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I was recently sitting in a room full of Realtors and I heard something that shocked me! A mortgage professional in Elk Grove, Ca. stood up and made an announcement that whoever sent them the most mortgage client leads for the month would win a trip to a cabin for the weekend. I kinda just sat there and waited for others to react... but no one really did.

You see... it is this little thing called RESPA. I can not offer Realtors any type of compensation for sending us a client. Maybe noone reacted because they were Realtors and they are used to giving referral fees. It is perfectly legal for a Realtor to refer a client to another agent in exchange for a percentage of the total commission.

I read a great article by R. Sebastian Gibson about this subject! He says...

"Section 8 of RESPA quite explicitly and forcefully prohibits a person from giving or accepting a fee, kickback or anything of value for referrals of settlement service businesses relating to a federally regulated mortgage loan. It also prohibits fee-splitting or a person from giving or accepting any part of a charge for services that are not performed.

A person in violation of Section 8 cam be fined up to $10,000 and imprisoned for up to one year. In a civil lawsuit, a person in violation of Section 8 can be liable to the person who was charged for a settlement service an amount equal to three times the amount of the charge paid by the person for the service, and for the person's attorneys fees."

Well I guess everyone runs their Elk Grove mortgage business differently! I choose to keep myself out of the illegal zone! 

With everything going on in the mortgage industry these days... why would you even go there? Why would you even go there...period?

HUD announces 120-day Retraint for enforcement of the new Real Estate Settlement Procedures Act (RESPA)... but will it save my paycheck? 

I recently wrote a post about the new 2010 Good Faith Estimate form. Looks like the powers that be are going to give everyone a break while we get this mess straightened out.

Now that I have a several Sacramento mortgage applications under my belt since the new change, I can tell you this new form has led to some real confusion for borrowers. Although I mentioned that this new Good Faith Estimate is laid out in a much more user friendly way (I am trying to remain positive here)... there are some really big missing pieces of information the consumer needs to make a decision.

This like...

• How much money they need to close the deal!
  
• How much their complete monthly payment is!
  The current form's payment does not include taxes and insurance... this is just stupid! Talk about not giving the clients all the information they need to make a decision.

.....Insert BIG SIGH here.....

Do you know how difficult it is to sit down with a new client and not be able to provide them with the information they need to make a decision?

You see consumers have been trained to look at the Good Faith Estimate for their answer.  Since the new 2010 Good Faith Estimate Form has been implemented, we find ourselves saying things like .... You are just going to have to trust me.... And... Ignore this form and look at this one instead to get your answer! It is just ridiculous! We are supposed to be professionals here. 

I think my corporate office said it best...."Never in my 25 plus years in the mortgage business, have I seen the implementation of a change bring our entire industry to a screeching halt.  You have to at least chuckle (a little) that our business is all about "numbers" and we can't figure out how to get them right."

After the initial shock of how crappy this new Good Faith Estimate Form is and several hours on the phone with the powers that be... We have got a company policy in place to complete these forms. The problem is every lender has a different interpretation of how this new Good Faith Estimate should be completed.

Even though HUD recently announced a 120-day retraint in RESPA enforcement rule 2010 (giving the lenders and banks a break if their files are audited) .... It still does not mean our paychecks are not at risk!

You see it is up to the wholesale lender to determine if we have completed this disclosure right or not. The new form makes us responsible for many of the fees in the transaction. So not only do we have to get our fees exact... Which is fine by me since we honor our fees anyways... BUT (depending on the lender's interpretation) we could be responsible for titles fees, recording fees, pest inspection fees, city transfer fees...!  Some of these fees fall into a category that only allows for a 10% variance in price from the original quote. If we are wrong or got bad information... we eat the difference!

To say the least these first couple weeks of 2010 have been interesting! To be safe in the beginning we padded the heck out of the Good Faith Estimate to make sure we built in cushion for ourselves. This is not fair to the borrower frankly because they are not getting a true estimate!

It is what it is and we are all still trying to work out the kinks. We have mentally prepared for some loss in commission and if and when it happens... we will not be surprised.

Just another day in the life of a Sacramento mortgage broker!

**** Many of the wholesale lenders sent out emails that described this 120 day period as a moratorium... I found that verbiage to confuse people and have since updated my post to reflect HUD's press release above. *****

I have read many blog posts recently regarding the subject of pre-approvals. It seems that many folks in our industry have a different idea of what a pre-approval is. 

The problem is there are no uniform rules when it comes to pre-approvals. Not all pre-approvals are equal... it really comes down to who is providing it.

So as a Realtor... How do you know which pre-approval is the strongest? Many Realtors will say that if the pre-approval comes from a large bank, then the pre-approval must be stronger than the one that is provided by a mortgage broker. I battle this often when I go head-to-head with another offer that has a large bank pre-approval. 

