Today, I'm completing my mandatory 20 hours of "pre-licensure" education in the mortgage industry, even though I've been a professional in the New Hampshire mortgage industry for 6 years; was awarded the Mortgage Bankers and Brokers Association in NH's President's Award in my second year; completed (and then helped to develop) the MBBA's educational courses, totaling over 30 hours of history, mechanics, products and process when I entered the industry. I expect to have completed the requirements for MBBA-NH's Certified Mortgage Professional - their highest level of certification - by the end of the year, and am scheduling the test to get certified by the National Association of Mortgage Brokers.

But according to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, ALL mortgage professionals who do not work for a depository bank, are required to take a 20 hour "core pre-licensure" course. That's Mortgage Origination 101. I'm learning how to calculate the loan to value of an $80,000 on a $100,000 purchase. With a calculator. It's painiful.

When I started in this business, qualification and training consisted of "Congradulations! You're a Loan Officer. There is your phone. Now get busy."

As a professional in a complex field, I completely support licensing. I completely support required education to maintain that license. I question the efficiency of the current registry system (even the web site is a navigation disaster) but I applaud the intent. Realtors need a license. Financial advisors and insurance salespeople need a tough license. To think that people with no qualifications could become loan officers is sad, and I'm glad we're looking to fix that.

But under today's rules, a professional with 20 years in the business, who owns his own mortgage company, has been responsible, ethical, honest and professional (which is why he's survived for 20 years) needs to take 20 hours of Origination 101, pass a national licensing test (which is fair) and then take a separate state test for EVERY state he plans to conduct business in. Here in New England, that's easily ME, NH, VT, MA, CT and RI for a total of 7 exams just to continue to originate loans in the northeast. There are no exceptions to this.

Unless you're working at a Big Bank. So long as your bank holds deposits, offers checking and savings etc, you're required to register with the national system - and then stop. So the person staffing the "lending center" down on the corner at a national Bank is presumed safe and competent to lend in all 50 states, without a background check, or licensure, or required education, or any more expertise than was required to be hired for the job.

Before you pick up and call the 800 number on your bank statement looking for a new mortgage and speak with an operator in Texas (hopefully) about your new home in Concord, NH or anywhere else consider this: your local mortgage broker is better educated, more thoroughly screened, and has stricter professional requirements than your bank.  If that's important to you, you should feel very SAFE working with a specialized mortgage company

Just the other night, I watched Jon Stewart’s Daily Show report on the economy. He was berating the networks for interrupting David Blaine’s latest stunt, the “Dive of Death” with breaking news about the American economy’s, well, “Dive of Death.”

Like so much financial news lately, I wanted to laugh, but had a hard time bringing myself to do so. Every day I’m answering a few phone calls from friends and past clients, all asking the same thing “What the (heck) is going on?”

Two years ago, near the beginning of the Mortgage Meltdown, a retired banking industry friend of mine explained a concept to me: there is no such thing as money.

There used to be. It was backed by precious metals. Today, we all exchange credit. Since US credit (in the form of 5’s 10’s and 20’s) is universally accepted, this sci-fi money system has worked pretty well for us. In the past two years, we’ve seen what can happen when the availability of credit shifts. The current economic crisis didn’t begin as a meltdown – just a liquidity problem.

Many mortgage lenders weren’t lending money. When you arrived at the closing to buy your home, there was a check there from the “lender”, but they borrowed that money from someone else. A big middle-man lender like American Home would have had huge reserves of credit, but modest reserves of cash. After the closing, they sold the asset that was the mortgage, paid off their credit line, and then had room to lend more money. When Wall St investors started to see the housing market current change, they weren’t willing to buy these mortgages any more. That meant the mortgage lender couldn’t profit on the sale of the loan, or repay their credit line, or have more “money” to lend. So, Lender goes out of business, news headlines flash and Wall St investors get nervous and buy fewer loans.

What we face today is the same problem on a larger scale. I can’t say what started the circle – the housing market, the credit cycle, weakened dollar or something else. The Big Investment Banks who are dying like Mayflies are a delayed reaction to the Meltdown of 06-07. The people who were lending the credit to the people who were lending credit to you and I have now run out of credit. No “money” to lend slows buying. Fewer sales (of anything) means lost jobs. Lost jobs means more people who have to buy with credit – which they can’t get, so they don’t buy...

