The Mortgage Porter

Not a Friend of this Family: Part 2

In part one of this story about Michael and Pam investigating a refinance with Woo Who, we uncovered how the bank Loan Officer was not willing to provide a copy of the Federal Truth in Lending to Michael and Pam.   It was not until after Michael insisted that it was his right to receive this document, that it appeared disclosing a prepayment penalty that he was not informed of. 

The story gets better.  As I mentioned, Michael and Pam's existing adjustable rate mortgage is scheduled to adjust this June.  I reviewed the Note with Michael showing him that the index his mortgage rate is tied to is the Monthly Treasury Average (MTA).  The Monthly Treasury Average is just that: a 12 month average of the monthly average yields of the US Treasury securities.  The 12 month average is determined by adding together the Monthly Yields for the most recently available twelve months and dividing by 12. As it is based on a 12 month average, the rate does not move drastically.  This could act as a benefit when rates are moving upwards and is less beneficially when rates are dropping.   Here is the 411 on Michael and Pam's current loan:

• 5/1 Adjustable Rate Mortgage current rate 5.125%.  Principal and interest payment of $1154.31.
• 1st adjustment on June 1, 2008.  Adjusting annually thereafter. 
• Index: Monthly Treasury Average - projected value on June 2008: 2.948%
• Margin: 2.600%
• Lifetime Cap:  11.950%

Based on this information, their new rate is estimated at 5.548%.  The new rate is rounded up to the nearest 0.125% = 5.625%.   The new mortgage would reamortize at their balance at that time (estimated at $196,000) based on the remaining term providing Michael and Pam a principal and interest payment of $1218.29.   This is without refinancing--no closing costs--no loan approval.  Simple.

Woo Whoo's proposal is a 5/1 ARM with a prepayment penalty at 5.375% with a principal and interest payment of $1108.74 and closing costs of $2283.74 (not calculating how many years and what the penalty is for the prepay).

When Michael and Pam understood their options, they elected to stick it through with their existing ARM.  Their rate should drop lower when it adjusts again next June.   Michael was puzzled (to put it mildly) as to why the representative from Woo Whoo Bank didn't explain this to them.  Especially since the loan that would be refinanced was with Woo Whoo.   

It's painfully simple.  The Loan Originator would not be paid for giving free advice.  It's real easy for LO's and mortgage companies to target those with adjustable rate mortgages and plant fear of the adjustment.  Or perhaps the Whoo Who Loan Originator didn't even consider how Michael and Pam would fair not refinancing.   

This is why it's so important to review your mortgage Note and understand how and when it adjusts (if you have an ARM).  If it all seems like too much to figure out, contact your Mortgage Professional to help you.  If your loan originator is neglecting you (perhaps they've left the industry or do not care for clients after the transaction is closed), I'm happy to adopt your Washington State mortgage...no refinance required.

It's all about understanding all of your options and sometimes, that option is: do nothing.

Taking a break

I'm still taking a break from work and blogging...I will be back to work on April 1,  2008.  While I'm away, please contact my sister in law and President of Mortgage Master, Marilyn Porter.

I look forward to seeing and hearing from you then!

Pictured here is Thelma.  The cat I inherited when I bought my old house.  She's a mouser!

Major Changes with Appraisals for Conforming Loans

This post was first written at Rain City Guide earlier this month.  I'm taking a few days off and thought I would share this information with you here.

This morning it was announced from OFHEO that Fannie Mae and Freddie Mac have agreed to some major changes with regards to how appraisals will be ordered for conforming mortgages:

“…including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages. The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Enterprises will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009.”

It’s ironic to me this is eliminating “broker-ordered” appraisals and “reducing the use of captive appraisal management companies” when it was Washington Mutual’s actions with eAppraisal that caused New York Attorney General Cuomo to investigate.

The appraiser I use has been doing his job for over 30 years. I trust him and respect his work. Last year, when he had an appraisal come in low on a property that was in a bidding war with zero down financing, I didn’t doubt him. The agents were furious…even the homebuyer wanted a new appraisal. They wound up buying the home for the appraised value instead of the bid-up price. I wonder if they realize what a favor he did for them by providing a true appraisal? (He’s come in low on some refi’s too). I have to admit, I’m less than happy realizing that I may not be able to rely on using his services for appraisals once the new guidelines go info effect.

I’m concerned that obtaining a conforming appraisal will be very similar to how VA appraisals are done: a crapshoot lottery. This is all well and good as long the appraisers in the pool are all competent and efficient. However when there is no competition for business, will it breed complacency?

I’m also wondering what will happen with the cost of appraisals. Presently, I have a rate sheet from my appraiser and I know how much the cost will be for each transaction after we have loan approval. Unless Fannie and Freddie decide to control what an appraiser will charge, the fees can vary. How will loan originators be able to provide accurate Good Faith Estimates without knowing who the appraisal will be through?

More questions than answers right now…and more changes with mortgages are on the horizon with HUD’s announcement of what the median home prices are due in about ten days.

Update: Fannie Mae is accepting comments until April 30, 2008.

Fridays Rates...

