LoanBark! Mortgage Blog - Consumer Advice

ARM Resets - Advice

2007-06-20T14:35:00.000-07:00

In the mortgage industry, 2007 may go as the year of the ARM reset. If you have no idea what I'm talking about, that's probably a good thing. But for many, a letter from you lender has recently greeted you with the news that your mortgage payments are going to go up, way up.

Lenders didn't just decide to do this on a whim. You agreed to this possibility when you closed on that super low rate loan a couple years ago. Unfortunately, lots of folks never understood that this could happen. Now, you are ultimately responsible for every commitment you signed on the day of your closing. But I doubt anyone has ever read every word of every page they signed. Instead, many trusted the advice of their loan officer and real estate agent. If you just got a reset letter in the mail that was completely unexpected, I wouldn't ever bank on that "advice" in the future.

So now what? Well, foreclosures are through the roof, lenders are dropping like flies, and best of all congress is threatening to get involved in this debacle. Trust me, the last thing in the world your lender wants to do is foreclose on your home. They'll end up loosing more money than you, and feed the press with more bad news to report. Because of this, many lenders have set up unpublicized action plans that involve doing what they can to smooth over the situation. Whether you believe it or not, YOU have some leverage here. Here's what to do:

1. Call your lender. Be very polite. Do not accuse them of being crooks. Tell them you need help. Act a little bit confused.

2. Raise the specter of foreclosure. Don't proclaim it, suggest it. "Sir, I don't know what to do. I guess I didn't really understand what I was signing, or that the rate could go up like this. With my income, it will be nearly impossible for me to make the new payment and I'm very worried that I'm going to loose the house."

3. If you are old, take advantage of this. Have your son or daughter call for you. You'll need to be there when they call to give the lender permission to talk to them. Have them say, "I have no idea why my parents signed this without talking to me, they don't understand all of this modern financing. Now I'm afraid they are going to loose their house and need to find out what you can do for them".

4. Hopefully, they will offer to extend the low rate period for another year. Maybe they will only offer six months. In some cases, they'll tell you tough luck. But hey, it's just a 20 minute phone call. It can't hurt to ask.

5. They may also offer to refinance you into a fixed rate loan. I recommend that you look at their offer, then go out and see what a few other mortgage companies can do for you as well. The key, as always, is to shop around.

My Mortgage Fraud Search Engine

2007-03-27T12:07:00.000-07:00

Concerned about Mortgage Fraud? My new search engine is filled with resources to help you and news stories that shine a light on the criminals commiting fraud. I'm also looking for volunteers who would like to help in adding content to the engine. I hope this will be a useful tool for you.

Is Your Mortgage Choking You?

2007-02-26T12:53:00.000-08:00

Peter Coy of Business Week is looking for borrowers who are "feeling the squeeze". This is a good opportunity to help others avoid the pitfalls you may have incurred.

Is Your Mortgage Choking You?

Unsuspected Loan Fraud

2007-02-14T17:09:00.000-08:00

Fraud is a big problem in the mortgage industry right now. As the problem increases, lenders and government are likely to turn up the heat on the offenders. The thing is, some folks don't even realize that they are committing fraud.

Rob Blake, who has a great radio show here in Denver, and a new blog, The Mortgage Insider's Blog, has an excellent post on steering clear of some of these problems.

Second Home? First Home?

2007-01-15T15:11:00.000-08:00

Here's a question I got from a reader today.

I found your blog on the web and thought you might be able to answer a question. I'm currently looking for a duplex or triplex to purchase. I intend to finance my new home with an FHA mortgage. I hope to live in the new home for 1 to 2 years, at which time I would search for a new single-family home. I intend to keep the duplex/triplex and rent out all units. What kind of implications does this have on finding a mortgage for the single-family home? Will a large down payment or high interest rate be required for the mortgage on my second home?

Matt - Louisville, KY

If the new single family home is an improvement in living conditions over the duplex you are living in now, then there will be no "Second Home" implications when it comes to higher rates. The Single Family will become your first home. Basically, the underwriter must be convinced that you really do intend to move into this new home.

You may have some income hurdles to cross when you get the new loan. You'll need to prove you can pay both loans. You'll be able to use the income generated from the other half of the duplex, but in most cases, you will not be able to use the potential income from renting the half you currently live in. Even if you have a renter signed to a new lease. You may end up needing to do a Stated Income style loan, then refinance it in a year or so, after you can document this additional income. If you do some research, you may come to the conclusion that Stated Income loans are a bad thing. But just because they are often misused, doesn't mean they are inherently bad. The honest reason for Stated Income loans is to help people how actually have the money to pay, but can't fully document where it is coming from. Future rental income would be a prime example.

The duplex will become an investment property. You current loan on the duplex will not change, but if you ever refinance it, you will then pay investment property interest rates on the new loan. Also, ask your loan officer if there is a minimum occupancy term on the loan for the duplex. If you plan to live in the duplex for more than a year, it shouldn't be a problem, but check anyway. In some cases, if you attain a "owner occupied" loan, then turn the property into a rental right away (usually a mater of months), the lender can come back and call the loan due.