I have yet to hear a very convincing argument that $700 billion will somehow solve the problem. Maybe that’s enough. Maybe there isn’t a number big enough to “cure” us. As a good free market guy, I suspect that eventually a lender is going to look at the landscape and think “You know what, it’s a risk, but I think I can make some money here,” loosen a lending guideline, and others will follow.

The truth is that mortgage financing is as available as it’s been all year, and is still FAR more available to more people than it was 10 years ago. Yes, there are more rules and fewer options than we’re used to, and there are “risk based pricing” adjustments, and we’re all about to be on the hook for some $700B in mortgage securities. But for people who can prove they qualify, we still have credit to lend.

It’s all true. Mortgage interest rates are once again nearly as low as they have been ever. If you’re looking for a new mortgage, that’s great news. Even if you’ve only had your current loan for a year or two, now might be a great time to take advantage of some of the lowest rates in history. But maybe you’d prefer a rate that’s a little higher.

Mortgage planning is often long term planning for the short term. If you know how the system works, you can make better choices.   

Today, I spoke with several past clients and told them “Today is the day. With rates as low as they are, now is the time to refinance. We have two options that will save you money, and we can look at others if you like.”

Option 1:

We originate and close a “regular” refinance. We reduce your rate by .5, which will save you $65 each month.
 

Option 2:

We originate and close a “freefi.” We reduce your rate by .25 which still saves you  $32 each month, but I’ll pay all your closing costs, so the loan costs you nothing.

 

If rates are so low today, why would you want something that isn’t the best?

Let’s say the “regular” refi costs $2200, which is normally added to your loan balance. At $65 per month, it would take you 34 months to save more than you’ve spent. If you expect to be in the loan for more than three years, this option makes good financial sense. 

On the “freefi” you need to be in the loan 1 month to save more than you’ve spent.

At the end of the day, your rate is just a number. It gives you something to brag about at cocktail parties, and then compare the lies other will tell you about their interest rates. Sad truth, if you asked 100 the terms of their mortgage, more would be wrong than right. Understand where your break even point is for any refinance: 

Cost/Monthly Savings = months to break even.

If that number is too long for your comfort level, DON’T DO IT! A 3 year break even is common and may make sense. A 5 year break even (or longer) is just too long for many people, and I won’t usually recommend them. If a slightly higher rate has a much shorter break even period, it may make more sense in your case. If your originator is dangling the Total Interest Savings over 30 years, but you have a major life change expected in the next 6, the 30 year savings doesn’t matter much. Lying with Numbers is common in the lending industry. Know your numbers, your facts, and your needs. Find someone who will ask the questions necessary to get you to those answers, and when you’re satisfied with the results, take them. 

When shopping, think CRISP: Communication, Rate, Integrity and Smooth Process. Of course the rate matters, but don’t settle on a figure that “sounds great”.  Find a professional who you believe will guide you through all 4 elements of a good transaction, and give you the loan that’s right for you, and visit www.whyamortgagebroker.com.

 

If you’re looking for a new mortgage, you have hundreds of phone numbers in New Hampshire alone that you could call looking for information. Every other page on the internet contains a blinking link for mortgage services, each one with lower advertised rates and wilder savings than the last. Do you ever feel like you’re getting a hard sell to “just sign here” and hope the advice your neighbor gave you will work for you? If you arm yourself with a few facts about mortgage industry, you can start learning what to look for while shopping for a mortgage – and what to look out for.

Part 1: Low Rate, Low Cost Guarantees

Part 2: The Lowest Rate is the Best Loan (or Rate Doesn't Matter) 

Part 3. Since you’re already a customer, the local bank has the best deal.

There was a time when all banks offered the same mortgage…

The vast majority of mortgages today are designed to be sold after closing. To do this, they must meet certain market standards. If a loan qualifies for this “A” pool, or for the A-, B, C or D market pools, then chances are the lender will get the money it lends you from the same place: the securities market. So the community bank, local branch of a national bank, a private mortgage lender or broker all have access to the same pools of money. The 30 year fixed rate offered by your local bank is the same loan that every lender can offer you. The real variable is the rate they are willing to give at their price, and what level of expertise the originator can offer you.

