With all the scary press that the mortgage industry has received over the past three years it is no wonder that lenders have been wary of loosening guidelines. Up until recently it was extremely difficult to find FHA financing if your middle credit score was below a 640 and if you didn’t have 20% to put down you could forget about conventional financing unless you were above a 680 score. This past week I have received several announcements from many of my lenders reducing their credit score requirements by 20 points on both FHA and conventional loans. So now, if you are a 620 score you can qualify for pretty much all of the government financing available through FHA, VA or USDA and if you are a 660 and above you qualify for conventional with as little as 5% down.

I know that 20 points doesn’t sound like much but in America it is estimated that over 20 million Americans are between a 620 and 640 credit score so how about that for adding to the potential pool of buyers! I understood why lenders kept tightening and tightening during the middle of the credit crunch of 2008 and 2009 but I also knew that it was counterproductive for the economy as a whole. The fewer potential buyers there are for more and more homes hitting the market means ever reducing home prices which means even more foreclosures and even more homes hitting the market. It is a slippery slope we are on right now but, hopefully, with this recent change we can start to climb our way out of this housing debacle we’re all in.

1. Signed Gift letter from all parties (Donor and Recipient)
2. Verification of Deposit, Bank statement or Teller statement that evidenced Donor had funds available to provide gift
3. Evidence of transfer of funds between parties (Withdrawal slips, cashier’s check and deposit slips usually handled this)

In the majority of cases, gathering this documentation was fairly simple and straightforward.  Even if you had a super secretive step dad or other relative providing the gift funds you could very easily obtain a Teller statement verifying that, at a minimum, the donor had enough funds to cover a gift of X amount. The newest twist to this is that now we not only have to prove the donor has the funds, but we also have to source and season those funds just like we have to when documenting the borrower’s assets.

Maybe that won’t affect you and I hope it won’t but I don’t personally know too many people who keep five or six thousand dollars just sitting in their checking accounts for months at a time just waiting for a relative to need a down payment gift.  If you are a homebuyer that will be utilizing a gift from a relative you will need to make sure that your donor has their assets properly documented as it can be quite stressful to try and source funds on a individual who really doesn’t have a large stake in your transaction. If they transferred money from a stock market or retirement account you will also have to provide statements for that account as well as documentation showing where they transferred the money to their checking account. Whew……

I assume that someone somewhere was using assets that couldn’t be documented for the buyer and just had them provide the funds to a relative and then had the relative provide a gift to the buyer. Problem solved. Until now. 

How do you avoid a potential catastrophe with this situation. First, don’t try to lie to your loan officer or withhold information. Omitting is no different from lying. Second, make sure your financial house is in order as early as possible during the transaction as this will ensure you will at least be notified quickly of potential problems. Third, be sure to provide all pages of all your asset statements. If you have 4 bank accounts, provide the necessary documentation on all 4. Don’t assume what the minimum documentation will be for your loan. Provide everything you’ve got and let me sort it out. Remember, I’m the expert! You don’t go to the doctor and tell him what you think he wants to hear, you tell him everything so he can make an accurate diagnosis.

Seriously, I’m a mortgage broker and I often find myself contemplating this very question. Why use me? Why would a client need to choose me? Not just me, but any broker. As I’ve pondered this question countless times I feel like I finally have a few good answers. Now keep in mind that one obvious reason a client would come to a broker is because they have already tried their bank and for one reason or another they couldn’t get the loan done. I don’t want to focus on that client because the answer is too easy, not to mention that the majority of my clients could go to the bank and get their loan, yet they choose me. I really want to figure out why, then build on those skill sets to make myself an obvious choice for anyone looking for a loan.

Reason 1: Knowledge

I’m not saying that bank loan officers don’t know what they’re doing. Many of them are consummate professionals, but let’s look at the different roles and see how that makes a difference. Many of my clients end up with me after a round or two with a bank, sadly, the only reason the loan didn’t close was a direct lack of knowledge on the part of the LO. These days there are a plethora of guideline changes happening almost daily, and the saying about if you’re standing still you’re really going backwards couldn’t be more true in this industry right now. I think part of the issue is that many loan officers don’t spend the necessary time studying their guideline books or maybe they get so stuck thinking inside the box that they never look for alternative solutions to a situation. Large institutions like banks force their LO’s to stay in that box, but more on that later. I certainly don’t mean disrespect to LO’s that work at a bank, many of them are top notch as I’ve already said and with so many large brokers going out of business many of their former LO’s ended up at a bank. Seriously, no offense intended……