The truth is many times the big banks don't require the client's financial documents in order to pre-approve the borrower! They just pull the credit report and ask the client what their income is. Many Realtors will assume that the big bank logo holds some kind a merit... I have to disagree!

I know Realtors who insist they get a pre-approval from a correspondent lender which is a bank line.  Although we are a mortgage brokerage, our company (as well as many other mortgage brokerages) have the ability to fund as a correspondent lender (act as a bank). The cold hard truth is there are no short cuts when I place a loan as a correspondent lender than if I placed it as a broker. I may save a day or two when I request the funding as a correspondent lender... BUT UNDERWRITING IS EXACTLY THE SAME! 

On a side note... I know of mortgage "professionals" in my area who hand out their pre-approval template to their Realtors! It shocks me that either side (Realtors and mortgage "professionals") participate in this! This pre-approval template allows the Realtor to enter anything they want into the letter so they can print it and present it with their offer! It is amazing there are still people like this in our industry.

We happen to be on the complete polar opposite of these folks. Some might say our process is way too strict and it takes too much time upfront. We feel the more homework we do before the client is in contract the better... especially in this market!

Here are the steps we take for EVERY pre-approval we write.

1.  The client must provide us with a complete loan file
What does this mean anyways? They must provide us with 2 years tax returns, 2 months bank statments for all accounts, the most recent quarterly/monthly statement for all retirement accounts,  a copy of their ID's, divorce decree (if recently divorced) and any other client specific paperwork that is requested UPFRONT!

Many folks want to know why they can't just tell me their income numbers over the phone. What I think people don't understand is even though their pay stub reflects $6,000 a month... that may not be the income number that ends up on their loan application. Lenders are picking files apart right now, scouring through tax returns looking for write-offs and business expenses that could further reduce the borrower's income. This goes for rental income as well! Just because you deposited $1,000 in your bank every month... the underwriter 9 times out of 10 will insist you be qualified based on the rent you claimed on LAST YEARS tax return.

So if the mortgage professional does not ask for a complete package upfront... How can they truly analyze the borrowers ability to qualify for a loan without all of the information?

2. Once we have all of the information from the client TWO members of our team review the file before we ever enter any data into the automated loan approval system.
If you are a Realtor and a mortgage professional is telling you they have an automated approval... Remember this approval is only as solid as the information entering into the system.

If the mortgage professional is entering the $6,000 income I used as an example above and it really should be more like $4,000 according to the tax returns... then that automated approval does not mean jack!

We go the extra mile and have two sets of eyes look at every file we get a pre-approval for. This way any sticking points on a particular file is more likely to be caught upfront.

3. Once we decide on the most conservative numbers to use, we run an automated approval.
As long as there are no shift in assets, loss of income, or a new tax return is filed, or guidelines change... our pre-approvals are solid because we actually pre-underwrite the file. 

You would be surprised how may listing agents call the mortgage professional who gave a pre-approval letter for one of their offers and the mortgage "professional" does not even now what an automated approval is! If this happens to you... file that offer directly to the trash!

As you can see, there is a big difference from the mortgage "professional" who hands out a pre-approval template to their Realtor compared to our 3 step process... YET THEY ARE BOTH CALLED PRE-APPROVAL LETTERS!

I think it comes down to who is providing the pre-approval letters! Don't be shy to call the mortgage professional and interview them! I welcome these calls! I find I can often times talk the listing agent into accepting our client's offer because they are not neccessarily looking at the highest offer... they just want to pick the one that is in the hands of someone who can close!

This story was reported by News 10 in Sacramento yesterday...

"The managing broker behind a failed mortgage operation posted a rambling essay on the company's Web site describing his years of fraudulent activity and asking for forgiveness.

The seven-page essay by Christopher Warren, 27, replaced the home page of Triduanum Financial which abruptly closed its doors last month."

Here is a link to the full article >>

Here are some shocking quotes from Christopher's memo..

"Overall in the two and half years I was at Ameriquest I funded over $90,000,000 in mortgages, of which more then $75,000,000 contained some sorts of material frauds undetected by management and funders."

"We found investors that were not re-pulling credit reports, so we would change a 500 fico to a 700 fico, a person in foreclosure and make It look like they were never late, fake w2s, pay stubs, bank statements, verification of deposits, none of which was being re-verified."

Read the memo >>

I found the details in this memo shocking.  In fact I had to read a couple paragraphs a couple times so I could let it sink in.

I just don't do business like this...never have.  It would NEVER EVER occur to me to make changes to Client's documents or provide fake ones to get a loan to fund. I am stunned.  No wonder we (Mortgage Brokers) are the scapegoat for this whole mess.