Every bank offers a menu of mortgage options, and some banks offer more than others. But not every bank can offer every product, and they might be more competitive in one area than another, no matter how big they are. In these cases, a mortgage broker – someone who can explore the programs of dozens of banks for you, might be able to find a solution better suited to your needs, and at a very competitive price.

Speaking of price, many banks originate loans at a flat commission, so you get the same loan if you have no accounts there, or have been a loyal customer for 50 years. If the loan is designed to meet market guidelines, there are no special rules for other holdings.

 

When shopping, think CRISP: Communication, Rate, Integrity and Smooth Process. The "best" price available doesn't do you much good if your lender can't close the loan (for whatever reason). If 9-5 doesn't fit your schedule or your needs fit just outside the guidelines box, the process might not flow like you need.  Find a professional who you believe can deliver all 4 elements of a good transaction.

Stay Tuned for Lie #4 - If you’ve signed an application, it’s too late to change now, and visit www.whyamortgagebroker.com to learn more about why you should choose a mortgage broker.

 

If you’re looking for a new mortgage, you have hundreds of phone numbers in New Hampshire alone that you could call looking for information. Every other page on the internet contains a blinking link for mortgage services, each one with lower advertised rates and wilder savings than the last. Do you ever feel like you’re getting a hard sell to “just sign here” and hope the advice your neighbor gave you will work for you? If you arm yourself with a few facts about mortgage industry, you can start learning what to look for while shopping for a mortgage – and what to look out for.

This is part 2 of a 5 part series. Part 1 can be viewed here.

2. The Lowest Rate is the Best Loan (or Rate Doesn’t Matter)

People shop for rates, but what almost everyone is really concerned about is payment.

There was a time when all banks offered the same mortgage: a 20% down fixed rate. Shopping by rate might have made  sense then, since all mortgages came with the same terms. Today, there are hundreds of variations on a home loan – 10-50 year amortizations, fixed and adjustable second mortgages, long term fixed rates and monthly ARMs.

Of course the rate matters. When comparing two identical loans with identical costs, the rate might be the only difference. But consider what is really important to your financial needs. Longer terms have higher rates, but the monthly payment is lower. What could you do with an extra $200 a month? If you’re refinancing and paying off bills that save you $800 a month, does it matter that the rate on your mortgage is increasing .25%? Is a lower rate worth paying higher closing costs, or is a higher rate at a lower cost important, and do you know when it matters? Loans without PMI come at a higher rate, but the monthly payment is usually much lower. Many people shop for mortgages based only on rates and fees, but what they are really concerned with is the payment each month, and the rate is only a small part of that.

When shopping, think CRISP: Communication, Rate, Integrity and Smooth Process. Yes the rate matters, but don’t settle. Find a professional who you believe can deliver all 4 elements of a good transaction, and explain why other options may make sense.

Stay Tuned for Lie #3 - Since you’re already a customer, the local bank has the best deal, and visit www.whyamortgagebroker.com.

If you’re looking for a new mortgage, you have hundreds of  phone numbers in New Hampshire alone that you could call looking for information. Every other page on the internet contains a blinking link for mortgage services, each one with lower advertised rates and wilder savings than the last. Do you ever feel like you’re getting a hard sell to “just sign here” and hope the advice your neighbor gave you will work for you? If you arm yourself with a few facts about mortgage industry, you can start learning what to look for while shopping for a mortgage – and what to look out for.

1. The Low Rate/Cost Guarantee

Every mortgage lender in America has one. The truth is that rates don’t change: the price of a rate changes, sometimes several times in a day. So the rate a lender will offer you depends on the price they are willing to accept, and you can always buy down to a lower rate. With all of the competition in the industry, even if you could find the lender offering the lowest rate in the universe right now, you can bet that another lender will undercut them later that day.  By the time you called each of the thousands of mortgage originators in your state, the lowest rate you found wouldn’t be the lowest anymore.

The low cost guarantee exists to assure the 48% of people who only get one quote that there isn’t any need to continue shopping – and if you do make another call and find another lender willing to work for less, the guarantee encourages you to contact your first lender again and give them the chance beat the offer they made you in the first place.

Did you know that you’re entitled to know what percentage your loan originator is working for? Two to three percent commission is common, and the 2% rate at one lender might be slightly different at another. This includes both the points you pay and any Premium being received. If you’re paying your originator much more than 3%, ask why. And if they refuse to disclose their commission, wonder why.

