We have all seen advertisements in newspapers, on TV, and on the Internet.  You hear them on the radio, get fliers in the mail and you may even get calls from telemarketers offering credit repair services. They all make similar claims:

• "Repair your Credit...No problem!"
• "Erase your bad credit -- 100% guaranteed."
• "Create a new credit identity"
• "Remove bankruptcies, liens, and bad loans forever!"
  
  Do yourself a favor and save some time and money. Don't believe these pie-in-the sky statements. Only time,personal debt repayment and the deletion of inaccurate items will improve your credit report.
  
  Deleting damaging credit or adding positive items is simply the process of disputing the inaccurate information in your credit file. 
  
  However, removing inaccurate or improving damaged credit can be very time consuming and frustrating.  So when most people learn it takes personal effort and persistence in dealing with the credit agencies and creditors they give up.  But why, your individual credit rating is one of your most important personal possessions.  It's the most important factor in obtaining new financing and the interest rates you receive on new and existing credit accounts. 
  
  Don't despair a credit remediation specialist can recognize what items you should address to increase your credit-worthiness at no-cost.  Often this includes identifying "good" credit that is not reporting correctly.

Avoid the pitfalls of greater damage by disputing, paying or closing the wrong accounts or paying a 3^rd-Party for "instant repair".  

Scams - Removing Bad Credit
Credit repair companies reach out to consumers with poor credit histories everyday. They promise to clean up your credit report so you can qualify for a car loan or a home mortgage. The truth is, many don't deliver on the promise of instant credit repair. Most times they will do nothing to improve your credit report and often decrease your scores in the short term.  Why waste hundreds or thousands of dollars in up-front fees,

Warning Signs
Beware of credit repair companies that:

• Require large fees upfront - prior to the service being provided;
• Fail to inform you that you can do yourself for free;
• Tell you not to contact a credit bureau directly;
• Ask you to apply for an Employer Identification Number or Tax ID  instead of your Social Security Number to obtain a new start;
• Tell you they will dispute all the information in your credit report.

While it may seem extreme to some, creating a "new" credit profile may be appealing to those with little hope.  Understand that you may be subject to prosecution if you provide false information or obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.

The Answer
No one can legally remove accurate and timely negative information from a credit report.  You can, however, dispute inaccurate information without any cost.  The Fair Credit Reporting Act states:

You can dispute mistakes or outdated items for free. Ask the credit reporting agency for a dispute form or submit your dispute in writing, along with any supporting documentation. 

Before you begin disputing items on your credit you may wish to consult a remediation specialist who will advise you on how to repair your own credit.  They will advise you on what you should and should not dispute. 

Many people actually decrease their credit scores by disputing the wrong accounts, paying off old collections and closing open accounts.
Make sure you understand the timeline you are working with to complete your credit repair.

Most credit repair companies focus on deleting bad credit and don't realize that a great percentage of credit reports include inaccuracies regarding the positive or good credit.  So other quick fix companies offer ways to add good credit to a credit profile almost instantly.

More Credit Scams - Adding Instant Good Credit

There several companies who will add seasoned "authorized user" trade lines to somebody's credit profile for large fees.  Yes you heard that correctly an individual with little or poor credit can BUY positive trade lines.  Visit the following providers for more details:

Raise Credit Score Now
Seasoned Trades
Instant Credit Builders

The fees for these trade line packages range from $1000 to $4000 depending on the number of trade lines, the credit limit and seasoning.  This practice, though "legal", is highly controversial to say the least as its impact unfairly influences (raises) the credit score.  It rewards buyers for positive credit experiences that the prospect did not actually participate in.  Lenders and CRA'S have adopted policies to minimize the effects of this type of activity.  Lenders may choose to ignore the accounts completely.  This would obviously be devastating to someone who spent $4000 to "buy" credit in an effort to obtain financing.

So if you wish to improve your credit score or assist someone who might benefit from legitimate credit repair efforts avoid the quick fix repair scams and consult a remediation specialist.  They can advise you on what to do yourself or recommend a legitimate credit repair firm that will save you both time and money in the long run. 

What is the best home loan? 

