The main purpose is to give borrowers, at the beginning of the loan process, when they are figuring out their budget to purchase or refinance a home, a sense of their total cost. So a borrower could look at the GFE and evalutate the bank, title, and other fees, as an estimate, that are associated with their loan. You would think that this is–has been–a great document.

In the past, lenders had the ability to tell their clients that, for example, bank fees are going to be (say) $500, and then at the closing charge the borrowers $1500. At the closing table borrowers could either close and eat the additional fees, or they could decline to close and either try to sue the lender or find a loan with another lender.  Any scenario is painful. And rightfully so. This is the “inspiration” for the new GFE.

Now, as I will discuss in upcoming posts, the lender must write, in separate boxes, total bank charges, total bank credits (to the borrower), or total bank discount points. At the top of the second page the loan officer must clearly indicate:

1. the bank’s total orgination fees that usually include bank and/or origination fees.
2. if the bank is offering and interest rate with no other fees.
3. if the bank is offering any credit to the borrower.
4. if the bank is charging discount points to lower the interest rate.

Theoretically, then, borrowers can compare–the old apple to apple comparison–lenders cost to cost. It’s not a bad idea, and seems simple enough. But as the article that I have referenced explains, these numbers cannot change unless the borrower requests a change, and if the loan officer makes changes without the borrower asking for the changes, the lender will have to pay for the difference.  So in my initial example, a borrower showing up at closing with a settlement statement that is $1000 higher than the GFE will not have to eat the difference. The lender will be forced to pay the difference  Though this is a good thing for the borrower, to protect them for predatory lenders, it can be an unfair practice against many lenders. Now lenders are forced to wait until borrowers have a contract before issuing a GFE.  And so borrowers can only receive and estimate (an estimate for the Estimate?) of what their GFE will be.  Sound a little wacky?

Stay tuned for some more thoughts on the new document.

True?  Maybe, but in general not so much. A good, knowledgeable realtor could be a good referral source in finding a good loan officer.  The key word is good. Check.

Having a “decent” salary and good credit is pretty relative.  And it’s relative to the other risk factors when a loan officer considers your ability to qualify for a loan: income, assets and reserves, credit score and history, appraisal, loan to value, etc. He is correct, though, that you will have to provide documentation to verify the various factors that will qualify you:  pay stubs, W-2s, tax returns (maybe), full, complete statements of your assets accounts, and maybe more. I cover all this in my book.

In the end, it’s not a big deal. For some, I know, who may not be as organized with their current statements and records, it may be a little frustrating.  Nevertheless, it’s all required.

The mortgage process is not a five paragraph process.  Take your time. Think about what’s important. And seek qualified help.

Let’s look at my perspective. If we assume a loan amount of $300,000 and a current rate at 6.00%. The principal and interest payment would be $1,799. Principal and interest.  Principal, assuming value stays the same or increases, will become equity. An amount that you own. Interest is a cost. You pay it, and lose it.  Anyway, if you were to refi with a 5.00% rate, your new principal and interest payment would be $1,610.  Lowering your monthly payment $189 per month. $2,268 per year. $11,340 for 5 years. Not bad.

And…to me, more importantly, you lower your cost. At 6.00% your yearly interest that you pay is $18,000. At 5.00%, it’s $15,000. In this scenario, you’d be saving $3,000 per year ($250 per month)! Pure cost. Over five years, you’d be saving $15,000.

Remember, there’s two payments to keep in mind: monthly payment as well as cost (interest).

In the example that is presented, where we do not know the loan amount, the borrower is spelling out that the monthly tax and insurance payment has increased, which it would anyway, but the P & I payment would be lowered by $144 per month. Not bad. And the net closing costs were around $2,000.

Is it worth $2000 to refinance? A couple things. First, it is accurate that a borrower can pay the closing costs at closing or can role this amount into  the loan (add it to the current loan amount). This, then, means they are paying interest on the additional $2000.  Here, they are paying an additional $100 per year in interest on the $2000 amount added to the loan amount. Good thing or bad thing? A small thing, but something to think about. In five years that’s $500. My thinking, if you have the $2000, why not pay it at closing and save the money that would be paid on interest. The whole point of refinancing.

Also, this borrower brings up an important point to remember. When refinancing, you will have to re-establish a tax and insurance escrow account. Unfortunately we can’t roll the old account into the new one, so the borrower will have to bring money for the new account, and then the current lender will reimburse the borrower for the money that is being held in the old escrow account, usually within a few weeks of closing. In addition, the borrower will pay the accrued interest for the current loan to the current lender, and will then pay prepaid interest (paying the interest that will accrue, for the new loan, usually through the end of the new month, just as you would do in a purchase), and then you will skip a month for the new, first month’s payment.

But wait:  was it work paying $2000 in closing costs? Look at it this way, from a payment perspective, if you divide the monthly lower payment amount ($144) into the cost ($2000), it will take just under 14 months to break even, and then these borrowers are truly saving their $144 per month. Sound good to you?

Last, they are also paying more than the required minimum, as part of their goal is to pay down their loan faster to pay less interest for the life of the loan.  To me, neither bad nor good. It makes them comfortable and happy. That’s the important thing.  I like happy people.

