FHA Says “No” to Lower Fees

Denied-e1323804074518-300x241Lenders asked FHA, the Federal Housing Administration that offers home buyers low-down mortgages, to lower their monthly mortgage insurance fee. The rationale behind the request was this:

1) FHA’s profits are up and the administration is operating comfortably in the black, and

2) FHA changed their rules so that the mortgage insurance fee is permanent and cannot be waived no matter how much equity the homeowner accrues. With a conventional loan, the mortgage insurance fee stops once the home owner has 20 – 22% equity; but with FHA, it lasts for the life of the loan.

In response to their request, lenders received a big, fat NO. Carol Galante, the FHA Commissioner, said the current fees are “absolutely necessary,” and that “now is not the time to roll back premiums.”

In the future, FHA hopes to launch a program that will further increase the quality of loans. This program will be paid for by a fee to the lenders.

I have to ask, if lenders receive a new fee from FHA, who do you think they are going to pass that additional cost onto?

Now that this FHA program (commonly called a first-time home buyer’s loan) carries higher mortgage insurance fees and permanent monthly fees, how much more will home buyers accept before they say “NO” to FHA and choose a conventional loan instead?

Currently, a conventional loan requires a 5% down payment instead of 3.5% down for FHA. But if the monthly fees (on top of the upfront FHA fee) grow too high, home buyers may well decide the extra time it takes to save for the larger down payment is worth the wait.


How to Shop for a Mortgage Loan

house beautiful back With lenders refusing to give out a Good Faith Estimate, how can you shop for a mortgage without submitting your W2s, tax returns, and social security number?

Easy. Call and ask for a cost estimate or fees worksheet. This is the new upfront GFE. They are happy to give you this without pulling your credit report, based on the verbal information you provide.

New lending laws say that the Good Faith Estimate is a contractually binding document. (Since when is an estimate a contract, right?) This has forced banks and mortgage lender to rename the upfront estimate. And here’s something that might surprise you…

I prefer the upfront cost estimate or initial fees worksheet over the new, convoluted, inefficient, three-page GFE designed by the Fed committee. So go ahead and use the same shopping method, including the scripts for what to say, in Mortgage Rip-Offs and Money Savers and in Homebuyers Beware–just substitute cost estimate for Good Faith Estimate.

Don’t Shop By Email

Notice that I recommend calling on the phone, not shopping by email. Why? Because it is important to listen to the loan officer’s response. Listen to the tone, to how he/she answers your questions. Listen for straightforward answers and for dancing around the topic. This will go a long way in determining if you are working with an honest, easy-to-communicate professional or a dishonest scammer. You cannot get that by email, so don’t be lazy when it comes to something this important.

Confused By the Worksheets?

As with the old GFE forms, the new worksheets come in different formats from different banks and lenders. They call their lender fees by various names, and they place them in various places throughout the forms. This makes it difficult to choose the best loan if you’re not an expert working in the business. This is where I can be of help.

I am not doing loans myself now, so I have no vested interest in any particular mortgage lender. I am truly an unbiased expert source. If you would like me to review your worksheets and/or GFEs, you can email them to me. I will check the interest rate, fees, missing information, bogus charges, etc. Then we will have a 20 to 30 minute telephone conversation. I will give you my opinion and answer all your questions so that you can proceed with confidence.

For details, please see the page at the top called Review My Estimate. I’ve saved folks many thousands of dollars and sleepless nights. It’s what I love to do.

As always, thank you for reading my blog.


Beware of the Hidden Prepayment Penalty!

??????????????????FHA loans — the first-time home buyer loans with only 3.5% down payment — have a hidden prepayment penalty that could cost you hundreds of dollars when you sell or refinance.

If you used an FHA loan (3.5% down payment) when you bought your house, get out the Truth-in-Lending form. Near the bottom, you’ll find in bold Prepayment Penalty. Is the box checked for may have or for will not have a prepayment penalty? Regardless of which box is checked, if you close your loan on any day of the month except for the last day, you will pay a penalty.

