Archive for the 'Industry Mortgage Tips' Category

FAQs about FHA Modernization and the Stimulus Bill

Published by
Morgan
at February 24, 2008 in Industry Mortgage Tips. 9 Comments

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Thanks to reader Frank for sending this brief FAQ about the Federal Housing Administration’s Modernization bill and the Federal Stimulus Bill that was just passed.  With all of the confusion around the changes proposed to FHA loan limits as well as the new conforming loan limits that will be in effect as a result of the stimulus package.

 FAQ Regarding FHA Modernization

Q- Where are the new loan limits going to, and when?

A- Right now, the county loan limits are at 95% of the median home value within each individual county. The stimulus bill which President Bush passed, will raise these limits to 125% of the average median home value. A simple calculation would be to take the limit and multiply it by 1.315 (or raise it by 31.5%). We think the new loan limits will be accepted within a few weeks, and we will advise you immediately when we can close these new loan sizes.

Q- What’s the difference between the FHA Modernization act and the Stimulus Bill?

A- The FHA Modernization act is a bill that will modernize the current FHA guidelines including loan limits, tiered MIP, and may enhance current guidelines. This is currently in legislation, yet there is no time frame as to when this will go into effect. The stimulus package is an economic package which included the loan limits increasing for FHA until December 2008, however, the modernization act should put this in place for either a longer period of time, or with no termination date.

If you’ve got information or communications that help sort through the confusion send them our way and we’ll get them up to help spread the knowledge.

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Some Economics of Wholesale Lending: Yet another Reason Why it’s a dead man walking.

Published by
Chris
at January 14, 2008 in Consumer Mortgage Tips, Credit and Industry Mortgage Tips. 10 Comments

With permission, I’ve done some number crunching on an actual deal that actually closed.  These borrowers were not risky, AAA+ borrowers, low LTV on  great house here in central Ohio.  Over the summer, they chose to refinance.  Since they were strong borrowers, the loan was clear to close before locking.  We chose to close their 15 year fixed loan at 6.375, which was a decent rate at the time.   Our price was 102.8 on a $270,000 loan.  We used our some of this to pay closing costs, and the rest was profit.

This means that the lender we used paid us $7,560 in real money to close this loan for the clients.   They had the original 6.375 loan for 138 days.  This means that ALL the interest that was collected was $6507.  They paid me to do this loan, and lost $1,053 for the privilege of having this loan for a while. 

Right now, I can offer these people a similar deal at 5.75.  This is paying 2.69% from one of my carriers, or another $7263.00.    The second I saw an opportunity to improve their situation (and make a good fee), I told them I can do a no closing costs deal for them at this price.  They are closing next week. 

I am paying all of their closing costs, ALL of them…on the new loan. I’m fronting for the appraisal.  I’ll still wind up with 1.5% after all costs and fees are paid, and we’re not increasing the loan amount.  There’s still good money for negligible work (60% LTV 819 credit score 14% back end ratios).  The first bank paid $1000, never made a profit on the loan and it was paid off because it benefited the customer.

The very best customers, the lowest risks, don’t stay with their banks long enough to make a return.  There’s no upside for a big Midwest bank to fund someone (in this case, the bank was Tom’s employer), because I took them away. I feel like I have an obligation to watch my customers portfolio, and that outweighs any obligation I may have to the Bank.

Now, there is nothing in our agreements that recapture any of our money past 120 days.  So, Bank A has lost money because of this "great" transaction. Bank "B" will lose money if the rates improve because I will have my eye on the ball and ensure that my clients are always in the best interest rate that makes sense.  Banks are–to me–fungible.  So, my question is what incentive do they have to stay in the game when they have massive downside, limited upside, and no relationship with their customers?

 Chris Johnson closes loans for Realtors in ten days or less at Tendayteam.com. 

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National Association of Home Builders

Published by
Tom
at December 26, 2007 in Industry Mortgage Tips, Market Update, Mortgage Musings, Real Estate Musings and Uncategorized. 1 Comment

I just got this e-mailed to me. I wish I could be as confident as they are. What do you think?

Also, what do you think the “incorporating critical policy assumptions” means?

“NAHB’s housing forecast (incorporating critical policy assumptions) shows systematic improvements in home sales by the second quarter of 2008, improvement in housing starts by the third quarter, maintenance of low levels of manufactured home shipments throughout 2008, and modest declines in the real value of residential remodeling next year. In this forecast, Residential Fixed Investment continues to contract through the first half of 2008 but posts modest growth in the second half of the year.”This is an excerpt of The Seiders’ Report -December 21, 2007- which has been published at HousingEconomics.com. Please make sure you are logged-on when you access this report.Also, look in this report for the Executive-Level Forecast.Not yet a subscriber? Free samples are now available.Subscribe Now!