If you are uncertain about what the best home loan is many people will offer their opinion to help you decide. 
Friends, neighbors, co-workers and relatives will all offer different advice and help point out how to get it. 
Real estate professionals and loan originators will offer their opinions as well.      

With all these opinions is there one right answer...is there a best home loan?  Yes.

The best home loan is the one you qualify for based on your unique set of circumstances. 

It may not be the same your neighbors or relatives have personally or even recommend.  Or it may be the same type of loan others have but at a different interest rate or cost.  Why would you settle for something different or that cost more?  Simple, it's what you are approved for given your current needs and qualifications.  Well then, how do you determine what you will be approved for?

The three "C's" are still the determining factors in what most people will qualify for.

Credit - Primarily represented by your numerical credit score.  Your credit rating, a reflection of how you managed your past obligations, helps creditors determine your creditworthiness.    

Capacity - Your ability to repay the new loan obligation.  This is typically measured by your debt-to-income ratio (your total monthly debts relative to your gross monthly income).  The ratio is often offset by compensating factors such as assets, type of employment and time on the job.
 
Collateral - The subject property that will serve as collateral for the loan.  There are two important factors:  the equity in the property and the type of property.  Another factor is whether you intend to occupy the property as a primary or secondary residence or if it will be an investment property.

With all these factors how can you tell what you qualify for?

Move past the qualification stage and obtain an approval from a professional originator. 
They will verify your personal information: income, assets and credit. 
Furthermore, a professional will explore your intentions including your short and long term goals regarding the home and the mortgage financing. 

Your goals are discretionary questions that materially affect the underlying programs... 

How long do you plan to stay in the home (job transfer/children/cost)? 
Do you anticipate any change in income or credit rating - positive or negative (promotion/transfer/layoff/debts)? 
How can you be expected to know all these things?  You won't.  A professional originator will present several options that provide solutions for various scenarios.  An explanation of the resulting consequences with each option is warranted.     

For example, while most people prefer a fixed rate mortgage many times it's not the best option.  Lower monthly payment options are available with adjustable rate mortgages.  This is particularly true for those with credit challenges and First Time Home Buyers. 

Determine what is more important long term payment stability or lower initial payments (cash flow). 
Don't get me wrong there are no right or wrong answers only factors to consider prior to selecting a program. 

So, regardless of what you've heard about mortgage financing remember everybody has a truly unique situation. 
Make sure to obtain an approval based on your qualifications and explore all your options including the consequences.

My company offers its originators ongoing advice on Mortgage Fraud Prevention.
Here is detailed information on some of the various schemes prevalent in the real estate industry today that may benefit everybody.  Many of the six schemes identified below have been around in some form or another and are certainly not all inclusive - but are quite likely occurring in your market area.

1.  AIR LOANS: A swindler invents borrowers and properties to obtain loans. The perpetrator may set up phones  and pose as borrower, employer, appraiser and credit agency when the lender calls to verify employment, income and credit.

       RED FLAGS:  

       1. Application completed or forwarded by someone other than the borrower.

       2. Employment and address discrepancies between credit report and app  lication.

       4. Applicant requests to use their own appraiser

2.   SELLER BAILOUT:   A very common scheme in weak markets (values are soft or declining) where sellers (primarily builders and developers) are finding it difficult to sell their properties at the cost of construction or to obtain their expected equity.   Appraisers are recruited to over-appraise properties using older comps, etc.  Buyers are recruited to purchase properties at a higher sales price with significant cash kickbacks at closing to buyers.  These kickbacks may or may not be disclosed on the HUD I.  

       RED FLAGS

       1.  Buyers are not "typical" real estate investors and are not well informed on the details of the investment property they are purchasing.

       2.  Appraiser appears to be well connected to seller.

       3.  Documentation for loan may be atypical for a purchase transaction.

       4.  Financing denied by another lender and reason appears suspect.

       5.  Source of down payment may be not appropriately documented.

       6.  Unusual Inquiries to loan officers asking about policies on seller credits.

3.  CHUNKING: A swindler holds a seminar promising to show investors how to get rich buying property with no money down. Using the investors' personal information, the swindler submits multiple mortgage applications, pocketing the loan proceeds.  