Question: “Can they do that? My documents says I will not have a prepayment penalty!”

Answer: Yes they can, and I guarantee you that they will. If you pay off your mortgage in the middle of the month, FHA will charge you interest for the entire month, no matter when you vacate the loan. So essentially, you are paying FHA extra interest payments even after the loan is closed. This is a prepayment penalty.

How They Keep It Hidden

When they calculate the pay-off balance on an FHA loan, they roll in those extra days of interest on what you owe. If you wonder why your pay-off figure seems too high, the FHA prepayment penalty could explain it.

How to Avoid the Prepayment Penalty

If you have an FHA loan, you need to close on the last day of the month. If that is not possible, close as near to the last day as you can in order to minimize your financial penalty.

FHA is Making Millions on Hidden Prepayment Penalties

In just one year alone (2003), FHA pocketed an extra $587,400,000 in profit from home sellers’ prepayment penalties. Over the course of the last decade, that multiplies to billions of dollars charged to unsuspecting first time home sellers and home owners refinancing.

Stop the Madness!

In 2011, U.S. Senator Ben Cardin (MD-D) tried to pass a bill stopping FHA’s prepayment penalty. Unfortunately, FHA poo-pooed the bill and it failed to pass.

Now the Consumer Financial Protection Bureau (CFPB) is pressuring FHA to stop the penalty. They say it’s not fair, and they want FHA to knock it off.

FHA is Fighting Back

FHA says if they are forced to drop the penalty, then new borrowers “can expect to pay a slightly higher rate.”

Thanks a lot FHA. Now you’re going to charge ALL home buyers at the beginning of the process instead of only the ones who don’t close at the end of the month?

New Policy Won’t Affect Existing Home Owners

If the new policy passes — and I think it will — it won’t affect current home owners. The existing loans will still be subject to the financial penalty. So be vigilant about your closing date. Make sure you close at the end of the month to avoid the paying extra.



Seller Financing Bypasses Bank Rules

????????????????????????Having trouble qualifying for a home loan with your bank or local lender? Getting frustrated with tight underwriting rules? If so, seller financing might be for you.

Seller financing is when the seller allows you to make payments directly to them, bypassing the bank and Fannie Mae. If the seller does not need all their cash immediately, they might be happy to let you make payments and collect the interest for themselves.

Here is how a typical seller-financed loan works:

1) Most sellers will carry the contract for five years. After that, they want to be cashed out. Thus, the loan is amortized for 30 years with a 5-year balloon payment. This gives you the lower payment a 30-year loan would have, but at the five-year mark (or sooner), you would refinance with a bank loan. This gives you plenty of time to get your credit and debt ratio in compliance with Fannie Mae underwriting.

2) Make sure there is no prepayment penalty so you can refinance sooner than five years, if you choose.

3) A typical interest rate for seller financing is 8% to 10%. Remember, the seller is taking a risk that the lender was not willing to accept, so you have to pay for that. This is also why you want to refinance out of seller financing as soon as you can, preferably after one year. On a short term loan, interest rate is not as significant as for a long term loan.

You should have a real estate attorney write up the contract. It should include the amount owed, the interest rate, the principal and interest payment, that it is a fixed rate, that there is no prepayment penalty, what day of the month the payment is due with a 15-day grace period, and what the late penalty is if you are late (typically 5%  of the payment). It should also spell out the terms of the 30-year amortization and 5-year balloon payment. Do not sign the documents unless you completely understand all the verbiage.

You should also hire an appraiser to verify the value of the home and a home inspector so you know exactly what the condition of the home is. Do not bypass these important steps.

Seller financing is not for everyone, but it has worked very well for others. One home buyer who could not qualify for bank financing, due to a bankruptcy that was less than two years old, was able to work out seller financing at only 5%. That enabled them to get into a home of their own sooner, and they were very happy as a result.




