Tag: real-estate

Should Your Realtor Choose Your Lender?

~ Carolyn Warren ~ Leave a comment

OLYMPUS DIGITAL CAMERAI’d love to hear feedback from both real estate agents and home buyers on this newly released statistic.

According to a study by Campbell Surveys and Inside Mortgage Finance, real estate agents controlled or influenced 45% of homebuyers’ choice of lender.* Is this a good or bad thing? Let’s look at both sides, and then you can draw your own conclusion.

In Favor of Using Your Realtor’s Preferred Lender

A Realtor’s #1 concern is that the transaction gets closed–and on time. There’s nothing worse than having the lender mess up the process so a lose/lose/lose situation is created. If a bank has inept, inefficient, or crazy processing and underwriting so that your loan doesn’t close on time, it can create havoc with your moving schedule and purchase contract. The seller might not agree to extend your contract if there is a higher back-up offer. You could lose out on the house of your dreams; or if the seller agrees to an extension, your moving schedule gets messed up. The real estate agent doesn’t get paid on time, or perhaps not at all if the deal is lost.

Who then could blame a Realtor for recommending a lender he or she knows is efficient and has a history of closing on time?

Against Using Your Realtor’s Preferred Lender

Do you care if you pay hundreds–or perhaps a couple thousand–dollars more for your loan? Do you care if you get the lowest interest rate and lowest monthly payment? Do you care if you pay a boatload of junk fees, thereby perpetuating the problem of lenders taking advantage of unsuspecting and uneducated borrowers?

Just because the subprime era is over, it doesn’t mean there aren’t plenty of rip-offs and over-charges going on, because there are!

Yesterday, I heard from a homebuyer who said he got his mortgage broker to delete $1,558 in stupid junk fees, because he was aware and knew better, thanks to reading Mortgage Rip-Offs and Money Savers. Now he has that much more cash in his wallet he can spend on something new for his house.

Ultimately, It Is On YOU

No one cares about your loan more than YOU. It is  your right and your responsibility to know what is fair, what is an over-charge, and what is easily negotiated. It is up to you who you choose to give your business to, so you need to make an informed and responsible decision.

Maybe your real estate agent’s preferred lender is a great choice. On the other hand, maybe it is an expensive choice. Get a load of this…

In a large training session for multiple lenders, the so-called mortgage guru told the packed-out audience:  “Try to get referrals, because you can charge them more. When a friend or agent refers a borrower to you, they don’t shop and they don’t look at price.”

Having worked in both retail and wholesale lending, having been behind closed doors in sales, underwriting, doc draw, rate lock, and all the rest, I can tell you there are both Mortgage Stars and Loan Sharks out there. It’s a situation of Homebuyers Beware. Choose with your eyes wide open.

As always, I welcome your opinion–whether or not you agree with me. And thank you for stopping by.

* Source: Housing Wire

Legitimate Ad or Marketing Ploy?

~ Carolyn Warren ~ Leave a comment

RadioI was listening to my radio when on came yet another ad by a local mortgage company. Maybe you’ve heard a similar ad and wondered if it was a great company to get a loan from. Or maybe you’re a real estate agent and wondered if this company could get your buyers good financing.

In this ad, the owner of the mortgage company was telling listeners about his fantastic, historically low interest rates and APRs (Annual Percentage Rates). Fine, no problem. But then he capped off the ad by saying, “With us, you never pay an upfront fee!” Like it some kind of unique, special deal: no up front fee.

THE TRUTH: Federal banking law forbids any mortgage lender–including banks, direct lenders, credit unions, or brokers–from collecting any money up front, unless you want them to pull your credit report; and in that case, they can ask for payment for the credit report only (which is normally less than $30).

It is illegal to ask you to pay a few hundred dollars, for any amount whatsoever, for an application fee, processing fee, acceptance fee, or any other type of fee. Other than paying for the credit report, a lender must not ask for any money without first providing you with a Good Faith Estimate.

If you already know your credit score or know that you have excellent credit with at least three accounts on record, then there is no need to have your credit report pulled before you are ready to commit to that lender. If you are shopping for a good loan, do not disclose your social security number or let the loan officer pull your credit.