And people wonder why foreclosures are up.

2006-10-26T11:46:00.000-07:00

Here's a blog I found today. I am Facing Foreclosure .com. It should be required reading for anyone psyched up after a Carlton Sheets seminar.

Deciphering ARM's

2006-10-17T16:28:00.000-07:00

Adjustable Rate Mortgages (ARMs) can be intimidating to new borrowers, but should not be overlooked. The key is to understand the variables involved, and then scrub them against your short/long term goals.

ARM's feature an interest rate that can change. Lender's offer superior rates on ARMs compared to fixed rate loans because they are not locked into providing the exact same rate to you for the next 30 or so years. ARM's let the lender adjust according to market conditions and inflation. When interest rates go up, your ARM can go up as well. Comparing the difference between ARM's is more complicated than fixed rate loans because the start rate is only important until the rate begins to change. How much it can change, and when it will change are just as important to consider.

The period of time between when your rate can change is the first variable to consider. Some ARM's can actually change every single month, starting in the next month after you close. Ever here those 1% ads on the radio? It's likely tied to a loan that changes monthly. It's more common for an ARM to change once a year, and in many cases, it will have a period of a fixed rates for a few years before it becomes adjustable. For instance, a 5/1 ARM is fixed at the start rate for the first five years, then adjusts yearly. A 3/1 ARM is fixed for three years, then adjusts yearly. If you are pretty confident that you are going to move again in the next five years, a 5/1 has almost no downside to it.

How much your loan can adjust, once the fixed period is over, is the second variable to consider. ARM's have caps that limit how much the rate can move at one time. Let's say your caps are 2 & 5. That means the rate can adjust as much as two percent a year (assuming your loan only adjusts once a year), and can never go above 5% over your original start rate. With a 5/1 ARM and 2&5 caps, in a worse case scenario, your rate would change as follows.

Year One - Start Rate, let's say it is 5%
Year Two though Five- 5%
Year Six - 7%
Year Seven - 9%
Year Ten - 10%
10 through 30 - 10%

Obviously, if you plan to live in a home for the next 30 years, with no intention of ever refinancing, an ARM like this may be a bad idea. But most folks would refinance or sell by the seventh year.

That's a worse case scenario. Now let's look at how the rates will actually adjust. It might seem like the start rate is the only important number to consider here, but that's a mistake. The MARGIN plays the biggest role in how much your rate can change. Margin is one of those obscure figures that many loan companies try to breeze over. Always look at the margin if you think it's possible that you'll have this mortgage once it starts adjusting. So what is margin? It's a set number that gets added to an index, to determine what your rate will be. This is where it gets tricky, but stay with me.

Different ARM's are based on economical standards called indexes. One index is the Monthly Treasury Average (MTA). Another is the London Inter-bank Offered Rate (LIBOR). Many loans are based on US Treasury Bills. We could spend a day talking about indexes, but the simplified core of it is that these indexes go up and down, depending on the market. In times of higher rates, these indexes are higher. Some move up and down faster than the others, but they all pretty much mimic the economy. Currently, US Treasuries are about 5%.

Here's where the margin kicks in. When your rate starts to adjust, the margin is added to whatever the index is at the time, and that is your new rate. Let's use that same 5/1 ARM above and assume that your five years are up today. Let's also assume that your margin is 1.875%

Start Rate was 5%, 2&6 Caps
Margin - 1.875%
Current Index - 5%
Index + Margin - 6.875%

For the next year, 6.875% is your new rate. Now lets assume the Treasury Index goes up to to 7.5% next year.

Current Rate 6.875%, 2&6 Caps
Margin - 1.875%
Current Index - 7.5%
Index + Margin -9.375%
Current Rate + 2% Cap 8.875%

In this case 8.875% would be your new rate because the caps limit the rate from going higher.

ARMs don't just go up. If the index goes lower, so do your rates. It's also important to remember that different loan companies will offer loans based on the same index. Again, the import number to consider in this case is the margin. Lenders will pay brokers for loans with higher margins. As you can see above, the difference between a 1% or 2% margin directly results in a 1% or 2% increase in your rate when the loan starts adjusting. In most cases, brokers can offer more than one margin, make sure you include this factor in your comparison.

YSP, the rest of the story.

2006-10-06T22:26:00.000-07:00

Readers of this blog are likely the inquisitive sort, and have heard from more than a few consumer web sites about Yield Spread Premium. It's popular these days to link the terms YSP and evil, greedy, or corrupt, but the reality is that YSP is a part of nearly every loan, from good brokers and bad. Your level headed understanding of why it exists will help you negotiate the best deal for you, regardless of wether or not a YSP exists on your loan.

