Shopping mortgage ratescan be confusing, especially if you are dealing with a loan officer that has no integrity. It's just a sales job to them. You hear people say... Shop Rate...Shop APR (Annual Percentage Rate)….. Shop mortgage fees….. So which is it? Shopping for a mortgage can be very frustrating also to say the least. I hear so many called experts tell the average consumer to shop APR. This is not the wisest of decisions and can be argued by many professionals. Keep in mind, this is my opinion on this subject.
Lets add some more confusion. Most of us know what the rate is in regards to mortgages. Lets define rate and APR. Rate : A charge or payment calculated in relation to a particular sum or quantity: interest rates. (from answer.com) APR (Annual Percentage Rate) : Is the cost of your credit expressed as an annual rate. This is a federally required formula, designed to help the borrower compare the cost of credit. The APR rate is different from the note rate of your mortgage and is usually higher than the note rate. Why is this?
The APR rate is usually different than the mortgage rate because the APR includes certain fees which are calculated into the actual rate. The problem with this is that so many people tell you to use the APR as your measuring tool when shopping with other lenders. And each lender by law is suppose to send you a Truth in Lending disclosure which shows you the APR.
So why does comparing one companies APR with another can be misleading or incorrect? Because the lender is suppose to include certain fees in this calculation. Not only do some companies leave some of these fees out, but there are other fees that don't have to be included that some lenders might include and the rules are not clearly defined. Sound confusing? Yes and I will talk about this later.
So, what fees are included in the APR?
These fees are generally included :
Points – both origination and discount
Underwriting, loan processing, and document prep fees (these are generally true junk fees)
commitment fee
attorney and or title closing fees
PMI (private mortgage insurance) or MIP for FHA (Mortgage insurance premium) financed
Prepaid interest - Interest that is paid from the time that you close to the end of the month. The problem here is that some lenders put 1 day or 5 days down on your good faith estimate. Even if they don't know your closing date.
Sometimes included :
Application fee
Tax related service fee
Generally not included :
Appraisal fee
Credit report fee
Title fee
Recording fees
Conclusion : The overall function of the APR is to measure the ‘true cost’ of the loan. Its suppose to create fairness and a level playing field amongst other lenders. Getting back to why I think comparing APRs from different companies is a bad idea. As mentioned, some lenders don't know how to compute the APR. Others leave out certain fees that should be included. Lastly, many lenders use programs that help compute the APR and it doesn't matter if you are applying for a FHA loan or a conventional loan. Not all of these APR programs are the same. Blame this on the government for not making it all the same.
Another issue about the APR is that it's based on the length of that mortgage. If you are applying for a 30 year mortgage, it will be based on 365 months. Keeping in mind that the average person moves out of their house in 6.7 years and or would refinance their mortgage in 4 to 7 years. Overall, it's extremely rare that someone would keep that same mortgage for the length of that loan, the term of that mortgage.
My opinion? Use the TIL (Truth in Lending disclosure) as a helpful tool to ask questions why it might be higher or lower than another companies disclosure. But go back to the good faith estimate as your real tool. Why? Because all fees are supposed to be shown on this form. I would compare rate, term, and fees and here is a good example of this. Shopping Good Faith Estimates. (FYI - compare the same programs) Just one word of advice, not every loan officer will be truthful when it comes to the good faith estimate. Some lenders will not show all costs or confuse you by mixing up the different costs. *** And remember this, most of the costs are 3rd party charges which are estimates. You need to decipher what these are in order to shop accurately. Finding a trusted mortgage consultant is very important.
CONDO ALERT - Yes, condos have looked attractive to many borrowers of lately because they are dropping in price in several areas by more than a few dollars. But so many people are asking why Condos are more difficult to purchase now than ever before. And so many are complaining that lenders are being more difficult when purchasing condos. The main reason? Many condo associations are under water when it comes to the monthly dues that they collect. They are in the red... I know of one association that is over $50,000 in the red. By normal standards, the association is suppose to have 2 months or more in reserves per unit. Hence why it's been harder to get buyers a mortgage when there are no funds in the reserve account.
In any case, HUD just added a new mortgagee letter on June 12th, 2009... ML 2009-19. Condominium Approval Process
So, what does this all mean? The mortgagee letter, ML 2009-19, goes into effect on FHA loans with any FHA case number assigned on or after October 1, 2009. What is the biggest issue with this new mortgagee letter? The Spot Approval process as defined in Mortgage Letter 1996-41 is eliminated with issuance of this guidance. The DELRAP and HRAP processes have been streamlined to allow for uncomplicated condominium project approvals eliminating the need to approve units on a “spot loan” basis.