Ask the loan officer for a Cost Estimate or a Fees Worksheet. It doesn’t matter what they call it, the up front estimate does not require a credit report pull. Before 2010, it was the Good Faith Estimate that was given up front; now it is the Cost Estimate. It’s the same thing, different title at the top of the page. Due to (insipid) federal regulations, lenders were forced to change the title of the upfront estimate. You have the right to receive this without cost, obligation, or credit pull.

The radio ad I heard, the one bragging about “we have no upfront fee” was on Christian radio. So listener beware: just because an ad is on your favorite station, it doesn’t make it 100 percent honest. No upfront fee is the law. Touting it as unique to your company is a marketing ploy. So if you don’t like shady ploys, ignore those ads.

Home Buyers: FHA Mortgage Loan Rules Change Today

~ Carolyn Warren ~ Leave a comment

house in country This is no April Fool’s Joke: The price of getting an FHA loan — commonly called a first-time home buyer’s loan — has gone up today.

FHA (Federal Housing Administration) is a government sponsored enterprise that provides money to banks and mortgage lenders. This price increase comes from FHA; therefore, it doesn’t matter which lender you choose, the price increase is now set by federal banking law.

Change #1: Begins April 1, 2013

For all FHA loans with a down payment less than 5% down, the monthly mortgage insurance fee (MI) has increased. Fortunately, it is a small increase of 0.1%. Previously, the monthly MI was calculated at 1.25% of your principal and interest payment. Now it is 1.35%.

This small increase to all home buyers will add up to a lot more profit for FHA, who has been struggling since the mortgage meltdown to be profitable.

Most home buyers taking an FHA loan are putting down 3.5%. That is the #1 attraction to the FHA loan. If you have 5% to put down, you’re going to want to take the conventional loan instead. The only reason a person with 5% to put down would take the FHA loan rather than the conventional loan is if their credit could not qualify for conventional. FHA is more generous with credit requirements.

If your FHA loan hasn’t closed yet, but your loan officer got the FHA case number prior to today, April 1st, then your MI will be at the lower rate of 1.25%.

Change #2: Begins June 3, 2013

This is the biggest and worst change. For a 30-year fixed rate with less than 10% down, FHA will collect the monthly MI payment for the life of the loan.

This means you do not get to cancel the MI fee when you have 22% equity. You could have 90% equity and you will still be paying that pesky MI fee that protects the lender in case you default on the loan.

Setting You Up to Refinance

If you take an FHA loan, it’s like you’re being set up to refinance when you have sufficient equity (and credit) to get into a conventional loan. The problem with refinancing is that there is a cost to getting a new loan and you have to start all over again at the 30-year mark (unless you take a shorter term loan).

If the FHA loan is the only one you can qualify for, then it’s better than missing out on becoming a home owner and acquiring more personal wealth through real estate ownership. However, since you will probably want to refinance or sell in the not-so-distant future, your focus needs to be on paying the lowest lender fees possible.

There are still a lot of needless junk fees being charged today. This is one reason I offer my Cost Estimate/Good Faith Estimate review and consultation service. Just last week, I saved a home buyer $751 in lender fees through this service. So please, do your proper shop-and-compare before committing to any certain lender. And then, if you are buying with the FHA loan, you can be confident you know the rules and are getting the best deal you possibly can.

 

Short Sales Still a Long Haul to Close

~ Carolyn Warren ~ 1 Comment

house in summer For home buyers who are waiting to hear back on an offer to buy a short sale property, it’s been a lot like waiting for a personal letter from Santa. Many folks lose faith long before it happens. I know buyers who made offers on more than 20 homes and still were not home owners. That’s a lot of time and effort, for both them and their real estate agents. Now Freddie Mac (the Federal Home Loan Mortgage Corp, a government sponsored enterprise) aims to improve this situation by shortening the time.

The company that handles the current home owner’s loan (the servicer) now has 30 days to make a decision on your offer — if they have the authority to do so. However, if a different bank actually holds the loan note so that the servicer is required to pass it along, they have 60 days to respond.

Yes, waiting two months is better than waiting six to twelve months, as happened so often last year, but it’s still a long time to put your life on hold while you wait in suspense. By contrast, a private party selling a home will typically respond to your offer within one to three days.

Servicers are required to acknowledge receipt of your offer within three days, so at least you know your offer didn’t fall into a black hole or get eaten by a dog.

If the servicer ends up needing more time than 30 days to review your offer, they must provide you with a weekly status update.