Let's start at the beginning. A mortgage broker is like an independent insurance agent. They work with several different lenders, each catering to different client bases. Some lenders specialize in high loans amounts, some in FHA & Fannie Mae "vanilla" loans, some in higher risk borrowers. Most of the time, many different lenders are competing for the same borrowers. Just how aggressively they wish to compete can vary from day to day. For this reason, most lenders publish a rate sheet at least once every day. A rate sheet is just a big price list of all the loans the lender offers and what they cost. Lenders charge the broker (and therefore the borrower) for lower rates on any particular program. Lenders also PAY brokers for higher rates. They pay even more for even higher rates. This payment from the lender to the broker is the Yield Spread Premium. To understand this better, lets look at a snippet from a random rate sheet.*

This is a very simplified example of what a broker is looking at. For this example, these rates are for a FNMA (Fannie Mae) fixed rate loan. This is the most common and basic loan in the industry. Two different terms are available; 30 years & 15 years. Lets look at the 30 year fixed loan in the left square. The first column is the interest rates that the lender is offering. The next four columns show how much the lender will pay/charge for these rates, depending on the lock period. A broker can choose from a 15 day lock to a 60 day lock. The loan has to fund between the time the broker locks, and the lock term expires. The most common lock period is 30 days, so let's look at the third column. As you can see, I circled the Par Rate at 5.875% (0.000). The Par Rate is a wash. The lender neither charges nor pays to lock in this rate. If you wanted a 5.75% interest rate, the lender is charging 0.625 points. 1 point equals 1% of the loan amount. On a $100,000 loan amount, 1.000 equals $1,000. In this case, 0.625 points equals $625. The math works the same going the other way. If the broker locks you in a 5.875%, they earn 0.500 points, or $500 on that same $100,000 loan. They'd earn $2375 on a $100,000 loan if they locked you in at 6.5%.

I can see the steam coming out of your ears as you consider that somebody could actually earn an extra $2300 on top of all the other closing costs and origination fees for your loan. This has happened, maybe even to you, but step back and take a deep breath, there's more to the story. A high YSP like this is often used to pay the borrower's closing costs. When you here those ads on the radio about "no cost loans", they use the YSP to fund all of those costs. Brokers may collect a YSP on smaller loan amounts. It's just as hard to do a $80,000 loan as it is to do a $375,000 one.

Also remember that these are wholesale rates. That means (for hypothetical example) the rate that Countrywide Retail offers to you, the borrower, is not as low as the ones Countrywide Wholesale offers through a broker. Why? Because they don't have to pay for the marketing and labor costs that the broker assumes in generating these loans. The Countrywide loan officer may be warning you to watch out for brokers and their evil YSP, but if he is offering a 6.125% loan at "par", and the broker is offering you a 6.000% loan, and earning that 0.500 YSP, does it really matter who's making what? The point is to look for the best deal, not who's charging a YSP, and who isn't

Some thing else to consider. I'm actually a Mortgage BANKER, not a Broker. That means my company will fund loans to you, then turn right around and sell them to lenders. By operating this way, I don't even have to disclose that I'm earning a YSP (I do anyway), and can even earn an addition sum called a Service Release Premium that is based on total volume of loans delivered over a given month. Brokers, on the other hand are required by law to disclose this YSP on the HUD-1 Settlement Statement that you sign at closing. Because Bankers like myself can conceal this extra income, many of them are the ones yelling the loudest about how brokers must be screwing you because they earn this "kick-back" while they are as pure as the driven snow.

Face it. It's unlikely that you will know just how much profit is being harvested on any given loan. But think about it. Do you know how much profit your insurance agent makes on you? Do you know how much profit Starbucks made on the latte' you're sipping? Does it really matter? I say no. What matters to me is, who is giving me the best deal. If you want the best deal on a mortgage loan, you need to stop worrying about how much everyone is making, and focus on what YOU are paying.

So, my longest post ever explains a component of this industry that is largely a distraction to the bottom line. Here's what's important. What are your closing costs? What is your interest rate? What's the APR?

APR, not YSP is the one simple number that determines who is giving you the best deal.

Check out my post APR Simplified for details.

*These numbers are just for hypothetical ponderings. The example I pulled is not up to date, nor does it display several other adjustments for things like occupancy and loan to value.

Free credit reports. No, really.

2006-09-20T23:49:00.000-07:00

Everybody has heard the ads on the radio for free credit reports. Unfortunately, the companies running those ads often require you to join there credit monitoring services to get your "free" credit report. However, by Federal law, you are entitled to one, truly free credit report, from each of the three main credit reporting agencies each year. Here are the facts from the Federal Trade Commission on how to get this free information.
Your Access to Free Credit Reports

Nightmare Mortgages

2006-09-05T12:26:00.000-07:00

Business Week Online just published an article that every potential borrower should read. Nightmare Mortgages covers the pitfalls of working with mortgage professionals that are more interested in their commision check than your financial future.

Who's ripping off the minorities?

2006-08-17T15:02:00.000-07:00

The Orlando Sentinel has an interesting story about how minorities pay more for loans than whites. The story even shows that upper income minorities are effected as much, or more that the poor. I have no doubt it is true. But in my experience, minorities don't average higher cost loans because of racism. They average them out of fear of racism.