Using Money From Family for Your Down Payment

Money in hand Home buyers who are a little short on cash sometimes ask, “Can I get a loan from a family member to help with my down payment?”

Or, “Can I take a cash advance on my credit card to help with my down payment?”

The answer to both questions is no. Your down payment must be either your own money or gift money from family or grant money from an acceptable source. No part of your down payment can come from a loan, not even from your mom. No exceptions.

If a family member is providing cash toward your down payment, then they will need to sign a form letter stating it is a gift and no repayment is required. Usually, they also need to show the source of their gift money by providing a bank statement(s) or other document such as investment statement.

Why can’t you take a loan from your parents for a down payment? Because the lender thinks that if you get into financial trouble and have to make a choice between paying mom and dad or the mortgage bank, your family ties will be stronger and the bank will lose out. Therefore, it is an unacceptable risk to lending. The bank is not going to take “second position” behind your family.

Any other loan, such as a cash advance from a credit card, is also unacceptable. This would affect your debt ratio as well as put the bank at a higher risk for getting paid.

For a small down payment of only 3.5 percent of the purchase price, look at the FHA loan. FHA allows all of your down payment to be gift money from family.

If you are eligible for a VA loan, you may qualify for a zero down loan.

The no-down sub-prime loans of yesteryear are gone, and I think that’s a good thing. It takes time and discipline to save for a down payment and closing costs, and that’s not a bad thing either.

Do Lenders Go Too Far in Collecting Personal Data on Home Buyers?

underwear I once had a client ask me, “What does the underwriter want to do next, look in my underwear drawer?”

Interesting question! Especially since more data is collected nowadays than ever before. Here is a list of personal information that lenders collect and the reasons why.

   8 Things Your Lender Will Ask When You Apply for a Mortgage

1) Age. A person must be at least 18 years old to qualify for a mortgage. It is illegal to discriminate based on age. Thus, a 95-year old can get a 30-year loan. It is illegal to charge young borrowers or old borrowers more based solely on age.

2) Race/Ethnic origin. It is illegal to discriminate or charge certain races/ethnic groups more than others. In Mortgage Rip-Offs and Money Savers (p. 211), I tell how some lenders get around that regulation and why minorities often pay more–as well as how you can prevent that from happening to you.

On the loan application, there are boxes to check for your race/ethnicity. One of the boxes says you prefer not to give that information. However, if you check the non-reveal box, the loan officer is required by law to take a guess and check one of the boxes. For people who are of mixed race, loan officers often get it wrong. Or if the loan officer isn’t good at telling whether you are Italian, Hispanic, or a Pacific Islander, you could easily have incorrect personal information in your file. Maybe you don’t care; it is up to you to decide whether to let the loan officer take a guess or to state the information yourself.

3) Marital status. This information is required, because in community property states it is illegal for a married person to sign for a mortgage loan without the spouse knowing about it. The non-borrowing spouse must sign documents of acknowledgement and consent, even if he or she is not on the loan contract or title.

4) Sex. On the loan application, there is a box for male or female. The purpose is for government agencies to verify that lenders are not charging women more than men. Lenders do not ask or care whether you are straight, gay, or other. So when you see an ad that says, “All people accepted here,” that is not special to that institution. The law says all people are accepted at all lending institutions.

One of my coaching clients said his Realtor told him and his partner to go to a certain mortgage bank “because they accept gays.” The Good Faith Estimate he received was an over-priced loan. I told him that all lenders accept gays; and in fact, they don’t ask and they don’t care. Knowing this enabled him to go get a better priced mortgage.

5) Number of dependents. This refers to number of dependents under age 18. If you’re supporting an elderly relative or a 22-year old college student, you need not include that person as a dependent, because it is considered voluntary. On the other hand, children must be cared for, and the number of dependents you support is a factor is determining the allowed debt-to-income ratio. A family of ten needs more money for groceries than a family of three, so more disposable income is required.

