Wednesday, March 31, 2010

Denver Area Seminar: How to Avoid Home Loan Rip-Offs

Have you attended our “How to Avoid Home Loan Rip-Offs” seminar yet? Here’s what we cover in this FREE eye-opening presentation:

• How to spot the rip-offs before they happen
-- We give you a list of all the common rip-offs, tell you how they work, and tell you how to avoid them
• How to interview a lender and find out if they are knowledgeable and honest
-- We provide a fool-proof set of questions you should ask every lender
• How are interest rates determined and how to tell if you are getting a good deal
• How to know if your closing costs are reasonable, and how to make sure they don’t change
• What to do if you think you’re being ripped-off
• How to tell if your lender really locked your interest rate
• How to tell if your pre-approval letter (the letter your lender gives you to show that you can qualify for a mortgage) is even worth the paper it’s printed on

We are often asked, “Why do you present these seminars for free?” The answer is quite simple.

Dishonesty in the mortgage industry has resulted in millions of people in the United States being victimized. Up until a few years ago, there were only two states that had absolutely NO registration or licensing for mortgage brokers – Alaska and COLORADO!

Licensing exists now, but it has done very little to stop the dishonesty. People continue to be ripped-off, and WE ARE SICK OF IT!

Most people don’t buy more than a few houses in their entire lifetime, and the financing for homes is very confusing, to say the least.

Our goal is to clearly explain to you exactly what is involved with home financing. This seminar cuts through the hype and the lies and will leave you with the knowledge necessary to AVOID HOME LOAN RIP-OFFS!

We hold the seminars on Wednesday evenings from 6:30PM – 8:30PM and on Saturdays from 10:00AM – noon. Call us for more details and dates. 303-345-3683

Monday, March 22, 2010

Our Most Popular Post

We've had 1608 unique visitors come to our blog site so far in 2010, and 596 of those visitors were trying to find out how long someone needs a job before being able to get a mortgage. That is by far the most popular post.

Since so many people are interested in that subject, it's worth discussing some more. Here's the original post with some updates (UPDATES IN CAPS):

Many people are changing jobs these days and we are getting a lot of questions about how long someone must be employed before a lender will use their income. Here are the rules:

-- If the borrower is paid as a W-2 employee (not self-employed), then an underwriter will only need to see one pay stub in order to count the income, provided the current job has something to do with the previous job.
-- If the borrower is a W-2 employee, but their current job is in a different field than their previous job, then the automated underwriting systems at Fannie Mae, Freddie Mac, FHA, or VA will tell us how long they have to be at the job.
-- If the borrower just graduated from school and gets a job in their field of study, then they don't need anything more than one pay stub and their diploma.
-- One exception to the W-2 rules is when the borrower earns more than 25% of their income as commission. In that case, the automated underwriting systems will tell us how long they have to be at the job. It could be as short as 6 months or as long as 24 months.
-- If the borrower is self-employed, then the automated underwriting systems will tell us how long they need to have the job, just as if they are paid commission. It could be anywhere from 6 months to 24 months. UPDATE: EVEN THOUGH THE AUTOMATED UNDERWRITING SYSTEMS MAY NOT REQUIRE A FULL 24 MONTHS OF SELF-EMPLOYED INCOME, MOST LENDERS DO REQUIRE 24 MONTHS AT THE SAME SELF-EMPLOYED JOB.
-- If the borrower is employed part-time or has a second job, then once again, the automated underwriting systems will tell us how long they need to have the job. Anything less than 24 months for a second job is generally unacceptable.

One thing to keep in mind when dealing with commission or self-employed borrowers is that the income is either averaged over the last 24 months, or annualized (for example, if someone has had a commission job for 6 months, the underwriter would divide that 6 months of income by 12 months to annualize it).

The reason for the different rules is that the lenders are concerned that the income is stable. A new job in the same field as the previous job is stable. A new job for a recent graduate in their field of study is also stable. A commission job is a little less stable. Self-employed income is the least stable of all for full-time employment. Part-time employment or second jobs are extremely unstable.