Overall, in laymens terms? Lenders won't be able to do 'spot approvals' of a condo unit. What they will still be able to do though is to approve a whole condo project. The mortgagee letter goes into more detail stating that only those lenders that have experience in condo project approvals should do this. In regards to Infinity Home Mortgage Company, we have a few underwriters with 15 + years of doing condo project approvals. And we will take this challenge and still approve condo projects. But HUD says that it can only be done 2 ways. Per the mortgagee letter, this is stated :
The Lender will have 2 options:
HUD Review and Approval Process (HRAP).
Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.
What type of projects are allowed under this new process?
Proposed/Under Construction;
Existing Construction; or
Conversions.
Conclusion : As mentioned, HUD states that only those lenders that have experience in the past should be doing these condo project approvals. Yes, they have streamlined the process to make it simpler. But taking away the spot approvals will add more time onto these approvals. I didn't want to bore anyone with the details of what is allowed, what is not allowed, and what the process is for these approvals. But it can be read in this mortgagee letter, ML 2009-19. Overall, FHA loans are very affordable and this news about spot approvals should not discourage any borrower.... but... be very careful about the association dues, because I have seen many more in recent months become more expensive, just because the lack of funds in the reserve accounts, which is needed for approval. And HUD will always be updated the Condo approval list. You can find out if your condo association is approved by clicking on this link. HUD condo approved list
Believe it or not, for many areas across the United States, in today's market, FHA mortgages seem to be about 50 percent of today's real estate transactions. What has bothered me since there aren't as many mortgage programs as outlets anymore, is that more and more lenders/loan officers are utilizing FHA loans now than ever before. And the crime to this surge of FHA loans is that more and more loan officers are just making up stuff that isn't even 1 percent true, just to get the borrower in the door.
What problems am I starting to notice or see on a monthly basis just in 2009 when it comes to FHA mortgages?
Origination Fee : I just wrote about this a few weeks ago, FHA origination fees. The loan officer told the borrower that half of the origination fee went to HUD/FHA. This is a complete lie by 110%. Don't walk from this kind of loan officer, but run very quickly.
FHA case number : I had a previous borrower told by a loan officer that they were working with that they couldn't start on the process of their loan until they had the FHA case number from the previous lender. Another complete lie. You don't need this case number even to start the appraisal or to even underwrite the loan. The appraiser would need the case number to complete the appraisal. And the lender would need it to close the loan.
Rate Lock : Don't lock into your rate now says the loan officer. The loan officer tells you that rates are going lower. Hhhhhmmmm... I wish I had that crystal ball. Maybe they feed this into your head, because they gave you a great rate while you were shopping, but that they might not be able to give you this rate later on. Hence why they said you should float. When comparing good faith estimates, you should always do this with everyone on the same day. But that is another topic that you should read about. : Please read : Good Faith Estimates
Monthly Mortgage Insurance : There are still some loan officers that will tell you that the monthly mortgage insurance for FHA loans, MMI, will stay on there for the life of the loan. They sometimes tell you this, because they are trying to make the conventional look better. Especially if they don't do FHA loans. But again, this is a complete lie, because this was changed over 5 years ago by HUD. It works the same as a conventional loan, if you put less than 20% down, that the MI will fall off when you hit the 78% LTV mark. You could always appeal it when you hit 80%.
FHA loans are harder: The FHA mortgages are harder or take much longer. Any loan takes about 3 to 4 weeks right now. Sure, I just did a FHA loan from start to finish in 9 business days. But a very good loan officer with great support can usually get things done quicker.
FHA appraisals are tougher : False... especially with the new HVCC guidelines for conventional appraisals. But even if it wasn't for that, HUD made less requirements when it comes to FHA appraisals. All of this changed over 8 years ago.
Conclusion : I am a firm believer in giving some people a second chance when it comes to some issues. But why would you give a loan officer a 2nd chance when they completely lie to you about the origination fee? Or anything else for that matter, that you can prove. We are talking about one of the biggest financial transactions of your life. There should be no second chance for this kind of example, no matter if the loan officer promises you a lower rate, a quick closing, etc, etc. Why play with fire, right?