Why should it take a month or more to decide whether or not they’re willing to sell for the price and terms of your offer? One scenario is when they want to wait to see what other offers might come in. Another scenario is that it takes a committee of bankers to approve a short sale; and frankly, getting that one property off their books is not a priority for them.

If your dream home is a short sale situation and you don’t mind waiting a month or more with the understanding that your offer might not be accepted, then proceed with patience. But if you don’t have the time or emotional endurance for a long haul to close, then speak with your Realtor about limiting the homes you preview to ones that are owned by private parties.

Higher Rate, More Fees For “Service”?

~ Carolyn Warren ~ Leave a comment

money and houseWould you pay a higher interest or more lender fees if you thought you would receive better service during your loan process?

That is the question home buyers were asked in a survey by Carlisle & Gallagher Consulting. People in the 18 to 35 age group said yes, they would pay more for better service.

The two areas of most frustration were (1) slow loan processing, and (2) lack of communication for what was going on with the loan.

As a mortgage industry insider, here is what I’d like home buyers to know.

First, you do not have to pay more for better service. In fact, paying more will not buy you faster processing and more communication. To get better service, you need to choose a better lender.

Second, you will not find out who will give you the best service by asking the question, “Will you give me good service?” Or, “What is your service like?” All salespeople — including loan officers — are going to tell you what you want to hear. Promises of “great service” mean nothing.

Instead, ask specific questions and then listen to your gut instinct. For example, ask, “What is a realistic closing time?” If the answer is more than 30 days, you know this is a lender with slower service than others. If the answer is, “We do 60-day rate locks,” you know this is a lender with slow service who is trying to tell you slow service does not matter.

Another question you can ask: “What is your system for keeping me  updated during the loan process?” The loan officer should give you a clear, specific answer and not dance around the subject. Pay attention to your gut instict.

Another good question: “Will you personally be handling my loan all the way through the process to closing, or do you hand it off to another team member?” If the loan officer tells you the loan is handed off, you know that no one individual is going to care about your overall service, because each team member is responsible for only a small segment. No one individual is responsible for making sure you’re happy. When a loan officer handles the loan from start to finish, that person has a greater incentive to provide timely communication and good service.

Personally, I would never work with an “assembly line” type of lender. Nor would I recommend one.

I am a fan of mid-size and small lenders — both banks and mortgage brokers. I find that on average they close loans faster. But to be fair, it’s not the lending institution but the individual loan officer that makes the most difference. There are also top-service loan officers at large banks, and loan officers who are lazy about service at smaller companies.

A great loan officer — the type I like to call Mortgage Stars in my books — will not charge more for providing the excellent service and communication you should receive.

As always, thank you for stopping by to read my blog. I welcome your opinion, and you’ll find the Comment link at the top of this post.

Forclosure Stopped for 91-Year Old Widow

~ Carolyn Warren ~ 3 Comments

interior Mid-February, I posted about a 91-year old widow who was losing her home to foreclosure simply because her husband died. What happened is that the loan officer who did their reverse mortgage (a program that enables seniors to take cash out of their home equity) wrote the loan in the husband’s name only. Mr. and Mrs. Ogle didn’t understand what was happening, because there was paperwork for each of them to sign. They didn’t understand the consequences. When a reverse mortgage is written in only one spouse’s name, if that spouse dies, the survivor no longer owns the home.

Why would anyone do that? Some loan officers set up the loan for the oldest person so they can get more cash out. In the case of the Ogles, Jeanette didn’t understand that she was signing away the home she had and her husband had paid for and lived in together for over 30 years. And now the lender, Reverse Mortgage Solutions of Spring, Texas, was taking the property and throwing the 91-year old out on the street.

I posted and asked folks to write in a complaint to HUD (U.S. Dept. of Housing and Urban Development.) In addition, the AARP and others protested.

March 1st, Kenneth R. Harney, syndicated columnist, Nation’s Housing, reported that Reverse Mortgage Solutions has had a change of heart about taking away Mrs. Ogle’s home. They said they are now “committed to allow you to remain in your home” and will “take no action to displace you as long as the mortgage agreement… is not in default.” Meaning that as long as she pays the property taxes, all is good.

With a reverse mortgage, there is no payment — the company pays you — so the only way it can go into default is if the property taxes are not paid.