Thursday, March 18, 2010

FHA Condo Approval Email Address

Confused by all the recent changes in the FHA condo approval process? If so, you're not the only one!

It looks like FHA has been overloaded with questions. Yesterday, they announced that a special email address has been set up to handle them all. Following is the announcement from FHA:

FHA has set up a special on-line mailbox for all condominium inquiries:

Lenders, trade associations, industry professionals, and other interested parties must use this mailbox rather than contacting the FHA Homeownership Centers (HOCs) or the FHA Resource Center. Questions will be answered within 24-48 hours, unless additional research is required; in such cases, the inquirer will be advised that there is a delayed response forthcoming. Any inquiries directed to the FHA Homeownership Centers and/or the Resource Center will be redirected to this mailbox.

Monday, March 15, 2010

Guidelines Are More Relaxed for Mortgage Insurance!

Here's something we haven't seen in a long time - more relaxed underwriting guidelines!

Some of the private mortgage insurance companies recently raised the debt-to-income ratio (DTI) from 41% to 45%. You still need to have a good credit score (700) to take advantage of the higher ratio, but it's the first thing we've seen in more than two years that signals the tightening of the guidelines may be nearing an end.

Just don't confuse this with a return to sub-prime loans. The mortgage insurance (MI) guidelines used to be routinely ignored by everyone, including the MI companies. MI underwriting was a rubber stamp process. If the lender approved a loan, so did they.

Then the MI companies started writing those checks for millions of dollars to the lenders for all the houses that went into foreclosure and the MI companies that were still in business became very serious about following the guidelines.

Remember that the MI guidelines are always the strictest guidelines. A conventional loan gets underwritten three times: once by Fannie Mae or Freddie Mac, again by the lender, and a third time by the MI company. The MI company is the one to write the check if the borrower stops paying, so naturally, they have the strictest guidelines.

We've said this countless times, but not reading the guidelines is why loans fall apart. If your lender reads, your loan will close. If he doesn't read very well, then the loan probably won't close.

Want to have some fun? Ask your lender where to find the online Fannie Mae guidelines. Chances are pretty good he won't have the slightest clue where to find them because he's never read them. Mock him. Then dump him.

Tuesday, March 9, 2010

These Guys are in Charge of My Ethics???

Debbie and I recently took the national licensing test required by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). The National Mortgage Licensing System (NMLS) is the organization that administers the test. One of the sections covers ethics. If the NMLS decides we are unethical, we don’t get to sell loans. Fair enough.

Another function of the NMLS is to conduct criminal background checks. Applicants pay $39 and are directed to have their fingerprints taken by Fieldprint, the exclusive fingerprint vendor of the NMLS.

Debbie paid her $39 and had her fingerprints taken last week. She was notified by the NMLS yesterday that Fieldprint had sent them fingerprints that the FBI could not read.

Ready for the solution? She must now pay an additional $39 and go back to Fieldprint to have them try again. If they botch it a second time, then the FBI will do the background check without even using fingerprints. There will be NO refunds.

I asked a manager at NMLS if this was a common occurrence. She said "we are reviewing the system."

Can you say “SCAM”?

These are the guys who get to decide if we’re ethical enough to sell mortgages?

PS Debbie scored 100% on the ethics section of the test. Maybe they should consult her during their review of the "system".

Friday, March 5, 2010

The Pros Know How Good We Are!

Just had our latest post to the ActiveRain real estate blog listed as their featured post. That's twice in the past few weeks!

ActiveRain has more than 175,000 real estate professionals as members. They know a Mortgage Expert when they see one!

Here's the link to the ActiveRain blog:

Thursday, March 4, 2010

Fannie Mae is Cracking Down!

There are some new rules going into effect shortly that will have an enormous effect on some mortgage transactions. Here's the biggest one:

Effective for all loan applications dated June 1, 2010 and later, Fannie Mae is "requiring lenders to determine that all debts of the borrower incurred or closed up to and concurrent with the closing of the subject mortgage are disclosed on the final loan application and included in the qualification for the subject mortgage loan."

