Government Shutdown Ends

The Government Shutdown is over.

The IRS is processing 4506-T transcripts on a first come, first serve basis.

The USDA website is back online. They are working on conditional commitments so we should see those USDA loans start to move through the pipeline.

It could be a week or more before the backlog clears out.

10-22 UPDATE USDA does not have appropriated funds. This means they are issuing comments subject to the availability of funds.

Some investors are moving forward with closing fully anticipating funds availability. Others refuse to close without it.

So the USDA is processing commitments but will not issue loan guarantees until funds are available.

Homeowner’s Insurance Claims

Here are some photos of a recent storm that dumped over 40 inches of snow on our communities.

This fall storm caught mother nature off guard.

The trees hadn’t dropped their leaves and the wet, heavy snow wreaked havoc. Only a few hours into the storm and it sounded like hunting season.  Popping echoed everywhere as branches collapsed under the weight.  They landed on the sidewalk, roofs, cars, and across power lines.  Over 25,000 people lost power. Some for days.

Our neighbor’s roof buckled under the weight and a failing roof truss split the sheet rock .

Another noticed a sagging, brown spot on the ceiling.  A few days later contractors punched holes there and drained three gallons of water.

Flat commercial roofs collected thousands of pounds of weight.  This structure wasn’t up to the challenge.

Only months earlier, hail stones like these punched holes in roofs and shattered glass.  They dinged siding and destroyed gutters.

Home damage sickens us.  We’re much happier shoveling snow than working with contractors and insurance companies.  Not to mention  tangling with our mortgage servicer over insurance money.

When you have a lien on your property the lender has a vested interest in making sure your home gets repaired.

Why?

Let’s say your roof caved in and three foot of snow now rests in your kitchen. To top it off, it melts and drips through your sub-floor creating a swimming pool in your basement.

You are uninsured, owe a significant amount on the home, and don’t have savings to cover the damage.

So, you default and walk away from the home leaving the lender with a soggy, worthless piece of collateral.  A lose, lose.

Now, let’s say you are insured.  Your insurance company will foot the bill.  Better news, you’ll be getting a new kitchen!

But, the check is made out to you and your lender which disgusts you.  They need to endorse it in which case they’ll hold the money.

Contact the servicing department right away.  Ask them what steps you need to follow.  They’ll want all kinds of information like a contractor estimate, lien releases for work complete, and inspections.

Be patient with them, especially if they are responsive and good natured.  Like you, they are protecting their collateral.

Do they have a right to hold your money? 

Most mortgages have a clause that allows the lender to control these proceeds.  You are better off learning what their expectations are upfront to avoid frustrations down the road.

In any event, button up and stay warm this winter.

Government Shutdown

Hello all,

I disappeared for a while, and it shows.  It’s October already!  Work took off and I lost sight of my blog. I’m 12 days late on this post but I thought I would share some of the issues we are seeing with the shutdown:

The IRS is working with only 9% staff. This effects the ability for us to pull tax transcripts. 

Since 2009, Fannie Mae ‘highly recommended’ that lenders pull transcripts from the IRS prior to closing a loan.

What’s a transcript? 

After you file your taxes the IRS turns your income information into an electronic record which can be requested with the borrower-signed form, 4506-T.

Why do we pull a transcript? 

When you complete a loan application, you typically give your loan originator a copy of your tax return by which she calculates your income for qualifying.  It would be possible to give them a fake, unfilled tax return with ’embellished’ income.  To prevent such fraud, we pull the IRS record and compare it with the return you provided.

It’s not required to do this, yet we know Fannie Mae will do it if they audit that loan. To avoid any issues, most lenders have adopted the policy of ordering and reviewing tax transcripts.

http://www.ctne.ws/archives/266

Several days into the shutdown our institution made a business decision to close loans without these transcripts as did a number of other investors.  There are some; however, that refuse to purchase a loan without transcripts and that’s their choice.

USDA is closed. 

The U.S. Department of Agriculture insures loans through their Rural Development program. These loans are currently suspended.

Why?

USDA issues a ‘conditional commitment’ once they receive certain pieces of information.  With no one to issue a conditional commitment, loans are unable to close.

Verification of Employment 

We’ve seen several instances were we have been unable to obtain a verification of employment for government workers. In come cases we can get around it.  There have been instances were getting this information was painfully slow and the closing was delayed.

