Monday, March 23, 2009

Classes for Realtors and the Public

Need some CEU's? We are approved by the State of Colorado to offer continuing education units for classes we teach on the following subjects:

- FHA Loans - if you don't know about FHA loans, you are probably losing money.

- VA Loans - 100% financing, no mortgage insurance, no income limits - you need to know about VA loans.

- Automated Underwriting Systems - these are the underwriting systems that your mortgage broker SHOULD use before giving you a pre-approval letter. Deals don't fall apart when automated underwriting systems are used correctly.

We also offer classes to the general public at Colorado Free University on:

- How to Choose the Right Mortgage - no hype, no sales pitch - just everything you need to know about all the different loans and all the closing costs.

- Understanding Your Credit Score - credit scores determine whether you get a mortgage and what your interest rate will be. Learn how to raise your score, how to keep it there, what to do, what not to do, and how to fix errors for free.

To get a copy of our most recent class schedule, go to the bottom of our home page and click on the link to download the schedule. Here's the link to our web site:

Tuesday, March 17, 2009

What's the Difference Between the Loan Origination Fee and the Discount Fee?

One of the most common questions we are asked is what is the difference between the loan origination fee and the loan discount fee. Here's the answer:

The loan origination fee is profit for the mortgage broker. 100% profit. If you're using a retail lender, then it's 100% profit for the lender. Don't let anyone tell you differently.

The loan discount fee is a fee that the lender charges the mortgage broker to get a lower interest rate than the "par" rate. The par rate is the lowest interest rate that does not cost the broker any money if he locks the loan at that rate. If the borrower wants a lower interest rate than the par rate, then it costs the broker some money to lock the loan at the lower rate, and the broker will pass that fee onto the borrower. This is known as "buying down the rate" and the fee is typically known as "paying points". The lender is basically saying, sure, you can have a lower rate, but it's going to cost you X amount to get that rate.

One thing to keep in mind is that the discount fee is rarely (if ever) a nice round number, such as 1%, 1.5%, 2%, etc. The discount fee is actually a number that is carried out to 3 decimal places, such as .438% or .189%, or some other odd number like that. If a broker or banker ever tells you that the discount fee is 1%, 1.5%, 2%, etc., that means he is pocketing the difference between the actual discount fee and the fee he is charging.

Shame on him.

Friday, March 13, 2009

Why Are There Two Closing Fees?

Ever wonder why there are two closing fees on a Good Faith Estimate (if it's done correctly) and on the HUD-1 settlement statement? The answer is because there are actually two closings being conducted at a purchase closing. The first, which is the loan closing, is between the buyer and the lender. The buyer generally pays for all of this fee.

The second closing is between the buyer and the seller, and is called the real estate closing. The buyer and the seller generally split this fee. Half of the fee will be in the buyer's column and the other half of the fee will be in the seller's column. Since the Good Faith Estimate only lists the buyer's closing costs, only half of the total real estate closing fee is listed on the Good Faith.

These fees are two distinct fees, so they are listed on two different lines on the Good Faith and the HUD-1.

If the transaction is a refinance, then there is only a loan closing fee.

Check out our web site for a description of all the closing fees. From our home page, click on the "How to Get Approved" link on the menu bar to the left. Here's a link to our web site:

Thursday, March 12, 2009

Mortgage Rescue Details

We've been getting a number of calls regarding the new mortgage relief programs that are a part of the economic stimulus plan that was recently signed. Here are the details as they stand right now:

Fannie Mae and Freddie Mac have two programs to help out homeowners who are having trouble making their mortgage payments. The first program involves refinancing the current mortgage. It is aimed at homeowners who have a property that has declined in value. In order to take advantage of the refinance program, the homeowner must be current on their mortgage payments. The second program is aimed at homeowners who are behind on their mortgage payments or are in imminent danger of falling behind on their payments. This second program is a loan modification, and the interest rate and possibly the balance of the loan are reduced to a point where the loan is now affordable.

At first blush, these programs seem wonderful. However, there are several inherent problems.

-- The programs are voluntary. The lenders are not required to participate, despite what you may read in the paper.
-- These mortgage programs are only available to homeowners whose mortgages are either owned or securitized by Fannie Mae or Freddie Mac. "Securitized" means that Fannie or Freddie bundled many loans together and sold bonds to outside investors, using the mortgages as collateral. Securitizing mortgages keeps the flow of money going.
-- The same lenders who got homeowners into trouble in the first place are now responsible for getting them out of trouble. This suggests that incredibly unethical companies are now suddenly being run in an ethical manner. I will believe that when the banking executives stop taking million dollar trips to vacation spots, and when Bernie Madoff gives his $50 billion back to the people he suckered. Having been involved in the mortgage industry throughout the sub-prime glory days, I can say with absolute certainty that neither the banks nor their sales force (loan officers) have done anything to clean up their acts. If anything, the level of fraud and deceit is greater now than when sub-prime loans were being sold, only because everyone is desperate for money at the moment. A comfortable crook is bad enough; a desperate crook is really bad.
-- The issue of mortgage insurance has not been addressed by these programs. The government admits that these programs may not work at all because no one is willing to insure the loans.
-- These programs ignore the fact that many people in trouble have two mortgages. The guidelines say that second mortgages cannot be included in the refinance or the modification. They are allowed to be re-subordinated, meaning that the current second lien holder (the bank that owns the second mortgage) can keep their loan in place, but they must agree to go back into second lien position. These programs are basically telling the second lien holders that they will never get a dime if the house goes into foreclosure. There's not much incentive to go through all the work to re-subordinate the loan if you know you will be left holding the bag.
-- The borrowers still must qualify for these loans. If you are out of work, or over-extended on your other debt, how do you qualify for a mortgage?