Here's what it means. If a borrower opens a new account or increases the balance on an existing account between the time of application and the closing, the new debt has to be included. The best case is that the closing gets delayed. The worst case is that the borrower no longer qualifies for the loan and the deal is dead.

Fannie Mae provides the following "tips for lenders to consider" when attempting to find undisclosed liabilities. That's Fannie Mae Speak for "Do these things or else!"

- Refreshing a credit report just prior to closing may uncover additional debt or credit inquiries.

- Credit inquiries found on the credit report should be investigated to determine whether the borrower did in fact open additional debt resulting in repayment obligations. In some cases, it is possible to obtain a direct verification with the creditor associated with the inquiry.

- Fraud-detection tools are available through multiple vendors that assist lenders in identifying undisclosed mortgages or other potentially fraudulent scenarios.

Fannie Mae is not requiring these things until June 1, but lenders are allowed to implement them earlier. Many lenders probably will.

Be prepared! The mortgage industry has changed and continues to change. Being in the industry for 20 years means nothing if you don't stay up to date with all the changes. If your current lender has not already told you about these new rules, ask him why he hasn't. Maybe it's time to change lenders.

Wednesday, March 3, 2010

"American Banker" Asks The Mortgage Experts

American Banker needed some insight into the new Real Estate Settlement Procedures Act (RESPA) and how it affects loan pre-approvals, so they gave us a call.

There is a RESPA requirement prohibiting lenders from withholding a Good Faith Estimate from their clients simply because the borrowers have not provided supporting documentation (pay stubs, for example) for the financial information they have given the lender. Many lenders are confused because they haven't actually read the law they are so quick to criticize. Imagine that!

The end result is that some lenders are either hesitant to provide or refuse to provide borrowers and real estate agents with pre-approval letters, which tell everyone that they are not wasting their time by looking at houses that are out of the borrower's price range.

Of course, this is nonsense. Nothing in the new RESPA law prohibits pre-approvals.

Here are some excerpts from the article that was published on Feb. 24:

HUD (Department of Housing and Urban Development), in an update last month to the (RESPA) frequently asked questions, said it wants to prevent "overburdensome documentation demands on mortgage applicants." That is why it won't let lenders require documents from borrowers as a condition of providing a Good Faith Estimate. Likewise, HUD said, lenders may not charge consumers anything more than the cost of a credit report before supplying the Good Faith Estimate.

Chris Thomas, owner of Mortgage Support Services, a Westminster, Colo., correspondent lender, said he understood HUD's rationale.

"The spirit of the law is to prevent borrowers from being locked in to using unscrupulous lenders who demand original copies of income and asset documentation," Thomas said. "If I tell a borrower that I need their original W-2's and pay stubs before I can give them a Good Faith Estimate, the less-educated borrower will then believe they must buy their loan from me."

"We cannot force the borrower to provide documentation before issuing a Good Faith Estimate," he said, "but it doesn't say we can't ask them for their income, assets or anything else" and then run that information through underwriting software. (A person is considered to be "preapproved" if the lender runs a borrower's information through Fannie Mae's or Freddie Mac's automated underwriting system.)

Moreover, Thomas said, if it turns out the customer misstated their income, that is considered a "changed circumstance" and the lender is allowed to change the good-faith estimate once it gets documentation.

Preapprovals are not to be confused with prequalification letters. These are nonbinding, back-of-the-envelope calculations of what a borrower might be approved for based on verbal information, and they have fallen out of favor because of market changes.

During the housing bubble, Thomas said, lenders got into the habit of giving out pre-qualification letters to anyone, "because everything got approved anyway."

"A preapproval letter means something, because you have to put in accurate information," he said. "A 'pre-qual' letter is almost useless these days, because the underwriting guidelines change so frequently."

This article is one more example of how the national publications rely on us for accurate mortgage information. There is a reason we are known as The Mortgage Experts. We are very good at what we do!