Many of us know that if the home is not up to code, properly insulated, has a poor air conditioning unit or heater, that it could cost you more money monthly. And keep in mind, there is a longer list of items such as lighting, appliances, etc, etc, that could reduce your expenses. Overall, there are specific types of mortgages that allow you to incorporate the costs of these upgrades into your mortgage, without coming out of pocket with extra monies. And this can be done not only with purchases, but with refinances. And to answer the question, what kind of mortgages? This could take place with FHA loans, Conventional loans, and VA loans. But I am going to go over the particulars when using a FHA loan.
So what is the name used for this type of mortgage? EEM, better known as Energy Efficient Mortgages. Unless you are having a new home built that could be an energy efficient home, in many cases, the older home probably won't be up to the current standards, which could cost you hundreds of dollars monthly.
My question to you.... Are you part of the GREEN family now, because not only did you save money, improve your home, but because you are helping the environment? As stated above, this can be done without added expense, except for the home energy rating report.
Realtors - How about that this is a great way for you or a seller to market their home also. Especially for those homes that are 5 years or older.
HUD states that Congress started a pilot program in 1992 demonstrating the use of energy efficient mortgages, known as EEM's. (Energy Efficient Mortgages) FHA has adopted this into their financing options which allows a borrower to :
save money monthly
incorporate the improvement costs into the mortgage
these improvements are installed after the loan closes
this program allows you to use normal FHA guidelines with FHA mortgages
EEM's recognize that reduced utility expenses will allow a homeowner to pay a higher mortgage payment to cover the cost of the energy improvements that were financed into the mortgage. A main reason behind the EEM's program, it offers homeowners who couldn't initially afford the cost of these energy saving improvements out of pocket, giving them the chance to finance them. Thus cutting down on pollution and making the environment a better place to live. And why bring this up again? For 2 reasons.
Not everyone thinks about this or knows about these programs (and)
because HUD just released a new mortgagee letter on June 10th, 2009. - ML 2009-18 - The old way was not to exceed $8,000 or $4,000 of improvements, whichever was greater. Now HUD states that : The maximum amount of the portion of the EEM for energy improvements is the lesser of 5% of:
the value of the property, or
115% of the median area price of a single family dwelling, or
150% of the conforming Freddie Mac limit.
So overall, HUD increased the dollar amount that is allowed, depending on which category you fall into.
Eligibility Requirements
Properties that are eligible are One to Four unit existing and new construction properties.
Borrowers are approved through the normal FHA mortgage guidelines for obtaining a mortgage.
The cost of the energy-efficient improvements that may be eligible for financing into the mortgage is the lesser of 5 percent of the property's value, depending on 3 different equations. Please refer to these changes above.
To be eligible for this mortgage, the energy efficient-improvements must be cost effective, meaning that the total cost of improvements is less than the total present value of the energy saved.
The cost of the energy improvements and the energy savings must be determined by a home energy rating report which is done by a home energy rating system (HERS) or energy consultant. The HERS report usually costs from $150 to $350 and can be paid by the seller, the buyer, or sometimes included into the mortgage.
The energy improvements are installed after the loan closes. The money is placed into an escrow account and is released once an inspection verifies the improvements are completed and that the savings will be achieved.
Because of this program, the final loan amount can exceed the maximum mortgage limit by the amount of the energy-efficient improvements. Here is a list of the FHA max mortgage limits.
EXAMPLE :
XXXXXXXXXXXXXXXXXXX
New Home/Purchase Price
Same home w/ energy cost of improvements
Purchase Price
$250,000.00
$250,000.00
Loan Amount
$245,471.00
$253,471.00
Cost of Energy Improvements
$8,000.00
Monthly payment at 5.5% - 30 yr
$1,393.76
$1,439.18
Monthly Payment for electric/gas/ etc, etc
$375.00
$253.00
Total Monthly payment include (Mtg Payment & electric bill)
** -- Monthly payment does not include taxes or homeowners insurance. Just Principal & Interest (P & I)
*** -- Mortgage interest rate is just an average, depending today's market, points, and or costs.
**** -- As you can see, it's not a huge savings, but it does add up. Just in 1 year only you saved $918.96. And the cost of the energy improvements that were added onto your mortgage now become a tax write-off.
***** -- My examples in the cost of improvements and your monthly bills, will vary depending on several different factors.... such as age of air conditioner or heating, lighting fixtures, etc, etc. And also depending on what you pay per month. I only used these figures as examples.