I have no statistical data to support this. Just my on decade plus experience as a loan officer, and more importantly as an account executive with some of the largest lenders in the industry. As an AE, I used to call on other brokers, and my travels, I've run across many brokers who specialize in minority markets. Some were white, but concentrated on the Hispanic market. Some where Hispanic, Black, Asian, and concentrated on there own race for their market. What well over half had in common was a good name in their market, and the greed to take advantage of it. They leverage fear of racism to charge higher rates/fees.

I believe the way it works is that a minority borrower may see a lender of the same race as the last person to discriminate against them. Other people in the community may also endorse this lender. Like all borrowers, they are more concerned about being approved then paying 7.25%, instead of 7.125%. Lender's know this, and are not as aggressive about quoting the lowest possible rate when other factors (like fear) are involved. Does this make the lender a racist? Nope. It makes him a greedy bastard. But fear of racism is what feeds his greed. All the while, they brag about the people they are "helping". As a loan officer, I have found that treating borrowers as individuals, instead of parts of a group, that I can deliver lower rates then those who target minorities. I just wish more minorities would shop around a little, they'd be surprised at how fast they could level the playing field.

My advice, as always, is to shop around. Don't let race play a factor in your decision of which lender to use. There are plenty of great lenders of all races ready to do a good job for you.

How to find a good Mortgage Company

2006-04-27T21:57:00.000-07:00

There are exceptions to every rule. When it comes to finding a reputable lender in your area, drawing from more than one source, along with careful comparison is key. However, you can improve your chance of finding a good mortgage company to work with by using caution in how you initiate the loan process. Here are some sources to focus on, and a few others to avoid.

SPAM - Email Offers - Without a doubt, this is the absolute worst way to find a mortgage company. In most cases, the companies sending these spams are not even lenders. They are lead generation companies that sell your personal information to the highest bidder. The real problem is that they don't care who that bidder is. What worse is that they will generally sell your information over, and over, and over... The best you can expect from responding to spam is being bombarded by more spam. The worst you can expect in credit fraud. Don't ever respond to mortgage spam.

Tele-marketers- Never-mind that it's annoying, tele-marketers are usually a bad choice because they leverage the element of surprise. You see, this "sneak attack" keys on the premiss that the people they are calling have not initiated the mortgage process themselves. Because they know you haven't shopped the competition, it's easier for them to quote higher fees or rates. Of course the other downside to tele-marketers is that you don't really have any idea who you are talking to. Lead Generation companies and Criminals looking to steal your credit identity commonly use the phone as a primary tool. If you do respond to a tele-marketer, ask to call them back before you give out any personal information.

Advertising - This includes TV, Radio, Yellow Pages, Web Sites, etc... finding a mortgage company in this manner is a mixed bag. The main advantage over the tele-marketers is that you now have the element of surprise. When you call a mortgage company, they know you are shopping, and more likely to be comparing several different companies. The knowledge of this forces them to quote more aggressive pricing and lower fees. The only problem is that you really don't know if the promises they make are legitimate. When using these sources, shop several companies, throw out the worst, but also throw out the companies promising the moon.

Bloggers - The difference between a mortgage company with a web site and a mortgage company with a blog should not be overlooked. Professionals like David Porter have harnessed the power of the blog to show off there grasp of the industry. If you are lucky enough to have a dedicated local blogger like David, take the opportunity to read their blog a bit to find out more about the person you're going to work with, sans a sales pitch.

Family & Friends Referrals - This is one of the best ways to find a good company. First off, your friend has first hand experience with that company. Second, the mortgage company values referrals more than just about any source. When a consumer comes in from a referral, they know they need to make sure the new client is just as happy as the old one. If the new client gets a raw deal, the original referrer is sure to find out about it and the lender will loose a chance at future referrals from both clients.

Realtor Referrals- I think this is the most important referral of all. As a lender, nobody is more important from a referral basis than a real estate agent. Many successful loan originators work almost exclusively with Realtors. Another advantage is that Realtors have a better idea of who is really better to work with than your family or friends. Mom and Dad may be happy to refer the guy who just refinanced them, but what if Mom & Dad didn't realize they'd been suckered? Realtor's on the other hand are more familiar with the market and know very well as to who is hot, and who is not. If you are doing a refinance, and don't with to work with the company that did the original loan, asking a Realtor is often overlooked, but it's still a good resource.

Once again, remember to shop, shop, shop. Make sure the companies you contact know you are shopping. Don't feel like you have to commit that second, rates usually do not change drastically overnight. Most of all observe just how much detail a mortgage company inquires about in determining your situation, and the best solution for your needs.

FICO Strategery

2006-04-21T08:25:00.000-07:00

First off, this advice is designed to raise your FICO Score. This will allow you to secure a lower interest rate mortgage for your home. Do not mistake this advice with improving your overall credit health. If you are like me, and have trouble remembering to pay your credit card bills, and always having that feeling that an un-maxed credit card is burning a hole in your pocket, then this may not be the best advice. Anyway, here are some tips to improve your score.

Delinquencies - 35% of your score is based on past delinquencies. How far behind, and how recently you were behind both play heavily on your score. What type of payment you missed also matters. If you had a bad spot, with lots of late pays, sit tight. Every month that goes by without a late pay will lessen the impact. Your score will recover on it's own.