Jeanette Ogle said it was the best birthday present she could receive. She got the good news just as she was turning 92.

Mrs. Ogle said, “I’m on cloud nine. I’m staying put in my house. I don’t have to move. And even though I’m 92, I’ve got all my marbles–so everybody should know I plan to be around for a while.”

You go, Jeanette Ogle! We’re all cheering with and for you!

No Good Faith Estimate Without a Rate Lock?

~ Carolyn Warren ~ 9 Comments

frustrated “I was just pre-approved for my loan, and although I was assured that I would receive a GFE, when I got my paperwork, I don’t have one. Just the lender’s own loan summary form. Two managers told me they don’t give out GFEs until a rate is locked. Isn’t this against the law? This isn’t the only lender that has told me that they cannot provide a GFE without a rate lock,” wrote a savvy but frustrated lady who’s read my books.

Since a lot of folks are hitting up against this brick wall, I thought it best to answer the question for everyone at the same time.

ANSWER

The short answer is yes, it sounds like they are in violation of the law. I’ll explain.

Effective January 1, 2010, a Good Faith Estimate is required to be issued no later than three  business days after the loan officer has received all of the following:

  • borrower’s full names
  • monthly income
  • social security numbers to obtain a credit report
  • property address
  • estimated value of the property
  • loan amount
  • any other information deemed necessary by the loan originator to complete an application

Receipt of the above items are how Federal banking law (HUD) defines a loan application.

From HUD’s Real Estate Settlement Procedures Act (RSPA) FAQ 23:

An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information.

So we see that a loan officer  can issue a Good Faith Estimate without the rate being locked; and in fact, is required to do so. A rate lock is not borrower information required for a credit decision, so there’s no loophole there.

What’s more, a loan officer must not require your signature before providing the Good Faith Estimate, because that might inhibit you from shopping, which you are fully entitled to. Here’s the quote fro the law.

HUD’s RESPA FAQ 31:

…a loan originator may not require a borrower to sign consents to verify employment, income or deposits as a condition of issuing a GFE as such a requirement may inhibit borrowers from shopping for the best loan by leading borrowers to believe that they are committed to obtaining a loan from that loan originator.

THE BOTTOM LINE

If you have provided all the information stated above to complete an application, your lender must either issue a Good Faith Estimate within three business days or deny your application.   If they do not, they are violating RESPA. I suggest you refer them to this blog post with a friendly reminder that they probably don’t want to be reported to HUD (U.S. Dept. of Housing and Urban Development), the legal watchdog that is happy–if not eager–to “follow up” on lenders who violate the law.

ONE LAST COMMENT

Personally, I find the Loan Summary/Cost Estimate Worksheet/Initial Fees Worksheet (whatever your lender wants to call it) to be more revealing and more helpful than the new 3-page GFE that the Feds designed, because they show the breakdown of fees better and include more information (such as total monthly payment and cash to close) than the GFE does.

As always, your comments are welcome.

 

Sell Now or Wait for a Higher Price?

~ Carolyn Warren ~ 3 Comments

house with woman An argument broke out at a business network meeting I attended earlier this month. The topic of dispute was whether it was better to put your house up for sale now or wait until prices improve.

As you might guess, the real estate agents are all for selling now. They say inventory is low, so you don’t have as much competition now, and in some areas, multiple offers are coming in. But some home owners are saying that since home prices have turned around, if they hold out a little longer, they believe they’ll get more money. Both arguments have merit, so what should you do?

The answer is easy, as I pointed out.

If you are selling to move down into a less expensive home, you come out financially ahead by waiting until prices increase. This is because you will net more money on the house with the higher price tag, which will go farther on buying the cheaper house.

If you are selling to move up into a more expensive home, you come out financially ahead by selling now. This is because that more expensive house will be cheaper today than next month. Even though you’ll net less on your current house, getting the more expensive property for less puts you financially ahead.

Unfortunately, the clear mathematics stopped the party banter, because the controversy ended. Maybe I should keep my mouth shut rather than be a such a party pooper next time.

Um, no, that will never happen. LOL

If rates are low, why am I paying so much?

~ Carolyn Warren ~ Leave a comment

interest rate house  I received this question from Maria today:

Q: I have an adjustable mortgage and my current interest rate is 9.375%. Why would this not decrease considering we are at a low national average?