     RED FLAGS:

1. Requests for fast closings on multiple loans.
2. Income appears inflated on stated income
3. Person other than borrower heavily involved in application process
4. Stated Assets or VODs used from one bank on multiple loans

4.  DOUBLE SALES: A swindler can record a deed, arrange a loan, and before those transactions show up in the computer, file another deed and arrange another loan.  Weeks can pass between the filing of a property record and its appearance in computerized registries used by title-search companies.

       RED FLAGS

       1.  Multiple new mortgage loans on credit report

       2.  Request for rush closing.

       3.  Unusual concern by borrower in details of mortgage process. 

5.  HOME IMPROVEMENT CONS: A contractor talks the homeowner into making costly or unnecessary repairs. The contractor loans the homeowner money for the job or steers him to a mortgage lender, then has the loan proceeds sent directly to the contractor. When the loan forecloses, the contractor can end up taking the house or part of the sale proceeds from it.

       RED FLAGS

       1.  Cash out proceeds where title company is directed by another entity to    pay proceeds of loan to someone other than the borrower.

       2.  Borrower does not appear well informed on reason for applying for loan.         May be elderly person with considerable equity in property.

6.  STRAW BUYER:  The swindler pays a person, often a friend or relative, for the use of his name and credit history to use in applying for a loan.  This is similar to an AIR LOAN but typically involves the borrower getting paid for the use of his/her name and credit history.

     RED FLAGS

1. Borrowers who appear to be "steered" by seller or realtor or another entity on all details of transaction.
2. Borrowers who appear to not ask typical questions or refer your questions to another party in the transaction.
3. Purpose for purchasing home appears to be atypical (not in borrower's area for investment purposes or in borrower's price range).

As elaborate as they may appear, most of these schemes become readily apparent when the Loan Officer asks the right questions during the interview process and follows up with the right questions when something does not appear legitimate. 

The challenge is identifying a conspiracy scheme when more than one person is involved particularly when they are industry professionals.  The best fraud artist is an industry player because they know how to manipulate the system.   

Everybody involved in a real estate transaction, professionals and consumers alike, should be mindful of these schemes and work to prevent fraud and protect the system.   

The Illinois Legislature's recent attempt to curb predatory lending practices, HB4050, was suspended after only five months.

On 1/19/07 the Secretary of the Illinois Department of Financial and Professional Regulation issued a directive canceling the Predatory Lending Database Pilot Program.  The statement indicated "the Secretary received and reviewed information that suggests that the prior designation may be detrimental to the pilot program's purpose, namely to curb predatory lending practices in areas with high rates of foreclosure on residential home mortgages".   

The Pilot Program required various Borrowers to submit to State regulated financial counseling for properties located in 10 designated zip codes in Chicago.  The counseling requirements caused great uncertainty for prospective Buyers/Sellers/Borrowers and real estate professionals including agents, lenders and title companies alike.

While the issue of predatory lending is very serious this legislative attempt was ill fated and may have caused more harm than benefit.

Hopefully, further legislative attempts will work to enforce existing regulations instead of impeding on an individual's right to privacy.  

There have been a number of recent posts that examine the relationship of Real Estate Agents who also perform mortgage origination duties.  I offered a detailed look at two legal interpretations in Realtor Loan Origination/Referral Compensation... and New York Broker Associate William Collins discussed the conflict of interest in Singularly Phenomenal.  These and other posts produced various responses regarding the subject.

But today I received a call from a new Realtor referral that really made me stop and think this issue is truly a problem (to me at least).  The Agent wanted to know about my company's Realtor Partner Program.  Unfortunately, they wanted to know if we offered one of those new programs that compensate the Agent for taking the client's loan application.  I explained that type of arrangement was neither available with my company nor as simple as just taking the application for a percentage of the fee. 

We had a casual discussion as to why they would want to participate in this type of program.  They emphasized since they controlled the Buyer they should be compensated. I told them most of these arrangements were certainly going to be challenged legally and looked down upon by many industry professionals.  They countered that some online mortgage companies offered compensation if the Agent did some of the loan work.  Finally, I think they were a little embarrassed when I informed them originators needed to be individually licensed by the State.  I realized it was not someone I wanted to work with even if they didn't expect some sort of compensation for referring a Buyer. 