If you are just coming into a bad spot, and know you will not be able to make all your payments, choose to miss revolving credit before an auto or home loan. The bigger (more important) payments carry more weight than the smaller ones. Your FICO will still go down, just not as bad.

Also, 60 day lates are worse than 30 day lates. Let's say you have two credit cards. If you can't make all your payments, let one of the two credit cards slip 30 days late. If you are still in a rough spot the next month, don't let that card go 60 days late. If anything, pay the card you missed last month, and let the other card go 30 days late. Being 30 days late on two cards is not as bad a 60 days late on one.

Of course, it's WAY better to pay all your payments on time. The above advice is damage control.

Credit History - 15% of your FICO is based on history. Don't close your cards out. This is one of the biggest mistakes people trying to improve there FICO make. FICO judges the age of your credit history. If you had a card for 10 years, then switch to a brand new card, but keep the old one open, you average history is five years. If you close the old one out, your history is 0 years. In spite of never missing a payment, your FICO can go down.

Credit Balances - 30% of your FICO is based on balances owed. Try to share your debt among more than one card. If you have three credit cards with two paid off, but one maxed out, you can raise your FICO by using those other two cards to pay down the maxed out card. Also, ask you creditors to raise your credit limit every six months or so. FICO looks at what percent of your card's limits are being used. It's not an average though. One maxed out card will hurt your FICO more than 3 cards at 33% of you credit limit.

Reported Credit Limit - Some credit card companies do not publish your credit limit to the credit bureaus. They don't want other companies to see your report, and realize what a good customer you would be. The result is that it shows up as a zero. To avoid this, pull your own credit and make sure your limit is properly stated. Call your credit card company and complain if it isn't.

Credit Activity - OK, I understand that having a balance on multiple cards can be more hassle than it's worth. However, if you have a couple cards that you have paid off, but kept open, use them at least every six months. It can be a very small purchase like a slurpee and candy bar at the Kwickie Mart. Then just pay it off. If your card isn't used at least every 6 months, it can become inactive. This is the same as closing the account when it comes to calculating your Credit History.

Paying Your Card Off Every Month - If you are financially secure enough to pay all your revolving debt every month, congratulations! This will help your score immensely. However, you can improve your score even more if you pay it before the Statement Date, instead of the Due Date. Lets say you rang up $500 on your card over the month. When your statement is generated, the credit bureau sees your balance as $500. If they see it at $0 instead, your score will improve a bit more. To do this, call your credit card company and find out when your statement date occurs every month. Let's say it's the 25th. Now, on the 19th of the month, call and find out what your balance is. Send in a check that day for the balance. By the the statement date, your balance will read $0 (or close to it). This is probably more effort than it's worth, but it will have a marginal effect on your score.

Piggyback On Somebody Else's Good Credit - A great way for you to help a young or damaged credit family member is to add that person as an "Authorized User" on one of your credit cards. You can do this, and then keep the card yourself if you aren't ready to entrust it to the family member. Just remember to use it every 6 months or so (buy them some gas). FICO will see the account, it's age, and the fact that it is being paid on time every month, even if the borrower is not paying it themselves.

Credit Mix - 10% of you FICO is based on the mix of credit. Ideally FICO would like to see 1 Mortgage, 1 Auto/Installment Loan, and 3-5 Revolving Credit Cards

Get A Mortgage - After the first mortgage payment is made, nearly every first time homebuyer will see a marked improvement in their score.

Inquiries - 10% of you FICO is based on Inquiries. Every time you apply for credit, an inquiry is placed on your credit report. The more you apply, the lower your FICO goes. There are some exceptions though.

Auto and mortgage inquiries work in a buffer. If you apply for a mortgage with three companies at once, FICO knows you are not actually going to do three separate new mortgages. It works the same with a car loan. The buffer system is supposed to work for 30 days. So if you apply for 4 mortgages in 30 days, it only counts as 1 inquiry. One note to be clear. Auto and mortgage buffers are separate. If you apply for one mortgage and one auto loan, it counts as two inquiries.

Personal credit pulls NEVER count against you. This is widely misunderstood. You can and should pull your own credit without penalty. Check out myfico.com for details on how to do this. FICO does not count this against you, because you are doing it for informational purposes only. I personally think FICO should give you a couple brownie points on you score for caring enough about your credit to do so.

In addition, other informational pulls will not hurt you either. Some employers pull credit on new employees, sometimes, your existing creditors check, just to make sure you haven't driven off the deep end. At any rate, any type of pull that would not directly lead to more credit is not counted against you.

Mortgage Update

2006-04-19T11:44:00.000-07:00

There's some evidence of inflation coming out. As a result, mortgage rates are ticking higher in anticipation of further rate hikes by the Fed. To get the full scoop, visit the lenderama Mortgage Update.

Stop Credit Companies from selling your data.

2006-04-18T14:36:00.000-07:00

Mortgage Industry insiders call them trigger leads. When you apply for credit with one mortgage company, the credit bureaus see a new credit inquiry on their system. This triggers them to put you personal data on a leads list and sell this information to other lenders.