BUT.... Where were the Lenders in all of this mess?  They are the ones who did not verify anything that was provided.  Yes this guy sounds like a piece of work ...but it is a good example why EVERYONE was involved in the mess we are in.  Period.

The moral of the story.. TRUST who you are working with. With the mound and mounds of paperwork involved with getting a mortgage, it is easy for a shady "Mortgage Professional" to manipulate the numbers. Please do yourself a favor and focus on the quality of the person you are hiring vs the rate that you have been quoted.

The whole situation really was a ticking time bomb waiting to go off... and boy did it!

This blog by:

Team Newington
Sacramento Mortgage Planners
(916) 687-6868
www.SuperiorLoanTeam.com

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**** Update... Looks like Christopher Warren, according to News10, fled the country on a private jet on Monday, the same day he replaced the home page of the Triduanum Financial Web site with a seven-page essay outlining his crimes and asking for forgiveness.

Read the new article >>

There is a pretty darn big change coming our way in regards to how appraisals will be ordered for conforming loans in 2009.




To help enhance the integrity of the home appraisal process in the mortgage finance industry, in March 2008, Fannie Mae/FreddieMac entered into an agreement with our regulator-the Federal Housing Finance Agency (then the Office of Federal Housing Enterprise Oversight)-and the New York Attorney General's office to adopt certain policies relating to appraisals for loans delivered to Fannie Mae. This new process is called the Valuation Code of Conduct. See the original agreement>>



So what is the Valuation Code of Conduct?

In a nut shell this new agreement requires that all appraisals for conforming loans (except for Government loans FHA/VA) must be ordered directly from the Lender instead of through the Mortgage Broker as of May 1st, 2009. 

Why should you care?

I would suspect there will be increased turn-times in order to receive the appraisals.  
We have an agreement with our Appraisers that requires them to provide us a complete report within 3 days of our order.  As soon as we get any file, we immediately order an appraisal.  This way our clients will have it back quickly in order to release their contingencies and do any further due diligence they feel is necessary. It takes a matter of 5 minutes to shoot over the order form and we are all off the the races.

This new agreement would require Lenders to order the apprailsal through one of their "in house" appraisers. So who knows how long it will take to get the order out and how long it will take to actually receive the report.

Following a public comment period, the Home Valuation Code of Conduct has been modified and will be effective for single-family mortgage loans (except government-insured loans) that are originated on or after May 1, 2009 , and delivered to Fannie Mae.

The initial concern was the Lender's would hold the appraisals "hostage" if the Borrower wanted to change Lenders in the course of their transaction.  There has been modifcation made to the code released this week to address this concern.  Read the changes that were made >>

We are starting to see Lenders put this new rule into effect already so don't be alarmed when this comes up!

My 2 cents...

As we all have hear a 1000 times ... it was the big bad Mortgage Brokers who caused the big mess we are in.. NOT!

I think they may have forgotten Lenders signed off the shady appraisals they are trying to avoid. 

I looked at a potential investment this week that had been foreclosed in the Sacramento Area by Sacramento City College.  The refi loan amount in 2006 was around 600k.  It was obvious to us what happened.  This particular property has twice the square footage of other homes in it's neighborhood. So what we think happened (I could think of no other method the Appraiser - Mortgage Broker and/or Lender could use to get this value), was comps were supplied from homes across the street lining William Land Park. These neighborhoods are as different as night and day.

So using this example... let's say a shady Appraiser and Mortgage Broker worked together to create this "creative" appraisal report.  At some point the underwriter at the Lender is just as guilty aren't they? A quick peek at the pictures of the subject property vs the comparable properties should have told the whole story. 

I am currently reviewing a client's estimated settlement statement before their signing and I just am so frustrated!

There ought to be a law!

How can bank force Buyers to use their discount title companies, then allow the title companies to charge whatever they want?


Here are the fees that the title company is charging my Client:

Purchase Price: $320,500 FHA fixed

Escrow fee:                           
$891 (Wow.. that seems a little steep..shouldn't it be more like $400?)

Title insurance:                
$1674

Buyer Messenger Fee:        
$35 (Did you send the Buyer a secret message I did not know about?)

Sub escrow fee:                    
$62(What?.. Didn't they already pay you a hefty escrow fee?)

Loan tie-in-fee:               
$200 (tie into what?  There is only one loan?)

Processing Fee:                  
$150 (You mean the escrow fee did not cover it?)

Courier Fee:                    
$24

Buyer Archive fee               
$50 (Wow.. now you are getting creative!)

Wire Fee                        
$25
Archiving Fee #2                
$50 (OK... now you are pushing it!)

It seems to me that as a Mortgage Professional I have to fully disclose all of my fees upfront.  So why is it a title/escrow company can charge a borrower, on a FHA loan especially, whatever the heck they want?

When I called the title company to challenge these fees, I pretty much wasted my breath.. but I had to try! I was pretty much told ....Deal with it! These are our fees and I don't have to explain them to you!