Sincerely,

Editor

HousingEconomics.com -News and Alerts

Click here to unsubscribe

1201 15th Street NW, Washington, DC 20005-2800

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Bad Builder’s Bill

Published by
Tom
at December 26, 2007 in Industry Mortgage Tips, Legislation, Mortgage News/Insight and Real Estate Musings. 4 Comments

I just got the following e-mailed to me from one of the local title companies…..

Governor Granholm Signs Bipartisan Professionalism Package

Without any fanfare, Governor Granholm has signed the bipartisan Professionalism package (also know as “the bad builders bills) into law. Senate bills 450, 451, 452, and 453 (now Public Acts 155, 156, 157 and 158 of 2007) were sponsored by State Senators Nancy Cassis (R-Novi) and Ray Basham (D-Taylor). A similar package passed at the end of the 2006-2007 session was vetoed by the governor last year because of technical problems.

While most of the changes found in this package will not take effect until June 1, 2008 unlicensed individuals acting in the capacity of a residential builder or a residential maintenance and alteration contractor will immediately face stronger penalties.

A first offense will be a misdemeanor punishable by a fine of not less than $5,000.00 or more than $25,000.00, or imprisonment for not more than 1 year, or both. A second or subsequent offense will be a misdemeanor punishable by a fine of not less than $5,000.00 or more than $25,000.00, or imprisonment for not more than 2 years, or both. An offense that causes death or serious injury, a felony punishable by a fine of not less than $5,000.00 or more than $25,000.00, or imprisonment for not more than 4 years, or both.

Here are the major changes in the Occupational Code made by Public Acts 155-158 of 2007. These changes take effect June 1, 2008.

Requires the successful completion of a 60-hour prelicensure course of study by applicants for an initial residential builder or contractor license prior to licensing.

Establishes continuing competency requirements for licensed builders and
contractors.
Requires all licensees to have a current copy of the Michigan Residential Code.
Allows a licensed builder or contractor to apply for inactive status.
Allows a prosecuting attorney and the attorney general to bring a civil action
against a person not licensed under Article 24 for practicing without a license; and
require the court to order a fine payable to the prosecuting attorney or the attorney
general.
Requires the Department of Labor and Economic Growth (DLEG) to issue three year residential builder and contractor licenses.

Requires a licensed residential builder, as part of a contract, to provide information
relating to his or her individual license and any qualifying officer license.
Prohibits a person not licensed under Article 24 from imposing a lien on real
property.
Increases the per-year license fee for a builder or contractor from $40 to $60 for
one license cycle, and prescribes a $50 fee for subsequent years.
Creates the “Builder Enforcement Fund” and requires it to be used for the
enforcement of Article 24 of the Occupation Code regarding unlicensed activity,
and the prosecution of unlicensed practice.
What do you think it’s going to mean to the industry?

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Fannie and Freddie in the Jumbo market?

Published by
Tom
at December 17, 2007 in Economy, Industry Mortgage Tips and Mortgage News/Insight. 20 Comments

This article on Bloomberg talks about Paulson and Bernanke wanting to increase the Fannie and Freddie market from $417,000 to $1,000,000.   I’ve got a couple of reactions to that:

1. If Fannie and Freddie are currently bleeding money and we don’t really know how bad things are in their current portfolios and they don’t have enough capital (or it appears that they don’t) to handle the current loan pipeline and what do we want to do?  Give them a larger portion of the mortgage market?   Are we asking for trouble?

 2. I’d love to see Fannie and Freddie start buying jumbos because I think it would unfreeze the jumbo market a bit.

So, what do you think?

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Hmmm…..

Published by
Tom
at December 13, 2007 in Industry Mortgage Tips and Mortgage Musings. 2 Comments

November’s operating results reflect the trends of today’s mortgage market,” said David Sambol, president and COO at Countrywide. “Origination mix continues to shift as third-party originated fundings as a percent of total mortgage loan fundings have decreased year-over-year and retail fundings as a percent of total have increased. In addition, government fundings represented 10 percent of total mortgage loan fundings in November 2007 versus 3 percent in November 2006.”