What exactly are they selling? Basically, your name, contact info, and the fact that you are applying for credit.

Who are they selling it to? Pretty much anyone.

How can you stop this from happening?. Go to this web site.

For more information check out Behind The Mortgage & Pacesetter Mortgage Blog.

HOMEOWNERS CONSUMER CENTER - Consumer Guide & Advice for Homeowners

2006-04-17T16:45:00.000-07:00

Here's a press release I recieved from HOMEOWNERS CONSUMER CENTER with some pretty good basic advice for first time homebuyers.

(PRWEB) April 17, 2006 -- Americas Watchdog, a national consumer advocacy organization, has just created what is believed to be the first homeowners center where the average homeowner or first time home buyer can pick up useful tips about becoming a better educated homeowner/consumer. To launch this site we have come up with a top five list of things that every homeowner needs to do before purchasing a home. This new web site is called The Homeowners Consumer Center and can be found at Http://HomeownersConsumerCenter.Com. The goal of the Homeowners Consumer Center is to protect homeowners and consumers from being overcharged, misled, or cheated. The intent of the site is to educate consumers/homeowners on a number of important issues. Our top five very important homeowner topics are as follows:

Tip 1. Google Zillow.Com and do some homework on how much homes are selling for in your proposed neighborhood. We want you to become market savvy, so you don't pay too much, for a home, or sell your home for too little. The average homeowner/consumer would be amazed at how often sellers and most national homebuilders over inflate the values of their homes. If you are about to purchase a new home, please visit our site and learn how to become an expert on home values in your current or proposed neighborhood.

Tip 2. There are exceptional real estate agents and there not so exceptional real estate agents. Our second tip for homeowners is to do reasearch and hire the best possible agent, who really will represent your best interests. Our web site also suggests specific items you should require of your real estate agent when buying, or selling a home. If you are a member of the National Association of Realtors and you would like to participate in our Honest Real Estate Agent Program in your state, please visit our web site and contact us.

Tip 3. Home inspections are a must for buyers of all existing or new homes. Have the home inspected regardless if it is brand new or existing. Do not buy someone else's problem. Construction defects are very common with new construction. Our web site also covers the things your home inspector must have before you retain their services.

Tip 4. Do not get over charged or cheated on a home loan. Ask your Bank, mortgage banker or broker what your mortgage par rate is (the best mortgage rate for your credit) & ask if they are getting a yield spread premium for increasing your interest rate over par? Our web site also has numerous helpful do's and don'ts every homeowner needs to know, when refinancing or financing a home. Our affiliate group is the National Mortgage Complaint Center, and the average consumer would be amazed at how easy it is, to get over charged or cheated, when obtaining a new mortgage, or getting a refinance on an existing home. Our mortgage page has a top 10 do's & don'ts when it comes to financing or refinancing your home. If you are an honest mortgage broker and a member of the National Association of Mortgage Brokers and you would like to participate in our Honest Mortgage Brokers program in your state, please visit our web site and contact us.

Tip 5. Don't go cheap on your homeowners insurance coverage. Our web site also contains information related to why you need homeowners insurance and the types of coverage that should be included in your homeowners insurance policy. The homeowners insurance page also covers a number of do's and don'ts when it comes to homeowners insurance coverage. We went through Hurricane Katrina, so we think our insurance information is vital for every homeowner in America. If you are an honest and experienced insurance agent, a member of the Independent Insurance Agents & Brokers of America, and you would like to participate in our Honest Insurance Agent Program in your state please visit our web site and contact us.

We at the Homeowners Consumer Center believe that the right of homeownership is the American Dream, and we are here to protect it. We intend to constantly update the Homeowners Consumer Center with additional tips for getting the most out of your dollar, for not getting cheated or short changed, and for protecting your American Dream. New areas will soon be added and will contain facts about, buying a vaction/second home, tax tips for homeowners, how to's on hiring a contractor, and other useful information. We value consumer input so we would like to hear from you if you have any suggestions. We also believe that word of mouth is the best form of advertising, so if you could mention our web site to your friends, family and co-workers we would be very grateful. If you are an honest real estate agent, insurance agent, mortgage lender, home inspector or consumer group please feel free to include a link to the homeowners consumer Center on your home page or web site. The web address for the Homeowners Consumer Center is Http://HomeownersConsumerCenter.Com

APR Simplified.

2006-04-03T12:53:00.000-07:00

Whenever you apply for a loan, the lender has to provide you with a Good Faith Estimate (GFE) and a Truth In Lending (TIL) disclosure. The GFE is a list of all the different fees involved in processing your loan. It also list what funds you'll need to advance for homeowners insurance, taxes, etc... but that's a subject for another day.

Instead let's discuss the TIL, more specifically, let's discuss the APR. If you've financed a home before, maybe you remember this little box on the TIL. Maybe it didn't make any sense, and maybe the Loan Officer did his best to gloss over it. The APR is the REAL, or effective cost of the loan. It takes into account all of those fees listed on the GFE and converts them into an adjustment to the interest rate.

