Blown Mortgage

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I have been accused of not covering the positive parts of the industry on this blog and so to give a bit of time to the positive developments that are arising out of this mess I wanted to highlight two changes that Long Beach Mortgage has made that are definitely in the best interests of their customers. I believe that more changes like this will follow as the regulatory environment turns more in favor of the consumer and less so for lenders.  I hope that more lenders adopt these changes. While they are a pain for brokers and intermediaries it is a welcome step for consumers who feel victimized by the mortgage process.

Change 1 - Verbal Confirmation of Fees and Loan Program

The biggest change is that prior to loan documents being sent out to escrow by LBM the lender will call the borrower directly and reconfirm the following:

• Fees
• Loan term
• Loan program
• Interest Rate

This will be done independently of the broker.  It will allow LBM to determine if the details are being obfuscated by the broker and also ensure that the borrower is fully aware of the agreement they are entering in to with the new mortgage.

I think this is a great change.  Too many borrowers get screwed by mortgage brokers who leave “details” such as fees, rate and other key items fuzzy until the signing table.  By that point it is too late in the process to start over; and another disenfranchised person(s) pick up the pen with a pit in their stomach and sign a mediocre loan that doesn’t resemble what they thought they were getting.  Hopefully this will eliminate that problem with LBM loans.  Bravo to them for adding this step of consumer protection.

Change 2 - No More Stated Income Loans for Subprime Borrowers

While many in my industry probably bemoan this change - citing a litany of excuses such as the plight of self-employed borrowers with complex income streams - I think it is a good move.  Subprime underwriting guidelines provide for so many different ways to qualify income that stated isn’t really necessary (unless you’re lying).  Subprime underwriters will use bank statements, business bank statements and all sorts of other income proof that stated just isn’t needed.  Plus fully documented loans can be underwritten up to 55% of the borrower’s gross monthly income (not take home - gross!) which allows for plenty (too much?) leverage.

Will this screw a bunch of people who are overly leveraged on a stated income loan who need refinancing?  You betcha. Will it be better overall for homeowners who end up with a loan from LBM?  I believe so.

There you have it - two positive changes in the industry out of the turmoil.  I hope that more companies follow WaMu’s lead in consumer protection changes.  I know that some already are.  Homecomings Financial just announced that they will require redisclosed GFEs as part of the loan package if “significant” changes are made to the file after submission.  Another small step for a much maligned industry.  We’ll keep our eye out for other positives - if you see any send them our way at tips@blownmortgage.com

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