This prompted me to follow up on this disturbing RESPA topic...

In summary there are 3 basic points regarding Agents who originate loans:

Legal compliance 
Agent/Originators must contend with the registration/licensure/continuing education for BOTH occupations.
In addition, they must meet the individual W2 employee requirements of working set hours in the lending office and the receipt of benefits.

Disclosure/Conflict of Interest 
Agent/Originators must properly disclose their relationship to the Buyer/Borrower.
They must zealously represent prospective clients from two perspective disciplines without conflict.

Competence
Agent/Originators must demonstrate the ability to perform two disciplines and maintain a level of competence.

As an aside I need to share a couple of my favorite stories regarding the proliferation of participants in the real estate industry over the past years.

I was taking a mortgage application one afternoon with a referral at a local diner.  The waitress overheard our conversation and proceeded to produce a business card and insisted on inquiring about the transaction indicating that she "did loans on the side".  Needless to say the Waitress/Originator did not much of a tip for that meal...

Another time I was riding in a taxi with a client on the way to a closing discussing their Agent's participation when the taxi driver pulled over to offer his business card as a Realtor.  Again, the Driver/Agent did not receive much of a tip and will not get any Buyer referrals as he unwittingly displayed his real estate insight.  

Finally, I'm sure there are individuals who are ready, willing and even able to undertake the necessary steps to act as both Agent and Originator - but I've always been told otherwise...Agents list/sell and Originators lend.

 

 

Eric Reeber provided an excellent topic in his recent Real Estate Blog - Mortgage Companies partnering up with Realtors... Legally? Or not? (Part 1) that produced a number of interesting comments.  One the comments debated, Realtor Loan Origination/Referral Compensation, requires further examination. 

There is a recent trend for Agents to seek and/or Mortgage professionals to offer compensation for "referrals" that falls within an exception of RESPA.  While the practice is not new the realities of a slowing real estate market have driven some participants to seek alternative revenue sources.  The guidelines surrounding the legality of the arrangement are fraught with uncertainty and remain a slippery slope. 

There is one basic way for Agents to be paid for their referrals that do not violate RESPA requirements.  The exception is payment for services actually rendered - originating the loan.  Let's examine this exception in greater detail.

In order to meet the services rendered test the Agent must take the loan application and perform five of the thirteen necessary mortgage origination functions.  Jonathan Goodman and David Farus, Colorado Real Estate attorneys, offer the guidance in their article RESPA Exception: Payment for Services Actually Rendered with the following.

"HUD has provided some guidance as to when it believes compensable services have been performed. In its Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, 64 F.R. 10080 (1999), HUD referenced its prior itemization of the following non-exhaustive list of services normally performed in the origination of a loan:

(a)  Taking information from the borrower and filling out the application;

(b)  Analyzing the prospective borrower's income and debts and pre-qualifying the prospective borrower to determine the maximum mortgage that the prospective borrower can afford;

(c)  Educating the prospective borrower in the home buying and financing process, advising the borrower bout the different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product;

(d)  Collecting financial information (tax returns, bank statements) and other related documents that are part of the application process;

(e)  Initiating/ordering VOEs (verifications of employment) and VODs (verifications of deposit);

(f)  Initiating/ordering request for mortgage and other loan verifications;

(g)  Initiating/ordering appraisals;

(h)  Initiating/ordering inspections or engineering reports;

(i)  Providing disclosures (truth in lending, good faith estimate, others) to the borrower;

(j)  Assisting the borrower in understanding and clearing credit problems;

(k)  Maintaining regular contact with the borrower, realtors, lender, between application and closing to appraise them of the status of the application and gather any additional information as needed;

(l)  Ordering legal documents;

(m)  Determining whether the property was located in a flood zone or ordering such service; and

(n)  Participating in the loan closing.

Statement of Policy 1999-1 went on to express HUD's opinion that compensable services would be performed if it were found that: (1) the lender's agent or contractor (the real estate broker in this context) took the application information (under item (a) above) and performed at least five additional items on the preceding list; and (2) the payment was not a fee given for steering a customer to a particular lender disguised as compensation for purported "counseling type" services (taking the application plus performing only the additional services identified in (b), (c), (d), (j) and (k) above).