This is from www.housingwire.com

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Freddie joins Fannie

Published by
Tom
at December 12, 2007 in Credit, Industry Mortgage Tips and Mortgage News/Insight.

Housingwire.com broke this last night.    Freddie is joining Fannie in instituting a “market condition delivery fee” as of March 9, 2008.   What is a market condition delivery fee?   In my own words, it’s Fannie and Freddie’s way of saying that the market is tough and they aren’t making the money they used to and so they need to raise their prices to compensate for the risk that they are taking.   How much of a difference make?   Less than .125% on the interest rate.

Read the entire article here.

 So what do you think?  Are Fannie and Freddie taking the steps they need in order to survive and remain profitable?   Or are they trying to take advantage of a down market and make a little more money?   I think it would be good for all of us to remember that without Fannie and Freddie continuing to operate as a “going concern” we are all seriously screwed and the housing market is in even deeper trouble.

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WaMu’s troubles…..

Published by
Tom
at December 10, 2007 in Industry Mortgage Tips, Market Update, Mortgage Musings and Mortgage News/Insight. 3 Comments

Ouch - in my previous positions as a loan officer for smaller community banks, I sold a LOT of loans to Washington Mutual (including the one on my own house!).    Check out this article for details, and also check out what Housing Wire has to say about it here.    Here’s my take on it:

1.  Washington Mutual is making some drastic moves in a time where the market is changing dramatically.   It’s a life saving effort, and it’s one that they have to do.    Will it work?   I don’t know.   Is it enough?   I doubt it, I think we’ll see more from them in the future.

2. If Washington Mutual is feeling that much pain right now, what is happening over at Countrywide right now?

3. For years, Washington Mutual was one of the major forces in the wholesale and correspondent lending fields, at least in my neck of the woods (Western Michigan).   I think we should all go back and take another look at Morgan’s post “Dead Man Walking” because at shortly after the market closed today another nail got pounded in the wholesale lending industry’s coffin.

 4. A friend of mine who is an appraiser told me today about new rules that Countrywide has come out with that appraisers have to follow.   Let’s just that calling them “restrictive” is being nice.   In a soft market, being able to meet their criteria is very close to impossible.

 Hang on to your hats, it’s going to be a wild ride!

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Beware of the Salesman!

Published by
RB
at December 6, 2007 in Consumer Mortgage Tips and Industry Mortgage Tips. 4 Comments

Moe Bedard from loanworkout.org defined it best,

I think we are just a bunch of consumer advocates that are hell bent on exposing the truth.

I know I am and I’m sure my colleagues here feel the same way! With that said, onward we go…

To quote my fellow colleague Graeme K. Brown in an earlier post:

The unsuspecting homeowner has a difficult job too. They need to sort through emails, phone calls and direct-mail pieces to find the right person (company) to secure a loan for them.

How do you know when you’ve found the right person/company? Who will uphold their fiduciary duty in servicing the client; integrity in tact?

  • We have the W-2 employee working under the appropriate licensing of their broker

Then,

Now you might think, “go for the one with the highest designation, everyone else knows didly squat!”

Wrong!

This is where I say be careful & follow your instincts.

The thing is, looks can be deceiving! Like that slick Financial Advisor in the pin-stripe suit with those fancy print-outs. You think, “Wow, this guy really knows his stuff!” But really it’s all marketing antics brought by good looks and a little software.

Look for knowledge and understanding beyond “what” they are suggesting. Know “why” they are suggesting it and be sure that they know as well because it goes without saying, if they don’t know their “why,” you’re talking to the wrong professional.

My suggestion…

Ask for referrals from the following sources:

  • Your Realtor: a colleague of mine said, “the proof is in the pudding…” Certainly a Realtor has worked with a couple of loan originators that they can recommend. They’ve closed deals together before and the client has been happy. (I won’t get into the discussion on in-house lenders…maybe we can leave that for another day. Please?). But I will say beware the Realtor who says “I can do your loan for you!” Run I say…run! Can you say, master in one trade, expert at none?
  • Your CPA: in the thousands upon thousands of tax returns they file for clients each year, certainly they must know a lender or two. But again, beware the CPA who says “I can do your loan for you!”
  • Your Stock broker: for obvious reasons they should know someone who can gather appropriate financing for you. If you don’t have a stock broker, ask the wealthiest person you know to refer one to you. They’re a stock broker because they’re good with money and certainly their loan professional is good with it too.
  • Your happy-go-lucky married friend: ask them who they used to finance their home purchase. If they were pleased with the service, they’ll refer someone to you without hesitation. If they’re facing foreclosure and they’re not so happy-go-lucky anymore, the service wasn’t so great and you probably can do without the referral!