There seems to be no recourse for the Buyers involved with these southern California title companies and that really does not sit well with me.

I also wanted to point out there seems to be a trend with increased fees for Borrowers who are having the bank pay their closing costs.

Just a day-in-the-life of a this crazy Sacramento foreclosure market! 

HUD released an update recently that made 12 months seasoning mandatory for those homeowners who want to refinance their conventional loan into an FHA loan. 

(The following only applies only to refinances of existing conventional loans into FHA loans)  

• The subject property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application.

• If said property is encumbered by a mortgage, the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.
  
• The property that is security for the refinanced mortgage must be a 1- or 2-unit dwelling.

Any co-borrower or co-signer being added to the note must be an occupant of the property.  Non-occupant owners may not be addedin order to meet FHA's credit underwriting guidelines for the mortgage.

So this means that if you have a new mortgage on your property for less than 12 months, you will have to wait until you can refi into an FHA product (if you currently have a conventional loan)

Remember that if you currently have an FHA product in place, this rule does not apply to you!

California State Budget Crisis Temporarily Halts CALHFA Programs!

Who the heck is CALHFA.. you might ask!

For over 30 years, California Housing Finance Agency (CalHFA) has supported the needs of renters and first-time homebuyers by providing financing and programs that create safe, decent and affordable housing opportunities for individuals within specified income ranges. Established in 1975, CalHFA was chartered as the State's affordable housing bank to make low interest rate loans through the sale of tax-exempt bonds. A completely self-supporting State agency, bonds are repaid by revenues generated through mortgage loans, not taxpayer dollars. 

Effective immediately, CalHFA is suspending the following active CalHFA First Mortgage Fixed Rate Loan Programs and Down Payment Assistance Programs:

•·     30-Year Fixed Mortgage products, including: Moderate Income, Low Income ,Nonprofits & Affordable Housing Partnership Program (AHPP), Extra Credit Teacher Program (ECTP)

•·     California Homebuyer's Down Payment Assistance Program (CHDAP)

•·     Extra Credit Teacher Program (ECTP)

•·     School Facility Fee Down Payment Assistance Program (SFF)

These programs are being temporarily suspended as a result of the action taken by the Pooled Money Investment Board (PMIB) on December 17, 2008. The PMIB loans money to state agencies to advance program funds which will later be repaid through bond issuances. CalHFA uses a PMIB loan to initially fund its Conventional 30-Year Fixed Mortgage and down payment assistance programs.

The recent PMIB action froze all such PMIB loans. It is anticipated that this situation will continue until the State's budget crisis is resolved.

The PMIB will meet again in early January, 2009. At that time, they may receive information as to when these programs will be restored.

Of course this notice comes out after 5pm on Friday so there is no way for me to find out if loans currently in process are exempt from this freeze.  I would imagine they will be frozen as well, but I have not confirmed this.  For borrowers sake I sure hope not!

Will keep you posted!

4%!!!! What!

That is right!  For a couple hours yesterday afternoon we saw interest rates in the 4.5% range! Normally any time we see the Federal Reserve cut their Fed Funds Rate, as they did yesterday, the market does not always react the way consumers think. 

Remember that cutting the Fed Funds rates does not mean the interest rates suddenly drop for the typical mortgage.  In fact it often sends the market in a direction that results in slightly higher interest rates.  Then it takes a couple weeks for the market to settle down again and we begin to see reduced rates.

Well for a matter of hours yesterday we dipped our toes in the 4% interest rate pool!  Of course we were on the phone calling everyone we could so they can take advantage of the small window of opportunity.

Here are a couple of tips to make sure you are ready to strike if and when rates return to these levels:

1. Call your mortgage professional and find out what interest rate you need in order for a refi to make sense!
   They should be able to run the numbers for you to make sure you will benefit from the cost of the transaction (closing cost, title fees, etc.). A simple interest rate reduction is not the only indicator.
   
2. Find out what information they will need from you in case they need to lock your loan.
   Remember these discounted rates are often only available for a matter of hours. So unless you and your mortgage professional are prepared to act fast, you may loose your window.
   
3. Agree to an interest rate and cost ahead of time!
   This is what we are doing with our clients.  Once we have all of their information, we get really clear on what range of interest rate the client is looking for as well as fees.  This way we do not have to chase them down in the middle of the day trying to get an OK to lock their rate.  As soon as our Rate Alert System notifies us rates are in the target range...we LOCK LOCK LOCK!

In the past, there have been so many people locking loans when we see a big rate drop, the lender's systems are overloaded and crash. The quicker your mortgage professional can get you locked.. the more likely you will get the rate you want.

Save yourself some money by being prepared to pounce on the next rate dip! I hope these tips help you to do so!