    In addition, the regulations also provide:

When a person in a position to refer settlement service business, such as . . . [a] real estate broker or agent . . . receives a payment for providing additional settlement services as part of a real estate transaction, such payment must be for services that are actual, necessary and distinct from the primary services provided by such person. . . .

Even if compensable loan origination services have been actually performed by the real estate broker, however, that fact does not, by itself, make the contemplated payment legal. If the payment bears no reasonable relationship to the market value of the services provided, then the excess is not considered to be for services actually performed."

So it appears that even if the services are actually rendered by the Agent compensation still may not be warranted under HUD's interpretation of RESPA.

In order to better understand the RESPA exceptions and provide its members with guidance the NAR commissioned the opinion of RESPA expert, Philip Shulman, a Washington, D.C. attorney.  He provides his opinion on these actions and HUD's interpretation in laymen's terms with INTERNET-BASED LOAN ORIGINATION PROGRAMS OFFER REAL ESTATE AGENTS OPPORTUNITIES AND PITFALLS .... BEWARE OF RESPA.  Shulman also contends that even if the services are rendered by the Agent one of the challenges would be whether the Agent could be considered an employee of the Lender.  Specifically he states           

"The Internal Revenue Service sets strict standards for employment. Although HUD has never published criteria, it's likely the IRS rules would prevail. That means in order to be considered an employee, rather than an independent contractor, the agent/loan officer must: (1) be under the supervision and control of a lender's office; (2) use the lender's equipment; (3) have set hours; (4) receive a W-2 form; (5) receive standard employee benefits; and (6) have the lender be liable for the employee's conduct. That means that a real estate agent that becomes a "loan officer" only after selling a property, is unlikely to be considered a true employee, and therefore, would not be covered by the RESPA exemption."

In addition to meeting the employment and performance requirements illustrated by the preceding interpretations Agents will have to comply with Individual mortgage lending licensure.  The licensing and continuing education prerequisites vary by jurisdiction.

The exception does not allow government based mortgage programs such as FHA and VA.  Thus the client/borrower will be limited in the programs that will be offered by the Agent/Loan Officer.

Finally, there is the matter of disclosure to the client/borrower which must demonstrate there is no conflict of interest.  This will be difficult given the limit on programs available.
 
It's just my opinion but Agents list/sell and originators lend...comments welcome.    

What Realtors want...

I am looking forward to implementing a marketing plan to establish new relationships with Realtors for 2007.  Since the refinance boom is over I decided to research what Realtors want from mortgage providers.  I've gathered coupons for discounted food and beverages and stocked up on miscellaneous supplies from the local Costco warehouse.  These are some of the things marketing publications and mortgage industry experts offer as advice to help build Realtor relationships.  Here are the important things:

• Donuts and coffee for early morning cold call visits to the office
• Sandwiches and soda for afternoon cold call visits to the office
• Pizza and soda for evening cold call visits to the office
• Fruit and water for Open House visits on the weekends
• Rate Sheets for daily distribution via fax and email
• Calendars/Note Pads/Post-It Notes
• Pens/Key Chains/Letter Openers/etc
• Amortization Charts
• PMI Charts

All marketing pieces will be embossed with a personal photo and "Best Rates, Best Service 24/7" slogan with emphasis on availability including home/work/cell/pager/IM/home address contacts.

The experts emphasize delivering rate sheets and the assorted promotional gifts every day.
There is only one problem that I can see...When I will have time to originate loans?

All kidding aside, I recently relocated to a new market and would like advice on building relationships with new Realtor referral partners.  So I thought that I would consult the real experts...

                                    What do Realtors want?

What approach/quality/service/trait/attribute is appealing and would entice you to try a new lender?
More importantly, what do you dislike (aside from what's listed above) from current providers?

I moved from growing major metropolitan city (Chicago) to a declining mid-size market (Metro Detroit).
The greatest challenge is the local economy and the real estate markets are completely different.
 
My company has an excellent reputation in Chicago (recently voted the top lender by area Realtors).
But nobody has heard of the company in Michigan - no local presence and no reputation to build upon.