6) Income Verification. You must show you have enough income to handle all your current obligations plus a new mortgage with taxes, insurance, and the monthly mortgage insurance fee, if applicable. The current guidelines say your debt-to-income ratio should be no more than 43%; however, there are exceptions.

7) Two-year employment history. Income stability is an issue. For self-employed people, your business license must be at least two years old. If you’re thinking of quitting your salary job and making a go of your own business, buy a home first or wait two years. It is acceptable to change jobs within that two-year period, so don’t pass up an opportunity for advancement. The “No Employment Required” loans of the sub-prime era are gone.

8) Asset Verification. Lenders require two to three months’ statements showing assets. You must verify where your down payment money is coming from. If it is gift money, that must be verified. No secret side loans for your down payment! No taking a cash advance on a credit card for your down payment! And, you’ll need to have some cash reserves left in your account after your loan closes, so you can’t use every last dollar you have.

In addition, a lender may ask for anything and everything else they believe they need. 

Sometimes borrowers ask, “Do they really need that?” And, “Why do they need that?” Or, “Can they ask for that?”

Those are valid questions, and you have the right to know. Feel free to ask your loan officer why. A good, experienced loan officer should be able to answer your questions. If they don’t know the answer, they should offer to ask the underwriter and then let you know. Underwriters don’t speak with borrowers directly; that is your loan officer’s job.

If you have more questions or comments on this topic, feel free to ask. I promise to answer. You’ll see the comment button at the top right of this column.

Crooked Credit Union Tries Bait-and-Switch Scam

i-m-always-disappointed-liar-quotes-500x444“What are your lender fees?” I asked the loan officer (LO) at the credit union. I was shopping for a mortgage for one of my coaching clients, and I explained the scenario: No cash out refinance, 15-year fixed rate, 80% loan-to-value, A credit.

“We don’t have any fees,” said Ms. LO.

I thought that was impossible, so I replied, “I am not talking about having no points. I need to know what your lender fees are, such as underwriting, processing, and any other fees.”

Then to be crystal clear, I added, “I need to know the dollar amount that will show on the Good Faith Estimate, page 2, #1, ‘Our Origination Fee’.”

“Just a minute, let me go check with my manager,” she said.

I waited. When she came back, she said, “My manager says we don’t have an origination.”

“Wow, that’s great! I’m going to have my client call you,” I said. I proceeded to tell her my client would call in the morning, because it was just a few minutes to closing time.  Ms. LO thanked me and said she’d look forward to helping her.

You can imagine my shock and surprise when my client emailed me the Good Faith Estimate she received from Ms. LO at the credit union the next day. Take a look for yourself:



1. Our origination charge                                  1,954.00
     This charge is for getting this loan for you.__________

Instead of a zero charge, there was a $1,954, almost two thousand dollars!

Outraged, I called Ms. LO to ask about this switcheroo.

“You remember quoting me a zero origination fee,” I reminded her. “So why does the GFE show a $1,954 origination fee?”

Long pause. Then, “I don’t know.”

“That is a very big different, almost two thousand dollars,” I said.

“Yes it is. Hold on while I go ask my manager,” she said.

After several minutes, she was back. “My manager says we changed the fee yesterday.”

“You changed the fee from zero to $1,954 all in one day? From 4:00 p.m. to the morning, it changed that much, all at once? I don’t think so,” I said.

“Unfortunately, it changed,” she said.

“Changed, as in bait-and-switch?” I asked.


What is bait-and-switch? It is when a company baits you with one cost and then changes it to something else when you try to get it.

Bait-and-switch is illegal. But it is still happening. 

The new lending laws have not extinguished all the liars. Liars are lurking in all institutions: banks, brokers, and yes, also in credit unions.

This is why I tell people they cannot choose a mortgage by the type of lending institution. I don’t name names on my public blog, but if you would like to know the name and location of this credit union and the loan officer, send me an email via my Ask a Question page (in the toolbar above), and I’ll be happy to tell you so that you can avoid this crooked institution.

