Mister VA's Mortgage News

A Little Refresher Never Hurt Anyone

One of my favorite quotes from one of my favorite books from one of my favorite authors is this:  "All things being equal, people want to do business with their friends.  All not being not quite so equal, people STILL want to do business with their friends."  Jeffrey Gitomer leads of his Little Black Book of Connections with those two sentences.  And that is before you even turn to the table of contents page!!!  So you KNOW it must be important.  And it is.  Whether you are a Mortgage Officer calling on Realtors, a Realtor making a listing presentation, or WHATEVER it is you are doing, if you develop a friendship, it becomes easier to make connections with them for a specific transaction or series of transactions.  AND when that friend refers a client to you or you to them [this is a two way street], you have someone who already has begun to trust you.  And once trust has begun, it is a whole lot easier to build even MORE trust.

Nobody likes to receive cold calls.  Just as much as people don't like making them.  So by looking at people differently, as potential friends, you will increase the odds of getting warm referrals.  And the more warm referrals you get, the less cold calling you need to do.  It is a cycle.  And it really makes sense when you think about it.  Gitomer also says [before the table of contents] that "you don't need more techniques and strategies, you need more friends."  Pretty simple stuff.  Instead of the great products, great service, great prices mantra that everyone touts, why not try to get to know something about that Realtor or that client that you can ask about during your next visit or conversation?  Don't you think, "Hey, Jim.  You must be happy about that trade the Red Sox just made" will mean more than "We just came out with a new program"?  The discussion about the program will come in time.  Especially, if Jim talks about a transaction that is not going so smoothly and you can relate it to what you have to offer.  And even if you offer a suggestion to complete a nearly complete transaction, you will have helped.  If the competitor cannot complete the transaction, at least you made the suggestion.  And if they can as a result of the transaction, guess who looks pretty good?  And that is a perfect opportunity for follow-up and to ask for the shot at the next transaction.  You provided a solution that got the agent paid or thought of something that might have gotten the agent paid.

 

 

More Things That Don't Make Sense

I was speaking to a gentleman the other day about the pre-approval process.  As I always do, I asked about his present situation.  He mentioned that he had to sell his property first, but that he was going to try to modify his loan and then probably have a short sale after that.  But, what he said next really blew me away.  "I have sent in the last 3 payments, but they are holding them and reporting me late, so that I will qualify for the loan modification program."

So, let's see.  A guy who is upside down on his property and wants to be able to modify his loan terms has to be past due in order to do so, even if there are other factors at work such as negative equity, reductions in income, increased payments, and so forth.  So, that fellow has to scar his credit even FURTHER by becoming late on mortgage payments in order to do a loan modification with his lender. Wouldn't you think that a guy that is making his payments now would be MORE likely to make them with a loan modification for lower payments meaning the lender was LESS likely to have a foreclosure on their hands in the not too distant future?  What is wrong with this picture?

Short sales fall under this umbrella, too.  Lenders, in many cases, will not consider offers for less than what is owed unless the seller is delinquent.  How dumb is that?  Why not at least earn interest on the loan with current payments being made and therefore lose LESS money on the sale?  And why not have the seller at least be able to salvage their credit ratings by making those payments in the meantime?  What is wrong with this picture?

If we want to be able to move forward from the housing problems of recent years, wouldn't it make sense to reward those who are being responsible with their payments in situations like this?  Meanwhile, the government listens to such experts as Fed Chairman Ben Bernanke, who presided over much of the fiasco, and instead of using its resources to ferret out the bad guys on loans gone sour, it prefers to hammer away at the remaining folks in the business of helping homeowners and homebuyers finance homes--many of whom have been honestly helping the public for many years. 

Whether it is limiting the use of premiums to lower closing costs to lenders [who approved the loans--good and bad] and outright elimination of Yield Spread Premiums [YSP] which do just that. Or deciding that loan officers [who do not approve the loans, appraise the properties, prepare the closing documents, etc] should be the only ones to bear the risk if someone becomes delinquent via job loss, death in the family, divorce, or some other unforeseen circumstance. Or even allowing credit bureaus to accept and publish information without verification that harm consumers by lowering credit scores with bogus reporting and consequences imposed by other creditors that are undeserved. The government, which only a few years ago was promoting the use of many of the loan programs that came into being, seems to be scapegoating instead of problem solving.  What is wrong with this picture?

What NOT To Do When Buying a Home

Common sense would indicate that there are some things you should NOT do while proceeding with a home purchase if financing is involved.  It is assumed that the buyers will NOT do any of these things.  But, sometimes, things need to be spelled out, so I will do that here.  Essentially, the application you submit at the beginning should have no substantial changes at closing.  And anything that has a large effect on what the underwriter reviews in your initial application will cause problems and maybe turn an approval into a denial.

Credit items.  Do not be 30 days late on any payment from the time of application until closing.  I do not advocate being 30 days late after closing, either, but if your credit is updated to show a late car payment while your loan is being processed, it could really have a large effect on your credit score, eligibility for a loan program or eligibility for ANY loan program.  Do not go car shopping unless your car dies completely.  Credit inquiries and new loan accounts at best will require explanations and re-underwriting and at worst, could disqualify you for a loan.  Do not apply fo rany new credit cards or run up balances on any credit card accounts.  This includes buying new applicances for the house, a new lawn tractor, or any other purchase on credit that can affect your debt ratios.  Do not drain your savings for any of those purposes, either.