...will follow next Friday.  I'm still on vacation.  For your personal rate quote (in my absence), please contact Marilyn Porter, my sister-in-law and President of Mortgage Master. 

Not a Friend to this Family: Part 1

When I helped Micheal and Pam with the financing of their home almost five years ago, it was a challenging transaction.  They were excellent borrowers, except for the particular type of Visa he had (they're Canadian).   Long story short, we wound up doing a 5/1 ARM through Woo Whoo Bank as they were only planning on staying here for about 5 years.  About four months ago, Micheal met with me to review his Note and to see about refinancing.  They may be staying a few years longer if they have their choice...Michael is having a challenge extending his Visa.  Michael wanted to refinance and was concerned about his ARM adjusting.  With our current mortgage climate and his current situation with his Visa, I could not refinance him.   We reviewed how his ARM and discussed how it functions and at that time, I told him that he has time--he did not to refinance yet.  He was still feeling pressured to do something--letting his ARM adjust was not sinking in.  He went directly to Woo Whoo to investigate a refinance.  Michael forwarded me the first good faith estimate from Big Bank.  The rate seemed too high to me; especially compared to his current mortgage.   I again encouraged him to wait out a few more months to see what rates do and that by that time,he would have more information on the status of his Visa.  Fast forward to the present.

Michael has re-visited Woo Whoo and now has a rate that seems more attractive.  After reviewing his Good Faith Estimate and the documentation he emailed to me, I asked him where the Federal Truth in Lending was and he said he never received it.  I advised him that he is to receive a copy of his TIL ASAP.  He contacted Woo Whoo and here is the emailed response:

Good Afternoon [Michael]

I just got your voicemail.  Regarding the truth in lending statement, I believe when you close, the notary will have all of the final documents.  The documents you received in th email is strictly for your records only.  Basically states that you took an application with [Woo Whoo Bank].  Your closing documents that the notary will bring will have all the correct information including the Truth in Lending statement.  Please let me know if you have any questions.   Hope all is well with you.  Thank you.

Best regards,

[Loan Originator in Downers Grove, IL]

Loan Consultant - Woo Whoo

I informed Michael that lenders have 3 days to provide the Truth in Lending after an application is complete.  The TIL should accompany a Good Faith Estimate.  It was missing from all of Michaels paperwork.  After Michael called Woo Whoo again, this time demanding a copy of his Truth in Lending statement.   The TIL shortly appeared disclosing exactly what I thought: a prepayment penalty on this 3/1 ARM for a family who may not be staying in their home for three years.   Nice, huh?

Stay tuned for part 2...

 

Improving Your Credit Score

I am taking a few days off...and will be returning on April 1, 2008.   I originally wrote this post at Rain City Guide and thought I'd share it with you here.

With every point of your credit score being more crucial than ever, I thought it would be a good time to share some tips on how to improve your credit scores beyond paying your bills on time.   If you are considering obtaining a mortgage within the next 12 months, you should meet with your Mortgage Professional to help advise you on this process.   Some steps in repairing your credit may actually temporarily lower your scores (such as paying off a collection).   What steps you should take depends on how soon you plan on buying a home or refinancing.

1. Obtain a copy of your report from www.annualcreditreport.com.  You are allowed one free report from each bureau annually.  This comes out to three free reports.   I recommend pulling one report at a time rotating the three bureaus every four months.   For example, this month, you could access your Experian report to review your credit and in May, pull your report from Transunion.  In September, you could obtain your report from Equifax.   This allows you to keep tabs on your credit for free throughout the year.   NOTE:  The bureaus will charge you a fee to access your credit scores (stinky, IMHO); if you’re really interested in obtaining your scores, I suggest you contact your Mortgage Professional and request a tri-merge report.  The cost should be around $20 and the scoring modules used for lenders is different than what you receive from www.annualcreditreport.com. 
2. Review your credit report for errors and contact the creditors demanding they be corrected.  The contact information should be included with your credit report.   Keep a phone log of any conversations and follow up with a certified letter.  Request a confirmation letter for your records of any corrections the creditor offers to make.   
3. Pay past due accounts current.  Your credit score is penalized for any accounts carrying a past due balance.   
4. Keep your balances below 50% and 30% of their credit limit.  Review your credit report to see which accounts are just over 50% or 30% of the available credit line.   For example, if you have a credit card with a $1000 credit limit, and the balance is $550 pay down the account to where it stays below 50% of the line ($500 or less).   NOTE:  If you’re trying to reduce your credit debts, you should use a different strategy than maximizing your credit scores.
5. Don’t close your old accounts in good standing. The scoring modules favor established credit and not new debt.  Keep your old card with a zero balance and use it once a month to fill your tank with gas and then pay it off each month.   Also, closing your accounts do not make them “go away” from your credit report. 
6. Avoid obtaining new credit.  That new car will not only dramatically impact what you qualify for, it will also zap your credit scores as a new maxed out debt.   
7. Before paying off old collections, contact your Mortgage Professional.   Depending on your scenario, you may be better paying off the collection after closing on your new mortgage than before.   The credit scoring modules will factor paying off the collection as new activity and ding your score as if the collection is currently “active”.  I actually had a loan declined last year after a client returned a library book that showed as a collection against my advice.   He just needed to wait until after closing (this was a condo conversion and there was a large time span for closing).
8. If you’re allowing different LOs to pull your credit while “rate shopping” for your lender, do so during a short window (30 days) of time to avoid being hit for inquiries.   