If anyone tries pulling a bait-and-switch on you, I would encourage you to report them to the Consumer Financial Protection Bureau. That is what they are here for, to protect you. The handy online complaint form is here.

Buying a House After a Short Sale

house San Francisco “How soon after a short sale can I buy a house again?” is a question I’ve received a lot in the past week, so I will answer it now. It is a simple question, but the answer is somewhat complex. Without getting too complicated for a blog, here is what you need to know.

A Short Sale is Not a Foreclosure

A short sale is when the property is returned to the lender in exchange for canceling the loan. In a short sale, the home is sold, but the sales price did not cover the amount owed.

Getting an FHA Loan After a Short Sale

If you had no mortgage late payments in the 12 months leading up to the short sale, and if the short sale was a result of an acceptable extenuating circumstance, then you can get an FHA loan (3.5% down payment) one year after the completed short sale. However, if your short sale was on an FHA loan, then you will not qualify for this scenario.

FHA will grant a mortgage three years and one day after a short sale, providing you have good credit between then and now. You cannot have any outstanding debt with a Federal agency that is in delinquent status.

Getting a VA Loan After a Short Sale

You can get a VA loan two years from the close of the short sale.

There is no waiting period if you had zero late payments on anything — not on your mortgage nor on any credit cards, auto loans, or other consumer accounts, AND if the short sale was not a result of you taking advantage of declining market conditions. So if you chose to walk away because you were upside down on your mortgage, that disqualifies you for the no waiting period and you’ll need to wait out the two years.

Getting a Conventional Loan After a Short Sale

For a conventional loan, the waiting period is partly determined by your down payment. The more cash you can offer the lender as security, the less risk you are and the sooner you can buy another home.

20% down payment: two years after the close of the short sale to the new owner.

10% down payment: four years after the close of the short sale to the new owner.

5% down payment: seven years after the close of the short sale to the new owner.

Note that the waiting period does not start on the day that the lender agreed to the short sale. It starts on the day the short sale closed and the property ownership was transferred to the new owner. Thus, it could be months or even a year after the short sale was first started or agreed upon.

New Scam!

I have not forgotten about my promise to reveal a rip-off that some lenders, including credit unions, are doing now. I plan on writing about that in my next blog. I would have done it today had not so many people emailed me asking for the short sale rules.

Thank you for reading my blog and my books. If you’d like to comment, the click on comment at the top of this article.

Bank or Credit Union? Which is Better for a Mortgage Loan?

house modestDear Carolyn,

We are getting ready to buy a house and want to get pre-approved. Do you recommend going to a bank or a credit union?

That is a good question, especially since one of my coaching clients came to me last week with Cost Estimates from a large national bank, a small community bank, and a local credit union.

Because each lender used a different format for their upfront cost estimate, it wasn’t clear to her which was the best choice; and that is precisely what my Estimate Review and Consultation Service is for. Curious about how the numbers came out?

I’ll show them to you below, but first, it is important to know that these numbers are for these particular lending institutions only. Not all of the three Big Banks (Bank of America, Chase, Wells Fargo), not all community banks, and not all credit unions are the same. Some banks and some credit unions are better or worse than others, so no “lender profiling” allowed.

For my client’s loan, a 15-year fixed rate refinance, 80% Loan-to-Value, no extra cash out, here is what she was offered:


3.5% 15-yr fixed rate
$1,854 points & lender fees


3.75% 15-yr fixed rate
$1,400 lender fees, no points


4.25%  15-yr fixed rate
$2,007 lender fees, no points

The credit union showed $1,954 on one line and then hid three additional lender (junk) fees in another spot. I call them junk fees, because when you’re charging $1,954 to process and underwrite a loan, there is no reason to tack on additional fees. It is nonsense and garbage. It seems they didn’t want to put a number beginning with a 2 on the lender fee line, so they scattered $53 in three fees elsewhere on the form.