When shopping, think CRISP: Communication, Rate, Integrity and Smooth Process. Yes the rate matters, but don’t settle.  Find a professional who you believe can deliver all 4 elements of a good transaction.

Stay Tuned for Lie #2 - The Lowest Rate is the Best Loan (or Rate Doesn’t Matter) and visit www.whyamortgagebroker.com.  

More good news! It’s about time we started saying it. Our industry has taken an image beating in 2007. I’ve just launched www.whyamortgagebroker.com. I’ve tried to make it a site about facts, not sales.

I’d like to explain how loan originators get paid. There are a few white hot buzz words in the media that appear in every story about the mortgage industry. Among those are “Sub-Prime,” “Meltdown” and “Yield Spread Premium” or YSP. Since the wicked mortgage brokers who steer good people into sub-prime loans are in search of a fat paycheck in the form of YSP, we are all directly responsible for the Meltdown. 

That makes a great sound byte. It covers the who, what and how of the current crisis. The Mortgage Broker in the Library with the Lead Pipe…

An excerpt from a Boston Globe column on 10/2/07 by Elizabeth Warren: “… a family that might qualify for a 6.5 percent fixed-rate, 30-year mortgage could easily end up with a 9.5 percent variable mortgage because the broker can pocket a bigger fee. The ultimate blow is that often the buyer who has been defrauded will end up paying the bribe as additional "points" added to the closing costs.”

Clearly, the author is familiar with terms like “bribe” and “kickback” (she used them frequently) but not “wholesale” or “investment risk,” or pricing on sub-prime loans for that matter (which was never better than conventional lending).

On any transaction, the mortgage company can be paid by the borrower, the lender, or a combination of the two. Every day, each lender has a rate priced at Par. At that rate, the lender collects nothing, and pays nothing. It’s the true wholesale price. If a borrower selects a rate below par, they need to buy the difference, and the borrower pays the mortgage company’s commission in the form of points. If the borrower selects a rate above par, the lender pays the difference to the mortgage company, reducing or eliminating the borrower’s closing costs.

Mortgage Brokers deal with wholesale rates. The money paid by the lender to the Broker is called Yield Spread Premium, and is disclosed on the Good Faith Estimate from day one. When dealing with a lender, that money is called Service Release Premium. It isn’t disclosed anywhere, ever, because Lenders work with retail rates, not wholesale.  It’s the same amount of money, paid to the originator in the same way, but since the money changes hands after the closing, it isn’t part of the transaction.

When you go to the mall and purchase a sweater the mall, you’re buying at retail. The mall doesn’t disclose what it paid at wholesale – you understand that markup occurred, but the difference isn’t spelled out. If you don’t like to pay retail, you join a big warehouse club. The prices you pay there are somewhat lower, but you pay an annual membership fee to get them. Mortgage Brokers give borrowers the flexibility to chose which pricing model they prefer. 

Premiums – both yield spread and service release - are the tool we use to give clients low and no cost mortgages – the lender pays enough Premium to cover the commission and other closing costs, but at a slightly higher rate. If a borrower prefers a lower rate, it is always available – just at a higher comparative cost.

When I meet with a new client, part of the initial interview includes an explanation of how I get paid. By law, it has to. I tell them “Since I am a Mortgage Broker, I get compensated one of two ways - lenders offer me rates at wholesale, so that I can offer them to you at something less than retail, and the bank will pay Radiant Mortgage. Or you can select a lower rate, and pay a little more at closing. It makes no difference to us which option you choose, and I will show you examples of both when we are ready to lock your rate. Does that sound fair?”

I’ve never been told no.

The lenders who advertise no closing cost loans on TV aren't also giving the client the "best rate they qualify for." If you qualify for 6%, then clearly you qualify for 5.5%. Without YSP, the rates you'd get from a Broker would ALWAYS be much lower than the local bank, but the cost would always be higher. Different borrowers have different needs. Premiums give mortgage companies - both Brokers and Lenders - the flexibility to give the client the right combination of options for them, without resorting to the Rope in the Kitchen with Col. Mustard. 

It's Funny - I don't feel like I'm evil, but CNN can't be wrong.