Confused? Okay, let's pretend I am 8 years old. I want to borrow $10 dollars from one of my brothers so I can buy the GI Joe with the Kung-Fu Grip. My 14 year old brother offers to lend me the 10 bucks, but I have to pay 5% interest. My 17 year old brother offers to lend me the money at 0% interest, but I have to pay an upfront $1 processing fee. The 17 year old's deal sounds better at first because it's zero interest, but if he had to provide a TIL, we'd see that his $1 fee raises the APR from 0% to 10%* Typical sneaky brother stuff.

APR is important, don't let the Loan Officer tell you any different. If you want a more detailed explanation of how APR works on a full mortgage, read on.

Here's an example of a30 year fixed rate loan:

Loan Amount $100,000
Number of Payments 360 (for a 30 year loan)
Monthly payment $804.62
Interest Rate 9%

Now, let's say the lender charges you a 1% Origination Fee and $500.00 processing fee. To keep it simple, lets say those are the only fees you pay. 1% of $100,000 is $1000, plus $500 is $1500 dollars in fees. So, if you have to pay $1500 dollars up front to get a $100,000 loan, you really only got $98,500. Now apply the new loan amount to the original payments:

Loan Amount $98,500
Number of Payments 360
Monthly payment $804.62
Interest Rate 9.17% - This is your APR.

If all of this makes sense, you now know more about how APR works than about a third of all loan officers. Now that you see how important this number is when comparing loan offers, you're better prepared to pick the best one.

* There's more to the math, but I'm keeping it simple for the sake of explaining the concept.

FICO Explained

2006-03-31T00:56:00.000-08:00

Fair, Isaac & Co (FICO) says you are a 640, what does it mean? Your FICO number is a major factor in in your viability as a borrower. It's based on a scoring system, built by the three major credit bureaus (Equifax, Trans Union, & Experian), that evaluates relative layers of risk in your past credit history. Each of the three bureaus judges you differently, then FICO uses their own algorithm to combine these three reports into one score.

How exactly the score is established is still double secret probation in it's nature. For the most part though, it does a pretty good job grading your risk level.

FICO scores vary from around 375 to 900 points. The majority of people have a score in the 600's. FNMA and most lenders consider a 620 or above score as "good" credit. With scores above 680, borrowers begin to qualify for reduced documentation loans at the same rates as regular "good" borrowers get for conventional loans. Borrowers with credit below 620 start to pay higher and higher rates as the score falls. If you score is blow 580, it's time to start paying your bills on time mister!

The one good thing a borrower with a low score can look forward to is, that FICO's are heavily weighted towards your most current history. Start paying off those debts, and your score will climb in no time. To get a free copy of your credit score, visit AnnualCreditReport.com

New Credit Fraud Scheme

2006-03-29T23:16:00.000-08:00

I saw this over at Seattle’s Rain City Real Estate Guide: Been Some Time. This scam combines two of the most evil actions in the history of Man. Credit fraud... and jury duty ;)

3 financing tips when buying a home

2006-03-29T22:47:00.000-08:00

You found the house of your dreams, the perfect rate on a loan, and a loan officer that's saying all the right things. Then, just when you thought it would all sail through, a big ole' freaking monkey wrench gets thrown into the mix. Believe me, this happens far more than it should. However, you can protect yourself from most unforeseen problems by taking these three proactive steps in arranging the financing of your dream home.

1. Get pre-approved (not pre-qualified) before you start shopping for a home. Up until the advent of automated underwriting, a typical borrower would meet with a loan officer (LO) for an initial interview. The LO would look at your credit, income, and debts, then make an educated guess as to how big a loan you would qualify for. This was called a pre-qualification. The problem is, their opinion of what you qualify for may not jive with the actual decision maker's (underwriter) judgment. Traditionally, the underwriter didn't see the loan until well after the contract was signed, the earnest money secured, and your own personal heart strings were tired to the purchase of the home.

Today though, there's a better way. During the late 90's lending institutions worked to develop risk modeling software systems called "automated underwriting". These systems allow your LO to take all that same information from your interview, input it into their lenders web site, and get back a conditional approval in less than a minute. Now, so long as all the information you submitted can be properly verified, the only real variable will be the home itself.

2. Shop around. Tell the real estate agent that you want to speak with two or three different mortgage companies. It may also pay to find at least one on your own. Usually, you will get three very similar offers. Sometimes, you'll get one offer that is far better or worse than the other two. The odd offer (even if it's better) is usually the one you should eliminate first.

3. Get it in writing. Never sign something that doesn't jive with what the LO has promised. If the LO has promised one thing, then asks you to sign something that says different, it's the signed document that trumps the rest. Insist on both good faith estimates and rate lock agreements in writing.

Mortgage Market Update

2006-03-29T09:42:00.000-08:00

Rates are moving higher. They have been slowly ticking up for several months and will likely continue to do so. New home sales have cooled, which is easing the rise in mortgage rates.

See the lenderama market update for details.

1% Interest Rates... For Real?