A: That is a good question Maria, and one a lot of people have. There are two reasons why your rate could be 9.375% when today’s fixed rate is only 3.5%.

First, it depends on what your margin is. If you have a high margin, you’ll have a high interest rate, no matter how low rates go. I’ll explain.

An adjustable rate mortgage has a margin as well as the index it is based on. Let’s say your loan is based on the index called LIBOR (London Inter-Bank Offered Rate), the most common index used for adjustable rate mortgages. Today, the LIBOR rate is 0.48%.  Your margin is added to that rate to determine what your interest rate is. If your margin is 9%, then your rate would be 9.48%. WOW, that is a high rate!
And it’s pretty close to what you are paying.

You can see the importance of paying attention to what your margin is when you take out an adjustable rate mortgage (ARM).

The second reason why your rate is so high could be the floor. Every adjustable rate has a start rate and a floor. The start rate is the interest rate you start out at. The floor is the bottom your interest rate is allowed to go.

A lot of subprime ARMs were written with the start rate the same as the floor.  If your start rate was 9.375% and the floor is the same as the start rate, your interest rate can never go below 9.375%, no matter what. OUCH, that hurts a lot when rates go down!

You can see the importance of also paying attention to what the floor is on an ARM.

Unfortunately, a lot of smooth-talking loan sharks sold ARMS with bad terms, which earned them high commissions. The higher the margin was on an ARM, the higher commission the loan officer earned. In Mortgage Rip-Offs and Money Savers, I tell a story about a loan officer who made $40,000 commission on one ARM that had a high margin and a prepayment penalty. And by the way, if you haven’t read this book yet, go check out the reader feedback and pick up a copy. It’s a real eye-opener.

The Truth-in-Lending form shows you all the terms of your ARM, including: start rate, index, margin, floor, and cap (the maximum interest rate). Back in the subprime heyday, a lot of loan officers never bothered to send customers–or should I say victims?–the TIL. Or, they sent the TIL, but it was left blank. A proper TIL for an adjustable loan is supposed to show you a worse case scenario of how your loan can change.

By the time borrowers got to the signing table and finally got to see a proper Truth-in-Lending for the first time, they glossed over it and signed away without paying any attention. Of course, it didn’t help that some of these signers distracted people with jokes and gossip and other conversation while they were signing.

Get out your TIL from the stack of papers you signed. Look at the figures for the margin and floor. That will tell you why you’re paying almost 5% higher than today’s rate. Also look to see if there is a prepayment penalty; and if so, when it expires. If you don’t have a prepay penalty in place now, you definitely want to look into refinancing.

Folks, before you or someone you care about signs for a mortgage, take a couple days to read Mortgage Rip-Offs and Money Savers. It could save you thousands, if not tens of thousands, of dollars as well as a lot of stress and grief.

New Law Coming for Adjustable Rate Loans

~ Carolyn Warren ~ 1 Comment

Adjustable rate  Are you nervous or confused about what’s going to happen with your adjustable rate mortgage (ARM)? The Consumer Financial Protection Bureau set nine new laws in place this month. One of these laws is designed to help home owners who have an ARM so that they aren’t shocked when their rate goes up.

In the past, too many borrowers didn’t understand their loans and were taken by surprise when their monthly payments increased. They discovered they could no longer afford to live in their homes, and we all know what happened after that. The CFPB aims to prevent another mass foreclosure disaster.

The new law states that lenders must send you a notice between 210 and 240 days before your first interest rate adjustment. This notice should give you an estimate of what your new rate and payment will be.

In addition, the lender must send you a notice between 60 and 120 days before a payment change. This is different than the above, because if the interest rate hasn’t changed, your payment will not change. Or, if the interest rate changed slightly but your loan balance is lower, your payment might not change. With an ARM, your new payment is calculated using the interest rate and your current balance. This is why people with an ARM can see their payment go down as their balance gets paid off.

Currently, the law states lenders have to provide you when an annual notice that posts the new interest rate, but not the payment. If you want to know how your new payment in advance of receiving the bill, you have to go hunting for an amortization calculator–not very convenient.

I am pleased with this new law. But because there is a compliance period after a new law being enacted, lenders have until February 2014 to comply. Let’s hope most of them jump on board sooner.

In future posts, I will discuss additional new laws. Feel free to subscribe. I make posts on Mondays and occasionally on another day as well.