Texas Home Loan Blog: December 2006

Credit tune up, that is.

And, how long before home shopping do you wait to apply for a loan.

A big mistake made by a lot of buyers is to not get a pre-approval LONG before they start looking for a home.

Now, not all programs are score driven, but scores do count in a lot of programs. And a good mortgage lender can coach a borrower into a few extra points if given the time.

Example: Borrower just maxed out a credit card buying widgets. If the borrower can spread that around to several cards, the score may improve a little. Borrower may have a home equity loan maxed out doing repairs to the home they are selling. If they can 'up' the credit line, that revolving line of credit will not look maxed out. And the credit scores will CERTAINLY increase. The borrower may also decide to pay off a bunch of debt so they look better to the loan application.... effectively wiping out all of their reserves. Not a good idea in most cases.
And what about the guy who thought that insurance paid all of his doctor bills? To find that some collection agencies just reported him past due on several accounts.... tanking his score? Again.... things we can deal with.

I am a firm believer in prequalifying a borrower LONG before they inten to look at homes. That way, if there needs to be a little tweaking..... we have time to deal with it before we do the loan. Maybe saving the borrower thousands of dollars over the life of the loan.

 Realtors: Do yourself a favor.... convince the client to get preapproved right away. Even if they arent going to buy for 3+ months. Give the lender time to improve the clients position. And YOU will be a HERO in that clients mind.

What the heck?

I have been running across more and more stories about buyers/borrowers being charged upfront for services.

I can't believe people get away with it.

Recently, I had a question from someone wanting to get preapproved for a loan.... she even found a house already.... and the loan officer she contacted first asked her for $15 to pull credit. Now, let's forget that that is probably not the 'actual' cost..... which is all that should be charged. But UPFRONT? No, I am sorry.... I cannot hold my opinion back. No fee should ever be charged upfront. One exception ,might be for an appraisal when it is ordered. I do try to get my borrowers to pay for it at the door.... I have been stuck with that fee before.

I see application fees all of the time. $100 - $500 and people actualy pay it.

I even saw where one realtor asked for a $100 retainer from a buyer before he would go show houses.

I eat a couple of credit reports per month. And it costs me money to run a file thru Fannie Mae for approval.... I even eat a few of them too. But I will never ask my client for money upfront. And I will certainly share that information with anyone who will listen.

Is this just part of the changes in this industry? With the discount brokers and internet business?

I embrace technology and change. But some things should remain the same.

Wow... I found this link..... never really paid too much attention to it.

Who's online?

62 Members and 136 non-members.

It's working... Google loves us. And people are flocking in here to read.

I am excited to see this thing play out!!

i know that i am tops in google thanks to AR... and i know that this is adding to my website hits. i am encouraged to continue with my seo to get my site up there too.

i have a lot of blogs bookmarked for review later so i can apply some of the stuff i am learning here....

awesome, awesome.

Called the "Liar's Loan" by some in the industry.... Stating your income is a convenient way to get the benefit of all the income you actually earn, even if it is hard to document. And, contrary to popular belief.... this should also be the figure you give to the IRS.

Speaking of the good old IRS.... it seems that they will soon make it easier for the lenders to obtain tax transcripts for income verification. And in my opinion, this will reduce th numbers of Liars.

So what does this mean? Well, it means that I need to introduce you to the 'No Ratio" loan. This loan does not calculate debt ratios nor verify income. It verifies the employment and disregards debt load. This is where most stated income loans should be anyway....

Carrying about 1/8th% higher first lien interest rate, it is a solid choice for folks who cannot explain away co-mingled business debt on their credit report, or maybe someone who has a spouse re-entering the workforce and has no current income.

Bryant's blog reminded me of something that I have been saying for years.

http://activerain.com/blogsview/27122/Your-home-is-your

Bryant talked about how people are using their homes as a cash machine. How they do not realize that consolidating debt can be dangerous when you eat up all of the equity in your home.

For years, I have been saying that colleges should have a required course on 'real world finance'. No, not that finance course that teaches you about markets and corporations..... but about the following:

1. How long does it take to pay off a credit card when you make the minimum payments? And how much did that $500 Ipod REALLY cost after you factor years of interest payments on it?!?!

2. Buying a home. Dangers of no money down and how it affects you should you need to sell right away.

3. Financing an auto

3. How credit works. Maximizing your credit scores thru behavior.

4. Managing debt, emergency cash needs, to finance or not to finance.

ect....

I have counseled many couples who have been overwhelmed with debt in the past. People who run up their credit cards and struggle to make the minimums.

Thinking back on my college education.... I can think of many courses that could be dropped in favor of this course. I mean, aren't we trying to get our kids ready for the real world in college?!?!?!

More info can be found in my free e-book at http://www.dallasloanguy.com/

I was sitting in a Title Company's office out west of Fort Worth, Texas. I usually do not travel that far for a closing.... but this guy really wanted me there.

Anyway, the client was a city slicker, 100%. And west Ft Worth is FAR FROM the city life.

Time to show the survey: The escrow officer explains that there is an 'easement' on the property and that the buyer should not build anything permanent on top of the easement. She said a small shed would be ok. "HUH?...." says the client. "So, can I build on it or not?" She went on to explain that if the city ever needed access to that piece of the property the homeowner must grant it.... Then she said: "So, just don't build anything there that can't be removed with a 6-pack & a sledgehammer"

 My borrower, the city slicker, heard that and about hurt himself laughing. Only then did that poor escrow officer realize that she wasn't dealing with a local.