I lost a loan the other day. Now that happens sometimes, no matter who you are. Good loan applications go bad for any number of reasons. But this one really stung. They were a referral from a good Realtor partner of mine. A+ home buyers with great credit, money in the bank, solid jobs and very little debt. I’d met with them months ago for a real sit-down pre-approval. Since then, I spoke with them every couple of weeks during their home search. I sent them email messages with “here’s what you should know while shopping for and buying your first home” messages. I really took part in their quest for the right home. Then they found it.

“Terrific!” I tell them. “I’m going to mail you a fresh application, with the correct purchase price, property address etc. I just need you to sign it and get it back to me. I’ll get the rate locked and the lender ready.” Easy file, easy approval, easy closing.  Even the appraisal came back shining.

Then nothing. No return mail, no phone call, no response to my messages, no communication with the Realtor. Nothing.

Finally, I catch him on the phone. They’re going with Wells Fargo. “Is there something I did wrong?” I asked. “Or something I didn’t do that I should have?”

He assured me that I had exceeded every expectation. I’d been very helpful, thank you very much. But he’s been watching the news, and hearing that lenders were closing left and right, people weren’t able to close because the finding disappeared and so forth. He just felt more comfortable working with a larger mortgage company. Forget that the rate was higher. Or the costs were higher. Or that by not taking advantage of every structural option to get the payment down, he’d be paying $107 a month more with the Wells loan. He was scared, and just felt better working with them.

I don’t blame him. He’s right to be concerned. There are stories of people left high and dry by their lender.

I don’t blame the Wells rep. I know she banged the “We’re the second largest lender in the country, so you know you’re in good hands,” drum for all it was worth. She isn’t wrong, and this particular loan could be closed anywhere. I'll overlook the fact that I was funding the loan with an international banking institution.

I blame CNN. And Bloomberg. And CNBC, and WSJ and a hundred other media outlets, including my own local paper who tells me how evil I am as a mortgage broker. I did, after all, create the lending mess we're all in personally.

If the push by “experts” is to move consumers into the safe haven of big lenders, and away from the sinister brokers who have caused the credit/liquidity/housing crisis, then why is he paying over $100 a month more, for the same loan terms with a Big Bank?

Well done, consumer advocates in Washington. Score another one for the good guys.

  

This is the Lender's portion of our seminar series, "Everything You Didn't Know about Condominium Associations," Hosted by Joan Mirantz of Keeler Family Realtors, Monika Rifenburgh of Exact Property Management, and myself. Joan has provided  Realtor perspective on the central New Hampshire condo market.  Monika spoke directly on the how's and what's of condo associations.

When most people think of a condo here in NH, they usually think of rows of townhouses. But the term condominium doesn’t actually refer to the unit of the property, but the legal and ownership status of the entire condo project. A condo certainly can be rows of townhouses, but it can also be a community of cottages, or one floor of what used to be a 3 family home, or a converted apartment building. The actual description of what any given condo project is, is up to the documents established when the project was started. So it isn’t the shape of a condo that makes it a little different from non-condo housing, but the way the property is owned.  That’s why buying a condo can be more complicated than a sales price and square footage.

When you buy a house, you have complete ownership and responsibility for the building and the property it sits on. When you buy a condo, you are a “share holder” in all of the structures and common areas: the pool, the parking lot, the buildings etc, but you don’t actually own anything except the space between the walls and below the roof of your unit. Rather than trying to figure out which owners are responsible for  things like trash pickup, snow removal and pool maintenance, all condos have a governing body, called the Association, to help manage the daily tasks required to keep the entire project running. This shared ownership makes sure that essential tasks for the good of the community are being done, but it also creates some issues that can affect your financing, and you as an owner. My aim this evening is to highlight a few of these areas that your lender may need to look at.

Here are some questions that may come up when financing a condo. They won’t happen on every loan, for every borrower, for every unit, but depending on the lender, the borrower or the project, any or all might become an issue. This is not meant to be an exercise in lending guidelines. Lenders are concerned about the answers to these questions because they can affect the stability, desirability and resale ability of a given condo unit. Since it matters to me, the lender, it should matter to you, the owner as well. If you’re aware of what makes a condo “safe” for the bank, it can help you evaluate whether or not it is “safe” for you. 