None of this is to imply that the loan programs are not a step in the right direction. Unfortunately, the problem goes much deeper than most of us are willing to admit. The almost universal denial that our country is in at the moment will need to change before things can even begin to get better.

To learn more about these programs and to find out about eligibility, click on the link at the bottom of the home page on our web site. That will take you to the government site. Here's a link to our web site:

One last word of caution. The thieves will be coming out of the woodwork trying to take advantage of people who are desperate to get out of their mortgages. Make sure you read the foreclosure rescue scam warning on the government site!

Wednesday, March 11, 2009

VA Loan Limits Have Been Increased

The loan limits for 100% financing have gone up for VA loans in some areas. Here are the new amounts for Colorado counties:

BOULDER -- $437,500.00
EAGLE -- $887,500.00
GARFIELD -- $450,000.00
HINSDALE -- $460,000.00
LAKE -- $887,500.00
OURAY -- $456,250.00
PITKIN -- $1,094,625.00
ROUTT -- $690,000.00
SAN MIGUEL -- $962,500.00
SUMMIT -- $785,000.00

For all other counties in Colorado, the loan limit for 100% financing remains at $417,000. It is possible to get VA financing for an amount that exceeds the loan limit, but 25% of the amount over the limit must be paid by the borrower at closing.

Just a reminder - VA financing is almost always the best deal for a veteran, or a member of the active military, the Reserves, or the National Guard. 100% financing, no mortgage insurance, low interest rates. If someone tries to talk your buyers out of getting a VA loan, it probably means they are not approved to sell them. That's not how we should treat people who have served our country.

Wednesday, March 4, 2009

US Government Refinance and Modification Programs

The guidelines for the new mortgage bailout programs, the Home Affordable Refinance and the Home Affordable Modification, are now available. We have posted the link to the government web site on the bottom of the home page of our web site.

Make sure you read EVERYTHING on the government site. And make sure you read the warnings about foreclosure rescue scams. There are many people pretending to modify loans who are more than willing to rip you off.

Here's the link to our web site:

Tuesday, March 3, 2009

FHA Mortgage Limits Raised Again

The new stimulus act has raised the FHA loan limits again. The new 1-family limit for the Metro Denver area is $406,250 and the new 1-family limit for Boulder County is $460,000. The limits are higher for 2-, 3-, and 4-family properties.

The FHA loan limits have changed three times in recent months (twice up and once down). To get the current limits, go to the FHA Mortgage Limits link on the bottom of the home page of our web site. When you get to the FHA site, all you have to do is select the state from the "State" drop-down menu and then click on "Send". That will give you the current limits for every county in the state.

Here's the link for our web site:

The link to the FHA site is at the bottom of our home page.

Remember, a relative of the borrower can LEND the down payment to the borrower with an FHA loan. If the borrower claims the new $8,000 tax credit, they can pay their relative back very shortly. There is a link to the tax credit form on our web site also.

Sunday, March 1, 2009

Who Gets the New $8,000 Credit and How Do You Get It?

The details are out on the new $8,000 tax credit for first-time homebuyers that is a part of the new economic stimulus act. Here are the essentials:

- If you buy a home after December 31, 2008 and before December 1, 2009, and you are a first-time homebuyer, you can get a tax credit of 10% of the purchase price, up to $8,000. If the purchase price is more than $80,000, you are eligible for the full $8,000.

- This credit is from the IRS, and you do NOT have to pay it back if you keep the house as your "main home" for 3 years.

- The IRS definition of a first-time homebuyer is different than the definition used to qualify for down payment assistance. You can get the credit if you (and your spouse, if you are married) did not own any other "main home" in the past 3 years. A "main home" is defined as the home you live in most of the time. That means you could have owned a house in the past three years and still get the tax credit, as long as the other house you owned was not your "main home".

- You can claim the credit when filing your 2008 taxes, even if you buy the house after you file your taxes. Just file an amended return and you will get the refund.

- If you purchased your main home last year - after April 8, 2008 and before January 1, 2009 - the credit is different. It's $7,500 and it has to be paid back over 15 years.

Both credits are claimed on the same IRS form. You can get to the IRS form and the instructions by going to our web site and clicking on the link on the bottom of our home page. Here's the link to our web site:

Remember, FHA rules allow a relative of a borrower to give the 3.5% FHA down payment to the borrower. They also allow a relative to LEND the down payment to the borrower. If a borrower does not have the down payment, they can borrow the money from a relative, file for the tax credit, and pay the relative back.