Reason 2: Flexibility

This probably should have been reason number one. When you think of flexibility you probably don’t picture a bank. Think about how rigid they can be about checking account rules, ten forms of ID to cash a check, waiting 10 days for an out of town check to clear, etc. Do you really think they are any more flexible when it comes to loaning an individual hundreds of thousands of dollars? Banks have a tendency to be super cut and dried when it comes to their internal mortgage guidelines. Don’t fit the criteria on one tiny little point, DENIED.  When you go to a bank and apply for a mortgage, you are applying for that banks programs. In other words, they have one set of guidelines for FHA, one for VA, one for conventional, etc. If you spend three weeks working with one bank only to get turned down, you try bank number 2 and find out the same thing.

That’s where a broker like us comes in. I have to admit that we are actually a mortgage banker 1st and a broker second but here’s the difference. We have my mortgage banking division with their one guideline set up, but then we have access to over 83 lenders with my broker division. When I look at a loan I check it against my bank’s guidelines first, if it doesn’t meet up, I go to my other lenders. Aha! There’s the catch! When I go all broker on you I charge more right? Nope, my fees don’t move an inch and the rates we can get on a brokered loan can sometimes be better than when we bank one, as a matter of fact we start on the broker side first in many cases. Here’s a quick breakdown:

• An individual bank typically offers 4 basic programs: FHA, VA, USDA and Conventional.
• That bank will have one “rulebook” on each program, so one bank gives you 4 chances of getting your loan closed
• A independent banker/broker like us offers the same 4 basic programs
• We have 83 lenders each with one “rulebook” for each of the 4 programs which gives you 4X83= 332 chances of getting your loan closed!
• Did I mention we only pull credit once? Even when we shop your loan to multiple lenders?

Reason 3: Good Looks

Okay, that’s a joke. I’m sure there are plenty of other LO’s more handsome than my crew……

The Real Reason 3: Efficiency

Independent brokers like us do one thing: residential mortgages. That’s it. We don’t worry about our next toaster give-away for new accounts, we don’t have to deal with commercial transactions which take TONS of time. We specialize in one thing, closing loans and as quickly as possible. We don’t get paid salaries so we don’t get paid until we close your loan. Trust me, that goes a long way in motivating us to get our loans closed on time or ahead of time with as little stress to our customers as possible.

Reason 4: Service Level

This to me goes way beyond just closing your loan on time with minimal stress. I own my business and I know that the only way we’ll be succesful is if we take the time to treat you like we would treat our mommas. We will never treat you like we don’t have time for you or your loan isn’t as important as the guy who has more money deposited with us. I know what I’m doing because I take the time to study and research my industry and I don’t do it for me, I do it for you, my customer.

I want my customers to truly like me, not just as a loan officer, but as a friend and trusted advisor.  I want to give you an example of what I mean. Not too long ago I had one of my previous purchase clients call me because her grown sons had been bugging her to check on doing a refinance. She is an older lady and I can tell you all about her family and those grandbabies she loves so much. We talked about her gettting a guard dog and how it would be trained and so on. When we finally got back to the business end of the conversation I realized that the numbers just didn’t work to her favor like I thought they should.  I could have easily done the loan and collected the revenue but a friend wouldn’t do that to another friend, so I explained to her that I wouldn’t do the loan and if she really wanted to refinance she should consider a 15 year term as that would give her a true benefit. We talked a little longer and as she was getting off the phone she thanked me and said “Love you” just like she’d say to one of her boys, without hesitation I replied “love you to”. The best part was, I meant it. She values my opinion as her mortgage expert and in turn I enjoy our conversations, I truly value that relationship we share. Will every one of my clients end up this way? I doubt it, but I view my clients as real people and I think they sense that. I don’t know about you, but that’s important to me when I deal with someone of the largest financial transaction of my life.

I would absolutely love to help you in any way I can when it comes to your mortgage. Questions, comments, free expert advice is a phone call or an email away.

Rates are headed up

Well for starters, I can tell you what they don’t have in common. Birds are not at  the  whim of the economy necessarily while rates don’t have feathers and wings.
Now for what they do have in common. 

