rate. The Calculator above will help but you will need to verify your calculations with your lender to be on the safe side before going to look for a home.

How much $ amount of payment can your afford; this includes: Taxes and Insurance, so this amounts to principal and Interest payment + taxes + insurance. An example is:

$250,000 loan amount

360 (30) year term

5.750 interest rate = a Principal & Interest Payment of $1458.93

416 mo taxes (e)

100 mo hazard insurance(e)

Total payment $1974.93

The above taxes and insurance amounts are estimates only and you will need to go online or call the tax assessors office to get the tax rate for where you live.

You can also call a Real Estate Agent

You can call a Hazard Insurance Company to get insurance quotes for the amount of coverage you need

Things that affect your Insurance Premium: Credit is pulled now for insurance purposes also; where you live, what kind of coverage you get. You must carry the amount of the mortgage loan without exception or full replacement coverage.

Everybody does not tell you this but I am going to add my two cents worth and this is from having been a Mortgage Loan Officer, Mortgage Loan Underwriter, Operations Manager and a Loan Processor. To me this is one important part of a person knowing what they can and cannot afford:

People sometimes forget that even though you do not count things like child care, car insurance, utilities, phone bills, out of pocket expenses that occur each and every month in your debt to income ratio; they should consider "all" of their monthly expenses when trying to decide what they can afford. These can be large expenses and should not be forgotten by the home applicant because this could get you off to a bad start right up front.

2. Know your rights

ECOA (Equal Opportunity for all) -Brochure

Real Estate Settlement Procedures Act (RESPA)

Understand Predatory Lending

3. Shop for a loan

Do not just take the first come, first serve lender's quotes. When you are given a GFE, (Good Faith Estimate) remember that RESPA laws have changed and know what all your fees consist of. Get a breakdown and do not be afraid to ask for one.

Shop around and ask about different loan types. Read up on the type of loan you are offered and ask for explanations of what words mean that you do not understand.

Conventional

FHA

VA (if you are a Veteran)

Do not let anyone convenience you that an interest only or Adjustable Rate Mortgage is best for you, unless of course; it is. You should do your own homework for these two types of loans especially and know before you go, what you desire in a mortgage loan. Be informed and the best is seeking information about types of mortgage loans. **at this writing; interest only loans are not as plentiful as they were and especially for first time homebuyers.

4. Learn about First Time Homebuyer Programs and Down Payment Assistant Programs

Your state will have help for home buyer programs but make sure still that you are getting the right deal

5. When you shop for a home, have a list of what you want in a home but be reasonable and know what you can afford.

Get a home inspection before you close any loan

Well, this is something to start with. Hopefully it will help you know some things you need to be aware of upfront before you even call a Realtor. It is always good to use a Realtor because they are experts in home inspections, market analysis, and anything to do with getting the right house.

*Important: You do not have to use a Lender of the Realtor's choice and they cannot make you do so. This does not fit into RESPA safe practices and is against the law. If you are told that you will get this or that and even better service.....you still have the right to use your choice of lender. All of the above are steps and knowledge about Mortgage Facts U Need Before Buying and the more you know, the better chances you have of getting the right mortgage for your needs.

Mortgage-Appraisal Reform Bill Signed

2010-10-21T13:31:00.000-05:00

The Dodd Frank Wall Street Reform and Consumer Protection Act which includes the Mortgage-Appraisal Reform is now in force. On October 19, 2010; this bill was signed into law, by the President. It consist of some 2,300 pages and it contains major changes to financial issues and appraisal guidelines; which everyone in the mortgage industry and real estate (mortgage bankers, lenders, loan processors, underwriters, appraisers and real estate agents) must adhere to. All of the agencies will conform including HUD as their guidelines are changing with almost every aspect of evaluating prospective home buyers anyway.

This new overhaul of the Mortgage - Appraisal Reform Bill includes major changes for lenders and a complete new set of rules for residential appraisers. This new law is to give more restrictions and standards for lenders to comply with in generating a more balanced system of managing appraisers and their evaluation process.

The new law which is referred to sometimes as the Appraiser Independence Reform; will be stricter than the Home Value Code of Conduct (HVCC) that has previously been in force and the violations will be subject to much stiffer penalties of up to 20k per person per day. This one will indeed keep everyone on their toes; we hope. There has always been rules and regulations within evaluation of the property appraisals but this new Mortgage Appraisal Reform Bill will actually be supervised more strictly and with high cost if not adhered to.

Per information that has been given the bill will provide lenders with three ways to manage their appraisal process. 1) Outsource- this may be done with one or multiple appraisal management companies 2) self-management of an appraiser panels from ordering to delivery of appraisals or 3) chose a hybrid model which consist of a combination of self-management and appraisal management companies outsourcing where a lender manages its own appraiser panel in the key markets but outsource the out-of-market business and the high volume amount to AMCs. (Appraisal Management Companies).

The Appraiser Independence Requirements

These Mortgage Appraisal Reform Bill, guidelines have been developed to replace the now code of conduct and here are some of the appraiser requirements: As publish by FNMA

Protect the independence of appraisers and the integrity of their appraisals.
Extend these important protections for home buyers, mortgage investors, and the housing market.
Reinforce the agencies commitments to responsible lending and mortgage quality standards.

The detailed requirement which will alter how appraisers must be treated and respected can be found at Fannie Mae.com. Will this put a stop to the bullying that sometimes occurs? I am doubtful but it has never been suitable for a loan originator or real estate agent to ask the appraiser to provide a certain appraised value and if they did not they would not use them any more.

These new guidelines spell out exactly what will not be allowed that did occur during the past....Sorry, but there have been issues which resulted in the appraiser being scared to death that they would not get enough business to pay the bills, if they did not give the lenders, loan officers, and real estate agents what they wanted. This is exactly why we are now seeing many properties which are "underwater"; and/or declining in value. I am not ratting on anyone.....just the gospel and if the shoe fits; one must wear it.

It has never been acceptable for anyone involved in a mortgage transaction to suggest to the appraiser a market value. We have all done it.....because we all wanted to close the loan and get paid and if the loan officer did not close the loan; the real estate agent would stop using them because they did not know how to get loans closed. Therefore, the company felt the same way.....The story goes on and on....and if everyone would be totally honest they would say; amen.

It really doesn't matter what the old rules were nor how the cards were play during the times that has cost America a fortune. What matter is that there are new ways, rules and regulations to implement so that everyone can feel more confident that their best interest is taken seriously without a personal interest to get the loans closed regardless. Will all of it stop? Why, heavens no; the same way that the new RESPA guidelines/new good faith estimate; did not cure the need for better explanations to consumers regarding their cost of obtaining financing.

With that said, it is at least an effort to clean up the mess that has generated people losing their home and it will give explicit instructions with repercussions for Mortgage Bankers , Lenders, Mortgage Correspondents and Brokers who still decide to deviate from the rules being set out. This new Mortgage -Appraisal Reform Bill is the one of the best ideas that Dodd-Frank has voted on and every consumer should be giving cheers.