2006-03-28T15:21:00.000-08:00

The Option ARM, named by the industry leader, Washington Mutual, has become a key niche product in the mortgage industry. Unfortunately, it's the most misrepresented product as well. Forget about what those adds say. The rate is a teaser. It only lasts for 1-3 months. After that, the rate goes up. Many borrowers get confused because the minimum payment does not go up for a year. This is different from the rate however. As soon as the rate goes up, the minimum payment no longer is enough to pay the interest on your loan. Every month you make the minimum payment, your loan amount goes up! Still, this program has many advantages for the right customer.

Option ARMs offer borrowers flexibility when qualifying for a loan, and puts them in control of their monthly finances. This product gives borrowers up to four payment options each month:

Minimum payment: The smallest payment you can make. It does not cover the interest due for the month and you loan amount goes up every time you make this payment. Generally, this payment changes annually and is calculated using the initial interest rate for the first 12 months. After that, the minimum payment is usually recalculated based on the outstanding principal balance, remaining loan term and prevailing interest rate. A payment cap limits how much this payment can increase or decrease each year.

Interest-only payment: Keeps payments manageable and allows you to break even on the loan. You do not pay any of the principal off, but you principal does not go up either.

Fully amortized payment: This is the payment that's similar to a tradition 30yr loan. It covers the interest and pays down the principal. It's calculated each month based on the prior month's interest rate, loan balance and remaining loan term.

15-year payment: This payment let's you pay off the loan "twice as fast" as the 30yr. In reality, this is a good payment to use when times are good in order to make up for the times when you made the minimum, or interest only payment.

Advice for new borrowers

2006-03-28T15:16:00.000-08:00

This is a form email I send to my clients at the beginning of our relationship. It helps for new borrowers to be as prepared and informed as possible during what is likely to be their largest financial transaction to date. Hopefully, you will find it informative as well.

Basic Overview of the Loan Process

1. Organize your personal financial documents
2. Be prepared to provide two years W-2 and one month of paystubs If you are salaried ,OR two years tax returns and a YTD profit and loss statement if you are self-employed
3. If you own rental property, rental agreements and two years tax returns may be required.
4. Also be prepared to provide three months bank statements for each bank, stock and mutual fund account.
5. Provide recent copies of any stock brokerage or IRA/401K accounts that you may have.
6. If you are requesting a cash out refinance please provide a letter explaining what you plan to do with the proceeds.
7. Provide a copy of divorce decree if applicable.
8. If you are NOT a US citizen, provide us with a copy of your green card (front & back), or if you are NOT a permanent resident provide us with your H-1 or L-1 visa.

Pre-Qualification vs. Pre-Approval

Getting qualified before you apply for a loan can help you understand how much you can borrow.

When buying a house, you may get pre-qualified or pre-approved. You can typically get pre-qualified over the phone or on the Internet in a few minutes. A pre-qualification is not as beneficial as a pre-approval where you have to go through a more rigorous process which includes verification of your credit, income, assets and liabilities. It is highly recommended that you get pre-approved before you start looking for a house. This will help you:

* Find out the maximum house you can buy, so you don't waste time looking for properties you can not afford.
* Puts you in a stronger position when you are negotiating with the seller, because the seller knows that your loan is already approved.
* Helps you close quickly, since your loan is already approved.

Get Approved

Once your loan application has been received we will start the loan approval process immediately. This involves verifying your:
* Credit history
* Employment history
* Assets including your bank accounts, stocks, mutual fund and retirement accounts
* Property value

Based on your specific situation, additional documents or verifications may be required. To improve your chances of getting a loan approval:

1. Fill out the loan application completely.
2. Respond promptly to any requests for additional documents. This is especially critical if your rate is locked or if you plan to close by a certain date.
3. Do not make any major purchases. Do not buy a car, furniture or another house till your loan is closed. Anything that causes your debts to increase might have an adverse affect on your current application.
4. Do not move money into your bank accounts unless it can be traced. If you are receiving money from friends, family or other relatives, please contact us.
5. Do not go out of town around the closing date. If you do plan to be out of town when your loan is expected to close, you may sign a power of attorney, to authorize another individual to sign on your behalf.

Closing The Loan

After your loan is approved, you will be required to sign the final loan documents. This will normally take place in front of a notary public. Be prepared to:

1. Bring a cashiers check for your down payment and closing costs if required. Personal checks are normally not accepted.
2. Review the final loan documents. Make sure that the interest rate and loan terms are what you were promised. Also, verify that the name and address on the loan documents are accurate.
3. Sign the loan documents.

Your loan will normally close shortly after you have signed the loan documents. On refinance transactions, federal law requires that you have 3 days to review the documents before your loan transaction can close.

About Me... Ruf!

2006-03-27T20:24:00.000-08:00

Hi, my name is Todd Carpenter. I'm the creator of a network of mortgage blogs, and a mortgage professional with nearly two decades of divergent experiance in this field. I have worked for Mortgage Brokers, Bankers, Lenders, and Web Designers. Like this blog's mascott, my career is a mogrel crossbreed of just about every sector of the mortgage industry. In January of 2005, I built lenderama.com a blog written to other mortgage professionals with news, training, and opinions about mortgages. LoanBark! is my effort to bring this same expertese to the consumer.