Now that (hopefully) the housing market is starting to show signs of improvement, condo lending should also improve. Slowly.

Fannie Mae recently reported that they will now review the condo market, particularly in Florida, one of the hardest hit states. It’s important to note that not all loans for condos require a 25% down payment. In fact, there are still lenders offering products, for a Fannie/Freddie loan, on a condo with less than 25% down payment. The other issue to keep in mind, however, is mortgage insurance. Remember, for most conforming loans with less than 20% down payment, the borrower is either going to require a first mortgage with no more than 80% LTV and then a second mortgage for the balance of the loan (something very difficult to find these days) or going to require mortgage insurance. The mortgage insurance companies are perhaps even more conservative when it comes to condominiums.

Hopefully guidelines will loosen up sooner and lenders and the secondary market will continue to help the condo complexes that have been suffering the most.

When a loan officer reviews a borrower’s history, the first, and most important, factor is credit. I recently read an article that focused on this question. Even if a borrower had no credit cards, no automobile payment history, and/or other history regarding credit that would appear on a credit report, there are loans still available.

Basically, the loan officer would build a credit history, with items like rental history, utilities, cell phone, etc, and would send the documents to a credit report company that would confirm the positive payment history. Then, the credit report company would complete a report, without credit scores, and send it back to the loan officer to review.

Several lenders, per Fannie Mae and Freddie Mac guidelines, and including FHA guidelines, still allow a manual review of credit history.

So those who are afraid of not being able to obtain a loan because of a lack of credit history should simply collect documentation,  for the monthly payments that they do make,  and set an appointment with a qualified loan officer. You may be qualified.

Remember that Fannie and Freddie increased conforming loan limits–in certain geographic areas–so that borrowers with larger loans could benefit from lower, conforming interest rates and, to some extent, conforming loan underwriting qualifications.

However when these jumbos came out the interest rates weren’t so favorable.  Lower than most “true” jumbo loans, but still relatively higher than conforming loans.

The key is to make sure that your property is located in an area where these jumbo conforming loans are allowed.

First, to make an offer to purchase a property, the listing agent (or homeowner if it’s a FSBO) will likely want a pre-approval letter. In order for the loan officer to write the letter, he or she must have all of the borrower’s information.  And believe it or not, the information needs to be correct. What?

So really the first step is for the borrower to give the loan officer all of the relevant personal information (name, address, employment, income, credit history, etc.) and then for the loan officer to verify this information by reviewing the actual documents (paystubs, W-2s, asset statements, etc.).  Then, and most importantly, the borrower and loan officer should review all of this information as it now appears on the application.

The industry has moved away from personal consultations and reviews.  And this has caused borrowers to unintentionally misrepresent information that is critical for loan program availability and which could, down the road, cause an issue for underwriting. The information has to be correct before a loan officer can confirm mortgage program availability, and the program availability will determine the kind of preapproval that the loan officer can write.

 In the end:  without accurate application and credit information, that preapproval really doesn’t mean that much now, does it?

He seems to be upset because banks/lenders are using systems to offer higher rates to current, valued clients. Hmmm….. At first glance I would agree and be upset. Yes, you want to give your best customers your best products and rates.

He then goes on to suggest that people who are going to need a mortgage should assume that the lender is trying to “screw” them and shop “hard.”

I am not clear what he means by shopping hard, but I think I have a sense.  Talk to as many people as you can, use one lender’s rate against the others, and have them negotiate. Hmmm….

I have always felt that it is perfectly fine to talk with a few lenders. Only if you feel completely comfortable and confident that they are professional, ethical loan officers. If the answer is yes, then you should be getting the “best offer” upfront.  And let’s remember how tight the mortgage programs have become, and interest rate is really one of the last items to worry about.

Here in Chicago we hit 60 degrees this weekend. I noticed everyone out and about, walking dogs, walking kids, wearing shorts, etc.  So I guess spring is here.

Then I noticed the trees.  Still all bare.  Not any sign of buds yet.  It was as if the buds were still afraid to pop out for fear that we’d get another blustery snowstorm. I don’t blame them.  I am nervous about that too.

But that got me thinking about my industry.  Though it seems that more people are out looking at properties, my sense is everyone is still nervous. From talking to new clients as well as real estate agents, most people have heard about the mortgage industry situation, and even after having been fully pre-approved, they still don’t feel anxiety-free.  They know about the month-to-month (or, even more accurate, day-to-day) program changes, and so they have to be wondering, “I am fully pre-approved today.  But what about in 30 days when I find a property?”  Good question.

My suggestions:

1. Be sure to work with a reputable and knowledgeable loan officer.
2. If you call a loan officer, and he/she doesn’t call back, you can be sure that you won’t get a call back when programs change.
3. Be proactive and ask your loan officer a lot of questions. Like: “How will I know if the program for which you are preapproving me will be around?” and see how they respond.
4. Does your loan officer explain the state of the industry or just say everything is great, please sign here?

It’s important to feel safe and secure.  Though no one can guarantee every loan, the conventional programs should be solid.  If you are going to do any out-of-the-box loan, be careful.  It could be very very cold out there still.