Business as usual:

For the most part, we have been conducting business as usual with very few delays.  For those of you affected, as frustrating as it is, don’t blame your lender or financial institution.  We are as annoyed as you are with the situation. We are doing our best to work around the issues.

Photo credit: Nick Papakyriazis via photopin cc

Should I Omit Information? Is that Fraud?

Is it Fraud

A discussion on ethics grew heated between several staff members a short while ago.

 

Ethics are subject to the scenario in which they apply.  Omitting pertinent information from a loan file is considered fraud, but what if you are omitting information to help make the process smoother for the borrower.

Example: A borrower has a few overdraft charges on his bank statement. It’s clear from other accounts that he has the ability to save money and this appears like a simple mistake.

Overdraft charges, however, are considered a red flag to an underwriter. Questions crop up:

Does this potential borrower have the capacity to budget for a mortgage payment?

Do they mismanage money?

Will this affect their ability to make timely payments?

His loan is otherwise flawless.

Do you omit the bank statement and ask his bank to prepare a verification of deposit (which only shows the current and average balance)?

In this case, you would be omitting any evidence of an overdraft.  You won’t have to bother the borrower and the underwriters won’t ask questions.

Do you address the overdrafts upfront but asking the borrower to explain them?

As intrusive as this is, you are also lending them a lot of money.  Shouldn’t they be asked about the overdraft and required to explain it?

In life, don’t we all judge these situations on the margin?  What are the risks?   Is it to great? Will it be construed as fraud? Is it harmful?

photo credit: JD Hancock via photopin cc

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Quick Point #1 Co-Signer vs. Co-Borrower

Mortgage Quick TIp

Co-signer and co-borrower are not synonymous.  There is a difference.

A co-signer is responsible for repayment of the mortgage note but otherwise has no ownership interest in the property.  While a  co-borrower is also responsible for the debt  they do have ownership interest in the property. This means they are on title to the home.

The Right of Rescission

http://www.flickr.com/photos/23065375@N05/2235529638/

Three weeks ago, one of our borrowers exercised the right to rescind.

Most will never exercise this right but should be aware of the details in the event it is needed

The right of rescission applies to several different types of credit, but for our purpose today, I’m referring to closed end credit “in which the security interest is or will be retained or acquired in a consumer’s principal dwelling” (FIDC§ 226.23). In other words, the refinance of your primary residence.

What is the right or rescission?

The right to rescind allows each “consumer whose ownership interest is or will be subject to the security interest” the right to rescind or cancel the transaction. If, after signing your mortgage documents, you desire to cancel the transaction, you have until midnight of the third business day to do so.

When you sign your loan closing documents, you will receive several copies of the right to cancel. I’ve posted a copy to the right. It outlines your right and how to cancel should it be necessary.

Why would you cancel?

I’m sure there are many reasons although in my ten years I’ve witnessed it only twice.

Why?

First off, the process of refinancing can take several weeks, if not months. This leaves plenty of time to determine whether or not refinancing is the right decision. Most will cancel well before consummation of the loan.

Second, regulations require lenders to disclose early on and then obligates them to those charges –within certain tolerance. The right or rescission was intended to provide an escape when a borrower found themselves in a bait and switch – were the terms in the beginning are different than at the closing table.

What happens now that you have rescinded?

“Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.”

In most cases, your lender will require you to wait the three days before they fund the loan. In other words, they will not payoff your previous lender or record the mortgage. The transaction simply dissolves, no questions asked.

Below is a link to the regulation that outlines this right.

FDIC. Law, Regulations, Related Acts § 226.23 Right of rescission

<http://www.fdic.gov/regulations/laws/rules/6500-1400.html >
photo credit: thinkpanama via photopin cc

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A number of mortgage questions crop up during a divorce. I remember working with a married couple on the purchase of their first home. They were excited, giddy almost, about this purchase. Three months later I listened as he explained the situation. It was going to end badly and he wanted options.

Another time, a young unmarried couple moved to the area and couldn’t stand the thought of renting. What a waste of money. Nearly a year later she was on my phone, desperate to stay out of forclosure.

I’ve seen it all to often. Each time questions come up:

• Both of us are on the loan. Can I get the loan in just my name without a refinance?
• Why can’t I just take my spouse off the title?
• What happens if I can’t qualify for a refinance?