1. Is the project complete, is the phase complete? If you’re buying unit number 1 in a row of 5 townhomes, and units 4 and 5 aren’t complete yet, that’s a problem. If all the units are built but the clubhouse that is described in the condo docs hasn’t been built, you might want to know about that.

2. Who controls the association? In any new condo project’s life, the builder/developer is the association until a certain number of units are sold. Then control is handed over to the unit owners. If this step hasn’t occurred, you have little to no say about what happens with your association fees, what work is or isn’t done, or where the money goes. It’s classic taxation without representation. People revolt over things like that.

3. What percentage of people who own units actually live in the units? We call this investor concentration. If all of your neighbors are renting from the owner who lives in New Jersey, they won’t have your interests at heart. Your neighbors will treat the property like they rent it, and your peers in the association might not even know what is going on day to day in the project. You’re voting with people who don’t have as much at stake as you do. Likewise, if any one owner has more than 10% of the total units in a project, the association can quickly turn from a democracy to a monarchy, and you won’t have any say in the matter.

4. Review the condo bylaws and budget. Are there restrictions on who can buy a unit? If you’re planning to sell in the next few years, are you limited to buyers over 55? Or people without dogs? Or left handed plumbers who read Danielle Steele novels? Has the association planned ahead with enough funds to perform emergency maintenance? Is the master insurance adequate to cover a big loss. Just because you pay your fees on time every month, if you’re the only one, and the association budget breaks, you don’t get priority treatment.

Here’s a quick story of a condo I financed for a young local couple last year. The condo was a 5 family apartment building that was being remodeled and each unit sold as a condo. The owner had sold one unit, and this couple was buying number two. The other 3 units were empty. The association was the owner – he owned 3 of the 5 units. Shortly after this couple bought their unit, the owner left the country. Now there is no association, no guarantee that anything was going to get done, and no clear vision of what might happen. The other 3 units were rented out, and are currently being auctioned off by the bank.

Now the couple is secure in their condo. They can’t be kicked out as long as the mortgage is paid. But they have no guarantees about what’s going to happen, who is going to be their neighbors, what bills will get paid or anything else. Financing this property was tricky even when there was a clear plan as to who was responsible for what, exactly because of association ownership and control. After the loan closed is when everything became far more complicated. It had nothing to do with the property, and everything to do with the association - the quality if which doesn't have an entry in MLS.

OK, I'm well behind the Blog curve here, but here's a quick one I actually have a written opinion about.

A couple of weeks ago, a Realtor friend of mine (and ActiveRain peer) forwarded me the

Top Ten Indicators a Mortgage Lender May be Going Out of Business - thank you Michael.

She introduced the email with "I think this is supposed to be funny," and in some ways it is. Unfortunately, it also reads like a medical chart. On 4/6/07 one of my Big Bank non-prime reps was in. “We made all our changes in February, and most of them were just common sense adjustments.” He was right.

Three days later, I received an email from the same lender, comparing the guidelines of 2/19 to 4/9. No more 100% financing, higher minimum credit scores, lower loan to values, can’t verify income? No problem, just have more down, great credit and 2 months of payments in the bank.

Now, none of this is unreasonable in the history of mortgage lending. It really is just a reaction to the crazy loose guidelines of the past few years. And no, this Big Bank is NOT going out of business. But it shows that even the largest lenders are affected, and the companies who were mostly or completely non-prime business all seem on the brink. Every few weeks another lender that I have worked is declared dead.

THAT being said, 100% financing does still exist, and at VERY fair terms. I often describe the approval as a 4 way balance scale. Underwriters look at credit, assets, income/debt and property to approve a loan. If one corner is a little weak but the others are strong, we’re still ok – it all balances out. If 2 or 3 corners are in trouble, the whole file is – far more so than it was a few months ago. 

In November 2006,  a borrower with a 586 credit score, no more than one late mortgage payment in the last year, and $10,000 in collections could  buy a house,  finance  100% of the  sales price, and get the seller to pay for closing costs. So at closing, that borrower would get the keys, a mortgage, and $200 in cash.

That this person can't get those terms anymore is probably good for the market. Better borrowers means fewer foreclosures, means maintained property values. But for the group of people who are on the rebound from a bad credit experience, and are doing everything correctly right now, it often means they are further away from a mortgage than they used to be. For people in adjusting ARM's who can't qualify for a refinance yet, it could mean disaster.