The Ready Way

Archive for January, 2010

Looks like a nail in the coffin for greed

Wednesday, January 27th, 2010

As we all know the market is changing. It has been rapidly evolving for the last 2 years as the economy has crumbled and moved around it. One of the big issues that led to the rash of foreclosures beyond loan programs destined to fail was fraud and greed. Fraud would be the inflating of income, distortion of facts or the “anything to make it work” attitude of the past. Greed is one of the more hidden aspects of the business that gets highlighted from time to time by the media but then gets quickly swept under the carpet by breaking news on Brangelina or Twilight.

Greed,as we know is one of the 7 deadly sins, and the mortgage industry for many years fostered and protected greed. I know loan consultants who have made $16,000 off a $400,000 loan. That is 4% That is a ton of money for a loan and trust me when I say, if the lender is making that much the client is getting taken to the cleaners. The average amount a loan consultant makes on a deal is 0.7%. I have heard from Realtors that they work with “Mr X” who charges 2 points(2%) but is totally worth it. There are rare individuals in this business that truly deserve 2 points. They are the “rainmakers” and the truly dedicated loan consultants that know guidelines inside and out and have relationships to make deals happen where others cannot. They are few and far between and the industry needs them.

Last Friday Bank of America announced that they would no longer allow “Overage.” What this means is that the BofA loan consulatants cannot charge you more or give you a higher rate to make more $ for themselves. THIS IS HUGE. What this will most likely lead to is the other banks following suit. They have to. As a client, who wants to go to a bank that can pillage you if you can get a loan where you know there is no pillaging allowed. After the banks follow suit the correspondent lenders will and then finally the brokers.

This will lead to less greed in the industry but I have a feeling that it will not be all rainbows and sunshine. For the “rainmakers” who warrant 2 points will they be as motivated to go the extra mile? Will this even the playing field or will it create a lower level playing field?

The difference in time it takes to structure and close a loan between a W2 borrower and a self employed borrower with 300 pages of tax returns and multiple businesses and properties is huge. Will these more complicated deals get kicked to the side?

Without overage it will become a volume game so what happens to the borrowers that have harder and more time consuming loans?

Posted in Happy news, Horror Stories - Lending, Important lending changes, Rates | No Comments »

The Window of Opportunity; Why we can still go over 45% debt to income

Tuesday, January 19th, 2010

For those of you who were recently told your debt to income was too high due to Fannie Mae’s new 45% debt to income restriction take note. The majority of banks are going off of Fannie Mae’s guidelines for their retail branches. Meaning that if you talk to Joe over at ABC Bank he will be limited to a max debt to income of 45% or 50% at best. He will be going off of “DU Findings.” However in correspondent lending land, the world I currently live in, we are running our loans through “LP.” Lp is for Fannie Mae’s brother Freddie Mac. Yes where Fannie has restricted Freddie mac has not. …yet. With LP we are still getting accepts at 52-55%. Sometimes it pays to not take no for an answer especially if you call around.

Posted in Happy news | No Comments »

How we got in this mess. Another view

Wednesday, January 13th, 2010

We have all heard the basics as to how the housing crisis happened. Wall street got greedy, banks turned a blind eye and loan originators pillaged people. That is more or less the sweeney toddesq version.

One of the huge problems is that in order to be a loan consultant 5 years ago, or even at some places today, you did not need an education or really anything beyond the ability to “sell.” This lack of requirements led to a industry of salespeople who did not understand the long term consequences of the products(loans) they were “selling”.

Loan originators are often blamed for tricking people but a large portion of them really believed the bogus loans they were selling were great. They did not know any better and did not have the aptitude to recognize the potential long term problems.

I got into the loan business at the tail end of the “glory days.” The stated option arm was the go to product. It was sold to me as “Jen, this is a great way for borrowers to manage their money. Why make a full payment, if you can live in your house, make a low payment, and write off the interest?” My response was the loan balance is growing, and when it adjusts the borrowers payment will jump and they are going backwards. To which I got “prices are just going up,just refi them before it resets.” At that time that was true but my concern was that refinancing is expensive and it did not make sense to do the Option Arm due to the potential issues. The response to that concern was “if you do not do it the client will just go to the lender down the street.” yikes.. I did one Option Arm and it haunts me to this day.

Here’s the thing, if a loan consultant understands what bad things a loan can potentially do to someone they are less likely to push it. Now here we could get into a ethics debate, but if a loan consultant does not even realize the product is bad they have no ethical dilemma. The product looks good, the bank wants them to sell it so they sell it. Client loses, market tanks etc…

If the loan consultant understands the product has potential devastating effects at least they have to have the inner ethical debate before they sell it.

It would be great if a consumer group put together a test that all loan consultants had to take that tested their reasoning ability. Seeing if they understand cause and effect through a bunch of hypothetical multiple choice questions. Like

Q: If Bob chooses an option arm loan and makes the minimum payment while his value decrease dramatically and his rate adjusts what can Bob do?

A) Refinance into another option arm

B) Accept the new higher payment or face foreclosure

C) Try to modify his loan or short sale his home

D) B and C

The answer is D.

q: If you state Bob makes $10,000 per month so that he can qualify for a $400,000 house but Bob really makes only $5000. Can Bob really afford his house?

a) No

b) Yes

Obviously A is the answer. It may seem like a silly question today but just a few years ago thousands of people answered b by their actions and that is a big reason why we are in the mess we are in today.

Bottom Line: Loan Consultants deal with large financial transactions. They should be able to reason and understand cause and effect. This is not a just a sales job, we are helping people frame their financial future.

Posted in Call for action, What the media is saying | No Comments »

New disclosure laws. I hope you like to sign papers

Tuesday, January 5th, 2010

As of January 10th we have new disclosure laws. Basically, the good faith estimate is supposed to be accurate and if any fees increase the good faith has to be presented to the borrower again so they can agree or disagree.

In the past good faith estimates were a bit of a joke. I constantly would come up against good faith estimates that were completely BS. The old trick lenders would use is quote low up front and high at the end. This is supposed to halt that practice.

We started the new process January 1st, early, because that is the way we roll. As with any new requirement it has issues. Here are two I discovered today.

1) By law we have to disclose within 3 days of taking the application. If your rate is not locked at the time we disclose we will have to re-disclose the good faith estimate and potentially the truth in lending as soon as we lock the rate. What this means: is more paperwork, forms to sign and changing $ amounts.

2) We need to have accurate title fees when we disclose. Title will not have accurate fees until they get the prelim which takes 3-5 days. We have to disclose within 3 days, we cannot wait for title. Which means we have to ask title to give us their best guess. If their fees are higher once they get the prelim we get to re-disclose. What this means: is more paperwork, forms to sign and changing $ amounts.

After really looking at how this works it may protect a few borrowers from high fees but will not protect them from rate crime. Unless it was required for the rate to be locked for the loan process to begin there is always the risk of being quoted low upfront and high once you are half way through. Rates change every day as per the market. Your rate is only as good as your loan consultant is ethical.

The best thing any consumer can do is interview the loan consultants upfront. Ask for recommendations, how they feel about money etc…

All lenders are not the same and you need someone you can trust.

Posted in Uncategorized | 1 Comment »