Unless neither side wants it, the home is awarded to one party. In each situation, the divorce decree will outline who was awarded the home, how the equity is split, and the timeframe necessary to complete these changes.

Let’s tackle the questions.

Both of us are on the loan. Can I get the loan in just my name without a refinance?

Typically, no. The note is a contract which obligates both parties to repay the loan. A refinance is required. You must be able to qualify for the loan under your own financial strength. Once you close on the new loan, the old one will be paid off, removing your spouse from obligation.

Why can’t I just take my x-spouse off the title?

The title or deed is the document that tells us who owns the property. The loan note tells us who is obligated to the debt. The mortgage connects it all together. Make sense?

Think of it this way: Ownership vs. Obligation.

So, removing someone from title eliminates their ownership interest but does not relieve them from their obligation to repay the debt.

Typically, it’s a tradeoff: One party refinances, the other party agrees to sign a quit claim deed to remove any ownership interest.

What happens if I can’t qualify for a refinance?

This is usually the hardest question to answer. A number of things will happen if you are unable to refinance.

Note: A finalized divorce decree is required to complete a refinance transaction. This means a court approved, recorded document. Nothing short of this will work. Divorce situtaions are complex and the terms constantly change until the judge signs and stamps the document.

Run the gamut of options with your lender. There are a lot of programs out there including some tempoary solutions. Be cautious and weigh your options. Tempoary loans like adjustable rate mortgages might offer a solution but will they fit your long term goals?

Try to find a co-borrower. A parent or sibling might strengthen the loan if they are willing take the risk for you.

If you are unable to qualify for a refinance within the required timeframe, you might end up listing the home for sale. If this happens, keep your head up. There will be many good things headed your way.

Remember, good memories are the only invaluable real estate. You’ve got this!

Divorce . . Nasty Business

A Good Loan Officer

Recently, I was asked to evaluate the qualities of a successful loan officer. The timing could not be better. I had just read an article about pain borrowers experienced during the mortgage process.

Loan officers catch flack when things go wrong. And why shouldn’t they? He is the face of the transaction and deserves to bear the burden when things go wrong. When ‘closing-in-thirty’ turns into sixty, when the appraisal comes in low or when interest rate jumps, the loan officer takes the verbal beating.

Boiled down, the best thing a loan officer can do is set the right expectations. This is a paradox because he might be afraid to tell the whole truth else you’ll stomp over to the competition.

I know!

I’ve been that loan officer and I have the bruises to prove it.

It doesn’t end that way if it starts out right. You can take a part in that if you know what to look for.

Ready?

–knuckle crack–

Let’s begin with some words

• Pushy
• Vague
• Promises
• Chatterbox

Now – let’s tear it down:

PUSHY! “This rate is the best you’ll ever see”. “We need to secure money for the appraisal, let’s get started now”. “You need to sign this so we can get things started”. You feel more rushed than the last time you opted to self checkout in Walmart.

Stop! A loan officer is an adviser, not a used car salesperson (sorry, no euphemisms here). You need someone who will take it slow, work out the details. This is a HUGE transaction and it deserves patience and respect. It’s a relationship, not a one night stand (yeah, went there)

VAGUE! You know things were unclear in the beginning, but now you have a pen in your hand and things are still gray. The dotted line stares up at you and a zillion questions bounce around your head.

Stop! A loan officer is teacher. She will take your hand and guide you gently through a maze of foreign terms, complicated disclosures and options. You know she cares because she’s patient, repeats without hesitation, and spends time explaining. She WANTS you to understand. This is a BIG deal!

PROMISES! “This loan is no problem”.  “We won’t need anything else from you”. “We’ll get you closed in twenty days”.

Stop! A good loan officer is a coach. Without scaring you, she will outline a plan of events and what you can expect to encounter. She will also know that issues might come up. Heck, she might even ask for patience because this process is complex, time consuming and arduous   But,she’s your advocate and will work with you. Yes, you might need to provide additional documents, have patience, and need to vent. She’ll communicate and explain and together you’ll get through it.

CHATTERBOX! Yeah, you know what I’m talking about. The loan officer that won’t stop talking. He is more interested in sharing his life and you struggle to laugh at those lame jokes. Maybe if you just sign the application he’ll shut up.