Are you surprised to see that the credit union had both the highest rate and highest fees?

Personally, I am not thrilled with any of these three offers, because all the fees are too high.

On the other hand, the interest rates that start with a 3 are excellent.

Soon — possibly my next blog post — I am going to expose a brand new scam, a bait-and-switch. You won’t want to miss it, so please consider subscribing to the blog. I post only once a week (occasionally twice) so that your email is not inundated with messages.

Where Are Mortgage Interest Rates Headed?

rate cutInterest rates are down today! In the past two months, we’ve seen rates go from 4.75% down to 4.375%. Some aggressive lenders might even offer 4.25% to their best borrowers with high scores and large down payments today. So what’s going on?

Why did economists predict higher rates for 2014 when we’ve seen this drop in January? Does this mean they were all wrong and that rates are headed down again?  There are good answers to those questions.

First, mortgage interest rates do not go up in a straight line. On a graph, rising rates will look like an upward zigzag. Right now, we have a dip. This does not mean rates won’t turn around and go up again. That could happen very fast on Friday, which I’ll explain in just a moment.

Second, there are many factors that go into interest rates. This recent rate drop is largely due to December’s weaker than expected jobs report that came out in January. Investors try to anticipate what will happen, so if the unemployment report ends up being worse than expected — even if it is improved over the previous month — then that is bad economic news and rates drop.

Will Mortgage Interest Rates Go Up or Down From Here?

Friday, February 7, the January Jobs Report will be released. The results will be influential in which direction rates go. On the days between now and Friday, investors will be speculating, so we could see some volatility in rates. If the report shows a stronger hiring economy than expected, rates will go up — and that could happen very quickly. On the other hand, if the report shows a weaker hiring economy than expected, rates will go down. No one can say with absolute certainty what will happen.

My philosophy on rate locking is this: Lock the dips and be happy. If you see a rate you like, lock it and be happy. Even if rates go lower after, you still got a rate you liked, so remain happy. Once you lock in, stop watching rates. Why drive yourself crazy? But until you lock, watch rates and keep in touch with your loan officer on a daily basis.

A Few Rules About Rate Locks

Once your interest rate is locked in, you don’t have to worry if rates go higher. You are locked. A rate lock is a commitment from an investor to give you a certain loan amount at a certain rate, with certain points (or no points).

The rate lock is tied to a property address, so you cannot lock in your rate before you have a purchase contract. If you are refinancing, then you can lock at any time.

Once your rate is locked in, you have a commitment. That commitment cannot be broken if rates go down the next day. That would be like a husband asking his wife for a divorce the day after the wedding because a more attractive girl came along. That said, there are some lenders that will compromise if rates go down significantly. For example, if rates drop by .5%, they are willing to drop your rate by .25%. But if rates go down by .125% or .25%, don’t expect to get a lower rate. That is not a change that is worthy of a compromise.

The loan officer should never decide when to lock in the interest rate. It is your financing and your decision. Don’t stick your head in a bag and expect your loan officer to predict the future of rates for you. You must be the one to tell your loan officer when to lock in your rate.

After your interest rate is locked, GET IT IN WRITING. Failure to do so is a mistake on your part. How do you know the loan officer actually locked in your rate if you don’t get it in writing? What about the many people who were told their rate was locked, but then, to their horror, found out later that the loan officer failed to do so, and now they were stuck with a higher rate? Learn from their mistake and get your rate lock in writing.

For other vital tips like this, see Mortgage Rip-Offs and Money Savers. I suggest the paperback over the Kindle version, because the Good Faith Estimates cannot be read on the Kindle version. In this book, I put at least eight different (actual, real) Good Faith Estimates from banks and brokers with my comments on their junk fees, hidden fees, lender credits, and more.

If you found this information on mortgage interest rates to be useful, please pass it on by clicking the social media icons and/or emailing the URL to those who might be interested. Thank you.



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