There is no moral to this story. But I did learn a new way to explain property easements to my clients. ;-0

Since you Realtors already know this fact..... let's cut to the chase.

I recently got a lady pre-approved for a loan that I didn't know about 2 yrs ago.

My borrower was pre-approved by another lender. She was quoted almost 8% on 20% down loan(with a 3yr prepay penalty). Why? Well, she had a $17,000 medical collection. And 2 yrs ago.... I probably would have priced her the same loan.

Well, it seems that she makes less than 80% of the median income for her county. And I found a loan program that would ignore the collection and give her a loan in the mid - high 6's..... This is called a "Community Commitment" loan. There are similar loans, but this one is powerful. Banks have a vested interest in lending money to people who earn less than the median incomes in their area. Why? The community Reinvestment Act!! Thats why!!! Because they can get heavy fines if they cherry pick certain parts of town to put their money.

Why didn't the other lender do this? Why didnt the Realtor say..... Whoaaaaaa?

There are programs out there that a lot of brokers/lenders are not aware of these days. Don't let YOUR buyer get stuck in a sub-prime loan because the loan officer is lazy or doesn't have this knowledge.

Hook up with a lender that can talk to you honestly about loans. Ask why one guy is subprime and another lady is prime when they have relatively the same credit score.

Why would a Realtor want to arm themselves with this information? They aren't lenders. That is not their job. But it IS the job of their lender partner.... who is an extension of Realtor themselves.

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http://www.ffiec.gov/cra/about.htm

A sample from this link is pasted below

Over the past couple months I've had borrowers ask for certain documentation types later to find out that's not really what they are seeking after all, the most common variation I've seen is people looking for no doc loans when they should be looking for some variation of stated income or no ratio loan.

To help clarify the different documentation types on a mortgage, arranged from usually what gets the best pricing & terms to the worst:

Full doc - if you are self-employed this most likely means 2 years of federal tax returns (all schedules). If you are a wage-earner it most likely means 2 years of W-2's and a paycheck with YTD earnings information. If income is hard to determine based on the paycheck & W-2 then a verification of employment (VOE) form can accompany it. Also requires assets, usually the rule of the thumb is you need 2 times your monthly mortgage payment in reserves + any funds to close. Sub-prime lenders usually don't have the asset verification part. Employment is verified.

Lite doc - usually when 3, 6, 12, or 24 months of bank statements are used to document income in lieu of paycheck stubs, W-2's, & 1040's. Assets are still required in addition, sub-prime's asset requirement is usually the same as full doc. Employment is verified. This is a common document type for sub-prime financing, while not many non sub-prime lenders & programs find this acceptable.

**Stated income (also known as stated income/verified assets - SIVA) - income is stated on the loan application, employment is verified, assets are verified (asset verification becomes more common on stated income sub-prime loans than full doc sub-prime).

**Stated income/stated assets (SISA) - income & assets are stated on the application but not verified, employment is verified. Most sub-prime stated income loan programs are of this type.

No ratio - employment & assets are verified, income is either on the application but debt ratios do not apply or income is left completely off the application.

No income/no asset (NINA) - income nor assets are listed on the application, employment is still verified.

No doc - zip, zilch, nunca (thanks David Spade), no assets, no income, no employment. Most sub-prime lenders "no doc" program is really a NINA but they call it "no doc". About 1 out of 3 or 4 of sub-prime lenders offer this documentation type.

I've met several loan officers who have been in the industry for over 3 years who still have a tough time figuring out which document type is most beneficial to the borrower, just be sure that you and your loan borrowers are both on the same page.

** I wanted to say something about the Stated Income loans. I am aware that good people will have a second job that pays cash or cannot document their income in some way. The stated income program was designed for them. It WASN'T, however, designed so that one borrower can include spouse income, or inflate income to get a bigger house. Unfortunately, this is all too common. It is fraud to state your income higher than it really is.... and you will be asked to to sign a 4506-T form which allows the lender to get copies of your tax return from the IRS in order to audit the file. They usually do not audit the file.... but you better believe they will if it defaults.

The following is a note from an acquaintance

I have one of my credit cards that I maintain a small balance.  Yesterday, I got their statement and it said I was being charged a late fee of 39.00 and was past due $13.00.

I know that was incorrect, so I went to my Online Banking account at Bank of America to see what had happened.  Sure enough, on 11/03/2006 I made an Online payment to Chase of $100, minimum due was $13.00.

So, I called Chase customer service this morning to point out their mistake and asked them to take off the late charge because I have proof I made the payment, infact for more than their minimum. The guy said he cannot so that.  My payment of $100 arrived before 11/05/2006, which is their billing cycle.  My $100 payment was recieved, but it was applied toward the balance, not to the minimum amount due because it arrived before 11/05/2006. I would have needed to send an additional $13.00 two days later, or waited two days later to send the $100 to keep their terms of agreement. Doesn't that bite?


I'm paying it off and cutting it up!

 I advise folks to pay particular attention to every detail on their bills.
People getting signed up for bogus credit protection plans and stuff is just the beginning for these clowns!

http://www.mortgagenewsdaily.com/1262006_Interest_Rates.asp

Refi's have been 50.1% of all loan originations. This is certainly a result of low interest rates. But the kicker is all of those people just now realizing that they have an opportunity to get out of those exotic mortgages they got into a while back.

Home equity loans shoud be up too. As people realize that they can consolidate those holiday bills from the credit cards to a low interest and tax eductible pmt!!