I won’t recommend family…for some reason I’ve seen family screw grandma for a dollar and that just isn’t nice! But of course, if you’re in good hands, then you’re in good hands.

Now that you have some referrals, next comes the honeymoon phase. This is where you get to know each advisor and ask thought provoking questions about your particular scenario. But be careful, don’t “rate shop” for that is an act in futility; the below referenced quote will address why. What you’ll get instead is lender after lender beating each other up until one has offered the so-called lowest rate or has baited you with an ill-fated promise of the lowest rate on a 30-year fixed, no pre-payment penalty. You’ll come crawling back saying “but he said…” and that would just be an unpleasant sight. On the other hand, if they have a what (a solution) and can demonstrate why, then this evidences knowledge beyond taking an application; this is what you’re looking for. And sometimes you’ll find it irrespective of designations.

Just remember, keep you instincts close and,

As much as possible, deal only with good and honorable people. If you deal with good people, you won’t need a contract, and if you are dealing with bad people, no contract can protect you.

Adam M. Aron
Chairman and CEO of Vail Resorts, Inc.

Now if your BS detector is on and each of them talks to you in the smooth talking lingo that salesmen are taught, you can always contact me.

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Monday’s Blame Game: Dirty, Dirty AEs.

Published by
Chris
at December 3, 2007 in Industry Mortgage Tips, Marketing, Mortgage Musings and Why I Hate My Industry. 41 Comments

Dirty, Dirty A.Es.

Part of the problem that puts us where we are today is the way mortgages are sold. The process creates a ton of perverse incentives that cause an overall degrading of credit risk across the spectrum. Wholesalers bop into mortgage companies and talk about program highlights. They employ Account Executives (AEs) to communicate their messages. The AEs chat up how quickly they close loans, and what loans they are looking for. The originators are their customers. A good, knowledgeable rep is worth their weight in gold, because they know which exceptions their companies will and won’t take.

Originators generally have the choice of many different places to send their money. I myself use five total sources, but back in the subprime heyday, there were people in our office four and five times a day–minimum–trying to get us to send our clients to them.

Exceptions: The Rule in Lending

In a sea of sameness, these originators began to sell what exceptions–tough deals–their company took. First Franklin was the ’score driven’ lender, allowing people 12 hours out of their bankruptcy discharge to close loans. This “score driven” bias was a huge reason to send stuff to First Franklin because they could (in 2005) close loans when the borrower had thousands in money owed to bad credit card bills, judgments under 10k, and even Child Support. There were others.

The AEs began selling their “exceptions,” or “niches.” Things that they did that nobody else did. The now defunct Own It was notorious for doing high-loan-to-value loans for people that had no history of paying anything, ever. Do you see what happens?
Successful reps wanted to win, so they would get relationships with underwriters, and write to the LETTER of the guidelines negotiated with their securitizers. Crap loans–that were obviously crap loans–were not only accepted, they were sought after by reps and sales managers. “We’ll do that,” was the mantra of the highly aggressive, industrious and intelligent AE community.

Perverse Incentives

On more than ten occasions, I was told how to do a “phantom second” by a rep–essentially asking me to commit fraud against his own company. On more than five, it was put in writing. I was told to “throw away income docs,” and run it “stated”. And–from the perspective of the AE–they are paid to get acceptable loans. That’s their job, and the incentives were pretty perverse. If you were good at finding–and selling–the soft spots in your company, you get promoted to management, where you disseminate the information even faster. A partial verbatim niche sheet from a now (nearly) defunct lender (bonus points if you guess which lender in the comments).

  • unlimited 90 day lates if no NOD filed.
  • “Seller Seconds” fine with us (Note: quotes his, not mine)
  • 1 DAY OUT OF FORECLOSURE W/620 IF BANKRUPTCY 1 YEAR OLD.

So–the incentive to put volume above all other concerns–including quality–meant that lenders were actually trolling for business that we all knew HAD to be worse than risky. That it remained acceptable for so long was mostly because of the “popular because it’s popular” Ponzi effect of the Real Estate Boom. Once the prices dropped and the valve to “sell or refinance” was removed, well, the mortgages were all Blown.

Chris Johnson is a mortgage lender in Westerville, OH specializing in closing purchase loans in ten days or less. He can be found many places on the web, including here.

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