Government

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.

Standard
How It Works, Your Mortgage File

Homeowner’s Insurance Claims

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

lead-south-dakota, lots of snow, deep snow

Storm

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.

TMone

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

hailstones

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.

Standard
Mortgage Philosophy, Your Mortgage File

Should I Omit Information? Is that Fraud?

Is it 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

.

Standard
Quick Tips, Your Mortgage File

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

Image

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.

Standard
Disclosures, How It Works, Your Mortgage File

The Right of Rescission

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

Standard
How It Works, Your Mortgage File

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

Aside
How It Works, Your Mortgage File

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.

discount2

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!

bottom

Standard