Right now, birds of all kinds have started migrating from their winter havens and are heading back north to the fertile feeding grounds of their youth. Mortgage rates have also started their trek northward as the government feeding trough has been pulled away as of March 31st. Rates have been held artificially low over the past year and a half on a Treasury backed plan to purchase 1.3 Trillion in mortgage backed securities to ensure that the waning private demand in these debt instruments didn’t cause a catastrophic run on the bond market. With so many investors leary of any investing into the mortgage industry, the government felt forced to come to the rescue. Now the big question is this, will the private investors come back to the market and if they will, how much of a correction do they need to see before bonds hit a floor?

If I knew the answer to that question, I probably wouldn’t be a mortgage broker. Many of the large bond traders have vocalized that they feel bonds are too high right now. PIMCO, a massive bond buyer, recently announced that bonds were 50 bps overpriced (That was almost 150 bps ago). Since the 23rd of March we have witnessed a almost 200 bps slide with the FNMA 4.5% coupon which has fed the quarter point rate increase we’ve seen since that time. My bond quote service is telling us to be in full lock mode, leave nothing floating and lock as soon as possible. If you’ll remember I prognosticated on this subject when I talked about The Future of Interest Rates, and guess what, so far I’ve been right on the money.

Now for another prognostication that, if you’re a mortgage customer will have an impact on your loan process, or if you’re a loan officer will have an impact on your reputation and pocketbook. We’ve been spoiled the last two years with rates in a seemingly downward spiral and an endless amount of clients “riding the fence” waiting to lock at just the right interest rate. As a LO I’ve had the luxury of flipping a loan from one lender to the next if Lender A didn’t like the loan and receiving no penalty with regards to rate from Lender B. Extensions and relocks have been free for the majority of the past year as pricing seemed to always be a little better than when I locked the loan.  Boy are we in for a rude awakening. No more of that funny business anymore. Lenders will be savagely charging all they can for extensions and re-locks and if Lender A turns a loan down it won’t be any fun losing money to send the loan to Lender B at the same rate.

Here’s some more food for thought, there are many major lenders that have also been riding this gravy train and have not hedged their pipeline very well and are now needing to unload millions of dollars of loans without closing them. That may sound counterintuitive but it could cost them far more to close these loans than it would to turn them down. If you are a mortgage customer you need to be sure you are working with a high quality loan officer that knows how to put together a clean file. Ask your LO what his pull-through ratio is and the higher the percentage the greater. I don’t mean app to close pull through, I mean processing to close pull through. How many loans do they submit compared to what they close?  If you are a mortgage professional, I shouldn’t have to tell you that now is not the time to be sloppy. Be an i dotter and a t crosser, nitpicky is the newest fad and you better get good at it.

Lastly, for all you fence sitters that have been waiting to refinance. You better jump now if your ever going to do it. Look at the numbers and be prepared to make a decision now, not when rates get better, because they probably aren’t for a while.

There is good reason to seriously discuss rates right now as we have just surpassed the Ides of March and April is bearing down on us like a raging bear. No, it’s not that Easter ushers in higher rates but notice that I did say “bear” and not “bull”.  For the past year or so the Fed, sorry, THE Fed has been purchasing mortgage backed securities to the tune of 1.3 Trillion dollars in an effort to keep the credit markets afloat for mortgage loans until private buyers are willing to return to the market.  Well, the end of March also marks the end of the FOMC purchase party which will then mark the beginning of a new period of MBS bearishness.  You heard me right, these low rates we’ve had are the result of our government temporarily supporting the mortgage bond market and when they are through we WILL see a pull back on bond prices and because rates travel inverse of price we will see a spike in rates. There are two questions to be asked at this point:

1. How high will rates get?
2.  How long will they stay elevated? 

How high rates get will be determined by the attractiveness of the bond versus the equity market. Remember, bonds are considered a “safe haven” and the more risky equities appear, the more bonds benefit. My prediction is that we will see rates hit 6.5% to 7% by the end of this year and if the stock market continues to pick up steam we will likely see 8% by the end of 2011. I could be completely wrong as the Euro may crash sending the dollar through the roof which could help pull foreign dollars into the bond market and reduce rates again. Once rates are elevated they will stay elevated as long as the large institutional investors are willing to play equities over bonds for fear of a devaluation of the dollar.

If you don’t want to have to worry about what rates are going to do you need to have your rate locked before April 1st. Call us today @ 1-877-742-1500 or use our handy contact form below for a free rate quote customized for your situation.

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