The good news about your credit score is that it is not permanent.   It’s intended to reflect your current credit behavior.  If your credit is a mess, it will take more time, effort and determination to repair it…but it can be done!   

Recently on Rain City Guide

I can't tell you how honored I am to be a part of Seattle's Rain City Guide.  Here are a couple of recent posts that I really encourage you to check out...

Jillayne Schlicke just wrote a dead on post regarding our local situation with affiliated business arrangements between real estate, title and escrow and mortgage companies.  This is a topic close to my heart as before I was in lending (8 years ago), I was in the title insurance industry for 14 years.  I've seen drastic changes over this time since large real estate companies have entered into arrangements with title companies.   Now the State is stepping in with new regulations.   Read Jillayne's post: Title Insurance Affiliated Business Arrangements Under Scrutiny.

ARDELL wrote a very timely post: Should You Buy Before You Sell?  Her answer is NO!  And during these times, I'm likely to agree.   Bridge loans may be hard to come by and properties are taking longer to sell.   

Don't forget...I'm on vacation and will return on April 1.

I'm Taking a Short Break

I'm taking a few days off to relax and recoup beginning Wednesday, March 26, 2008.   I will return to work on April 1, 2008.  While I'm away, should you need mortgage assistance for your properties located in Washington State, please contact Marilyn Porter, President of Mortgage Master Service Corporation, Licensed Loan Originator 510-LO21838, my "boss" and my sister-in-law.

Marilyn has been in the mortgage industry for over 30 years (I know she doesn't look it...you'll just have to trust me) and is a huge resource of information.   She can help you with rate quotes, locks, new purchases or refinancing (you can complete a loan application and she will receive your information) while I'm away...I'll "take over" when I return back to work. 

Congratulations to Dawn's Army

Dawn's Army recently climbed 69 flights of the Columbia Tower as part of The Big Climb: an event to raise money for the Leukemia and Lymphoma Society.   Dawn's Army consists of her family members and a crew from The Talon Group, where she was employed when she was diagnosed with leukemia.

You can tell their leader, Dawn (pictured above), is quite proud of her team raising over $6,000 for this worthy cause.

You can still donate to LLS to help fight blood cancers.

Pictured to the right is "Gomer" and Tim Daniels, Chief Title Officer of The Talon Group and members of Dawn's Army.

Note:  As soon as I have a group troop photo, I'll post it here!

Here's the troop photo:

Fiduciary Duties for Mortgage Brokers

Last Friday, Governor Gregoire signed SB 6381 into law giving fiduciary duties to mortgage brokers.  This new law does not apply to loan originators who work for bank-mortgage companies (like WaMU, Countrywide, Wells Fargo, Chase, Bank of America, etc).   

Here are some of the highlights of what the law spells out for loan originators who work for mortgage brokers:

• A mortgage broker must act in the borrowers best interest and in the utmost good faith towards the borrower
• A mortgage broker shall not accept, provide, or charge any undisclosed compensation or realize any undisclosed remuneration that inures to the benefit of the mortgage broker on an expenditure made for the borrower.
• A mortgage broker must carry out all lawful instructions provided by the borrower. 
• A mortgage broker must disclose to the borrower all material facts of which the mortgage broker has knowledge that might reasonably affect the borrowers rights, interest or ability to receive the borrower's intended benefit from the residential mortgage loan.  
• A mortgage broker must provide an accounting to the borrower for all money...received from the borrower.

All of the above seems pretty straight forward to me and SHOULD all ready be happening when consumers work with a mortgage professional.  I have always put my clients best interest first--above mine.   The next two points are more surprising:

• A mortgage broker may contract for  or collect a fee for services rendered if the fee is disclosed to the borrower in advance of the provision of those services. 

This will allow mortgage brokers to charge a fee for consultation, credit repair, working on preapprovals.  This could change how a Washington State mortgage broker is paid and how much they charge in origination.    

• The fiduciary duty in this section does not require a mortgage broker to offer or obtain access to loan products and services other than those that are available to the mortgage broker at the time of the transaction.

I see this last point as a conflict with the entire bill.  What if the best loan for a consumer is FHA or VA and the mortgage broker does not have those loans available so they shoe-horn them into a loan they do have access to?  How is that acting in the clients best interest?  The other side of the coin is that if a mortgage broker has never provided a certain product (such as FHA or VA mortgages); how would they know if the consumer would be better off with these loans?

Note to Consumers and Real Estate Agents:  If you are a first time home buyer, have credit scores below 700 or are putting less than 20% down; ask your mortgage broker if they are able to provide FHA financing.  Those who have served our country should ask if VA financing is available. 

Jillayne Schlicke wrote an interesting post on this earlier this month at Rain City Guide.   This law is yet another reason why consumers may want to select a loan originator classified as a licensed loan originator working for a mortgage broker over a loan originator who works for mortgage-bank.