Any comments or suggestions are greatly appreciated for those new to the business or simply starting over...

Recently I read a terrific mortgage post about "Loan Surprises On Or Before Closing Should Not Happen" by George Souto from 11/28/06 when I found myself involved in a similar scenario.  My situation involved a recent refinance with last minute problems while George's post focused on closing issues for purchase transactions.    

I was the loan originator for a difficult cash-out refinance that needed to close by the year's end.  The purpose of the loan was to pay off a negotiated debt settlement and put the client into a fixed loan product.  I was referred to the client when a previous originator and the existing mortgage company could not complete the transaction.

Apparently they were unable to successfully negotiate the debt settlement to a number that would fit into an acceptable loan to value ratio.  The clients had been making payments on 2 homes for 16 months while trying to sell one of their homes.  Unfortunately, their obligations outside of the 2 mortgages became very delinquent.

We put together a program that fit the clients' needs, received a debt settlement agreement and obtained a U/W approval.  The loan was set to close on Friday 12/22, the last day of the month for a refinance to fund by month's end.  More importantly the loan needed to fund by year's end to satisfy the settlement agreement. 

The challenge arose when a new member of my team did not order the existing mortgage payoff until just before the closing was set.  I compounded the problem by not following up with the payoff personally to insure we would get the file to closing on time.  

The existing mortgage company (known for its option arms) has a policy to "back solicit" their existing clients whenever a payoff is ordered.  Don't get me wrong I too would try to retain my exiting clients if I was informed they were obtaining financing elsewhere.  So this lender requires 10 business days to process a payoff request.  Most companies process payoff requests within 1-2 days and some even within a few hours. 

Having been in the industry for a long time I had already prepared the client for this company's aggressive retention proposal.  I also made a point of counseling my new team member about the company's tactics.  Unfortunately, my team member tried to minimize these efforts by waiting to the last moment to order the mortgage payoff.  The result was a file that would not close because we did not have a payoff statement. 

Normally we would simply reschedule the closing until after the payoff was received.  But, in this particular instance, if we did not close and fund by 12/30 we would lose the settlement agreement.  I tried contacting the creditor to extend the agreement explaining that we were unable to obtain a payoff.  After 2 days of phone calls and pleas with management I realized that it was out of their hands and could not be extended.  Several good faith attempts to close the loan and satisfy a settlement by the previous originators limited the client's options.  The creditor was unwilling to extend the agreement and was out of options from a legal standpoint.        

So, I focused my attention on closing the loan without a payoff for the existing mortgage, which contained a prepayment penalty.  I obtained U/W approval to use the most recent statement, a copy of the existing note and prepayment rider to arrive at an acceptable escrow hold back to cover any unforeseen issues with the payoff.
The next step was to obtain approval from the closing department for the same issue.  That was fine until the title company wanted to establish a much greater escrow holdback that challenged an already tight deal. 
We eventually convinced the title company that we would make receipt of the payoff a funding condition and proceeded to draw the closing documents. 

Then magically, we received a copy of the payoff just before the closing.  Great everything was solved, right.  Wrong, we had to redraw the documents using the actual payoff numbers and push the closing back 2 hours.  The title company had difficulty accommodating the later closing time so we arranged for an after hour notary service.  The title company forwarded the documents to the notary who would go to the clients' home.

Well at least the file would close and the settlement agreement would fund in time and even though the closing would not be as smooth as usual the problem would be solved, right.  Wrong again, the notary had a challenge printing the closing documents and could not close the file before the client, a police officer, had to report to duty.  So at 6:15pm on the Friday of the Christmas holiday weekend the title company was able to track down another notary service in the next town over who would try to close the file at 10pm while the client was on his lunch break.

I was unable to contact the client who went out of town at 6am Saturday morning and do not know the final outcome as I never received the new notary's contact information either.  So because I did not follow through on one of the little details it takes to complete a smooth transaction I caused a lot of unnecessary complications.
I also took advantage of my relationship of the other parties involved who really chipped in to bail me out.

Perhaps the client will appreciate the effort in the end - but I'm not expecting many referrals.

Hopefully, everyone will learn from this and remember not to overlook the little details...

Happy Holidays!