Stop! A loan officer is as good as your counselor. She listens to your needs, works with your situation and helps find solutions. She wants to know about you! How else can she fit you into the right product. You should be the one talking!

Let’s end with some words:

• Adviser
• Teacher
• Coach
• Counselor

Next time you’re sitting in front of a loan officer, measure him!

Discount Points

When shopping for a mortgage, you run across the term ‘discount point’.

What is that?

What does it mean to you?

First off, a point is one percent. Typically, it’s one percent of the loan amount and refers to a charge. . So focus on the word preceding ‘point’.  In this case, it is discount.

 

A discount is a reference to interest. 

To fully understand this concept, you need to know that banks and credit unions earn a profit by selling your loan on the secondary market. This profit is based on the interest rate they give you. The higher the rate, the higher the profit.

On any given day, a specific rate is worth a specific premium.  That premium is tied closely to the bond market which is why it fluctuates constantly.

Competition among banks keeps them from charging you an outrageous rate. Your ability to shop keeps them in check.

EXAMPLE

Let’s suppose a rate of 3.5% earns your bank 1% on a loan amount of $100,000, a profit of $1,000. But, you want 3.25%.  The premium on 3.25% only earns your bank half a percent (.5%), or $500.  Your bank must make a certain amount to pay the bills and, in this case, $500 doesn’t cut it. Ordinary, they wouldn’t offer you 3.25%.

Now, let’s suggest that your bank wants to lure you in by advertising a rate lower than the competition. While everyone is offering 3.5%, they will offer you 3.25%,.  Sounds great!

However, we know they can’t make enough money at 3.25%.  What to do?

They are going to charge you the difference — one half percent, or $500 — and they are going to call it a discount point

Make sense?

Don’t assume the lender with the lower rate has the better deal.

On the other hand, as a savvy consumer, you might understand this concept and approach your lender asking for 3.25% while expecting the discount point. You also have calculated the cost and it appears as though paying the extra money upfront will profit you in the long term.

I hope this information will allow you to cut through marketing campaigns as well as allow you to make the best choice for you!

To Lock or Not To Lock . . .perhaps float?

Undoubtedly, the interest rate is the single most important factor associated with shopping for a mortgage.  Even more important than closing costs, the interest rate can cost you hundreds of thousands of dollars over the term of the loan.  It will also determines how much your monthly payment will be.

So, it’s important to understand the terminology associated with interest rates.  To start with, asking for an interest rate quote from your bank does not guarantee you that rate.  Rates change daily, if not hourly because they are subject to the jitters of the broader economy. Also, there are no guarantees.

Rates are not fixed by your lender!

Most quotes are generic and are rates published by the banks marketing department so it stands to reason it will be the lowest rate they offer. In order to get an accurate rate, you will have to formally apply for a mortgage.

Why?

Rates are subject to the factors of your personal financial situation such as credit score, the value of your home, your loan term and many other factors.  Your lender will be unable to determine the rate until you give them those facts.

Just because you’ve taken your application and given the lender your financial information, you still might not have a commitment from them.

Getting a commitment from your lender means you must ‘lock’ in your rate. Locking in your rate has broad implications to your bank and so they are cautious until they have a good idea that you can and will go through with the loan.

When you agree to lock in a rate you are commonly agreeing to a few other things.

• The length of time the rate is locked for
• Any discount points involved.

The topic of discount points is one for another blog.  In short, a discount point is an additional charge (above the origination charge) associated with securing that rate.

Beware! Your loan is not locked indefinitely . 

As I’ve said above, rates are chaining constantly so your lender is unable to lock in your rate indefinitely. Typically, your rate is locked in for 30, 45, or 60 days.  They can be locked in for other periods but these are standard. Make sure you know how long your rate is locked for.  If you do not close on your loan before the rate expires, you may be subject to a higher rate or additional charges. 

Locking is not the only option.  If you have a higher appetite for risk, you can ‘float’ your rate. Floating means your rate is subject to change with the financial markets. You are ultimately responsible in this scenario (although a good loan officer will help you determine when it’s best to lock). If rates decrease, you will be able to take advantage of the lower rate.  If rates increase, you may end up with a higher rate. Consult with your loan officer about the best strategy.

With a better understand of the rate locking process, you will be better able to ensure you get the rate you want. This knowledge will enable you to make the best choice for you.

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Good luck!