Income items.  If you hate your boss, do not quit or change employment during the processing of an application.  It may cause delays in closing if you need 30 days' pay stubs for the new job.  It may result in loan denial if the new job is completely unrelated to the old job or prior work experience.  It changes the whole application and this is not good if you are buying a home with a contract with certain fixed dates.  In fact, it COULD place your deposit at risk, even if you receive a loan denial.  These are some of the major things to consider when applying for a purchase money home mortgage loan.  And it is worthwhile to commit these to memory.

Try Rural Development First

The USDA Guaranteed Loan Program is really the first place to look when considering the purchase of a primary residence.  There are two main considerations when considering the program.  The first one is property eligibility.  USDA does not guarantee loans in all areas.  In Florida, some urban areas and some whole counties are not eligible, for example.  USDA has a great mapping tool, though, so you can enter a property address and find out if it is located in an eligible area relatively quickly. Just click on this link and follow the instructions. 

Income eligibility is the other consideration.  Again, this information can be found on the link above. In Florida, the 1-4 household limit is $73,600 in most counties.  Some counties have higher limits and adjustments can be made for child care, etc., which means the limit is not on gross income alone.  For families of 5-8 persons, that income limit is at $97,150 in most counties and higher in others.  Please note that income is considered for household members who may not even be on the promissory note.  And that income may be higher than what is used for loan qualifying purposes.

Credit standards are a bit more relaxed for USDA in that non-traditional credit references can be used and FICO scores can be in the 600-619 range, although pricing adjustments will be made.  Closing costs can be paid by the seller in entirety.  And the appraised value, not the sale price, determines the maximum loan.  No down payment is needed.  A guaranty fee of 2% can be financed and no monthly mortgage insurance is required.  Taxes and insurance are escrowed with the payment.  You should always look to the USDA Guaranteed Loan to see if you qualify before looking at other programs.  Ask your mortgage professional if that program is available.  Of course, in Florida, I hope that professional will be me.

Barn Door Open? Check. Horses Gone? Check.

In typical fashion, Congress and Regulatory Agencies are beating a path to close the barn door, nail it shut, and prevent any more horses [though they are all long gone] from escaping.  So, when the farm hands try to get in to feed any other remaining animals, there is no way to gain entry and the other animals [consumers] suffer for it.  Does this mean that the government should not be doing something?  Does it mean that a lot of the new laws will not help?  Does it mean that the proposals will not make things better?

Let's take a look at some of the problems that caused the meltdown in the first place.  Poor loan types.  Both Fannie Mae & Freddie Mac rolled out some 100% financing programs.  Initially, a FICO of 660 was needed to qualify.  A sound competitor to the subprime loans that offered 100% and VA loans which offered 100% and USDA loans which offered 100%.  And for awhile, these two programs helped many folks buy homes.  660 was considered good credit at the time.  People going for higher rate subprime loans who did not qualify for VA or USDA were able to take advantage of these new programs. 

Then, the two agencies felt the market share was too small.  So, the 660 credit score was tossed out the window. And then came the Expanded Approvals.  "Sorry, but your credit package does not qualify for the loan.  But, good news, you do qualify at a higher rate with higher PMI."  Both agencies offered those loans and PMI companies rushed to the forefront to collect the higher insurance premiums.  How much sense does THAT make?  Without new regulations, My Community & Home Possible and the higher priced variants are gone.  Loan level price adjustments have taken their place.  That's the ticket.  Make the rates and payments higher.  THAT should help people with credit or debt ratio issues.

Option ARMS were another program that offered teaser rates and resulted in negative amortization.  Largely to help folks buy homes over the conforming limits.  How about not buying homes that cannot provide affordable payments?  This program has turned into a disaster for lenders and consumers alike.  It, like Fannie & Freddie's programs above, is gone.  Without being banned.

Subprime loans?  Pre-payment penalties on the same?  Stated income?  Low credit scores qualifying for no down payment loans?  GONE!  ALL GONE! Without being banned.  It should be noted that many of the lenders are gone, too.  And many of the loan originators are gone from the industry who lived on these loan types.

So, now Congress wants to further hogtie the consumer [anyone gotten any bad news from credit card issuers lately?] by eliminating choices such as smaller closing cost loans.  YSP or Yield Spread Premium paid to brokers or loan officers in lieu of points or broker fees paid by the consumer may be banned if some in Congress get their way.  For the most part, it is the good guys who remain in the industry.  Enforcement of existing laws and going after the bad guys even if they no longer are originating or UNDERWRITING or appraising, would be mcuh more effective and would be less costly to the consumer.

Otherwise, bad laws like HVCC, proposed banning of YSP [see my earlier post on the subject within the past month], putting the whole onus of loan performance on the originator [who neither approves the loan nor appraises the property], etc. will harm the very consumer that they intend to protect.  National Licensing of Loan Originators is a great idea.  All originators should be licensed no matter who their employer.  The same with processors and underwriters.  That is the way to make sure the industry remains clean.  The alternative is that credit will get tighter and tighter and the economic recovery will remain in the distance.  Let's give the changes that HAVE been made a chance to work.  And write your Congressmen & Senators regarding the rest.