Along with the FHA loans for these EEMS - Energy Efficient Mortgages, the VA(Veterans Administration) and FNMA / FHLMC also back these types of programs with their own guidelines.
For those of you who have lost your father in recent years, my heart goes out to you. I guess this Fathers Day is more special to me, because I have been blessed to be able to spend another father's day with my dad. And Google even did a nice job, expressing this special day. Considering that we have been spending the last 6 years down at the shore as a family. But probably not this year. The reason why later....
This was about how much my dad sacrificed for me and our family. My mom and I talked about this last week, while we were in the hospital. Which gets me to the current status of my dad.
A little over 2 weeks ago, my dad fell down the stairs. We are pretty sure it had nothing to do with age, considering that he is only 66, but that it was one of those silly accidents. He had a few headaches during the course of the week and by last Saturday, we were worried about him. He started to have slurred speech and more headaches. My mom was originally going to take him into see his doctor on Monday, but decided to go to the hospital that Saturday evening. She just told me that it was routine and that she would keep me posted. Well, I received a phone call at 1 am on the 14th, telling me that he needed emergency surgery. I rushed to the hospital to be with my mom and got to see my dad before he went into surgery.... just hoping and praying that all would go well. He had bleeding outside the brain.
Overall, the good news is that it was a successful surgey. He is able to talk and walk, but gets very tired at times. But he was able to come home late Friday afternoon. The sad part is that he can't drive for about 3 months, because he is on seisure medication. Which he had at the hospital late that night, while doing cat scans. And he can't play golf for the next several months. Hey, we all know that the biggest thing is that he is alive... that not only can we still be with him and enjoy his company, but that my nieces and nephews can still get to know their grandfather and be with him.
Now onto Father's Day.... that we can't play golf with my dad, my brother-in-law and myself. Yes, we usually try to do this most Father's Days of the past, but that has been the least on my mind. Just being with him, that he is alive, and that we sometimes take this for granted. I still can remember being in the hospital, with all the "what ifs" running through my mind. When I get back home tonight, I will insert an older picture from on the golf course with my dad. Something that I still hold dear to my heart.
In any case, some of you knew this from recent conversations or from my Facebook updates. I just wanted to give some of you an update. It's been tiresome, because I am a thinker and worrier, even when sleeping. I even woke up at 4:30 am this morning and just couldn't get back to sleep. I just wanted to thank you all again for your thoughts and prayers. And thanking those of you that have dropped of care packages for my mom and dad, since it's hard to cook and shop at this moment. But as I stated, I will be enjoying the U.S. Open with my dad today, another day with him. .... being very thankful and blessed. And asking for continued thoughts & prayers. thanks
PS... Happy Fathers Day to all you fathers out there...
And here is a nice trubute to a friend of mine's dad, Jason Sardi - Hey Dad, I love you
GOLF JOKE - from Matt Listro's blog - but it was for members only and I wanted to share it with everyone.
A man and a friend are playing golf one day.
One of the guys is about to chip onto the green when he sees a long funeral procession on the road next to the course. He stops in mid-swing, takes off his golf cap, closes his eyes, and bows down in prayer.
His friend says: 'Wow that is the most thoughtful and touching thing I have ever seen. You are truly a kind man.'
The man then replies: "Yeah, well, we were married 35 years."
PPS... ladies, don't shoot the messenger on this one.. ;o)
If you are a loan officer or a lender that uses deceiving practices, who lies, or who likes to commit fraud.... you better watch out. I haven't heard about this as much in the pass, but HUD seems to be cracking down on those lenders that abuse FHA loans and HUD's policys.
As a warning to others in the lending business, HUD made a press release on June 10th, 2009, stating 3 lenders that have been suspended by HUD. These 3 lenders were suspended for serious violations under HUD's regulations. This is directly from the press release....."The 3 mentioned were Golden First Mortgage Corp of Great Neck, NY; Great Country Mortgage Bankers, Inc. of Coral Gables, FL; and Beneficial Mortgage Corporation of San Juan, PR."
Yes, it's all about sales and for many, it's how you can rope in some borrowers to come to your company. I see it often and hear more about it through new clients that have been duped or lied to by other loan officers or lenders. But there should be some form of integrity, no matter how much you might have to sell. I truly believe in educating the borrower, giving them a good deal, and allowing them to make their decision then. Don't get me wrong, there are some very good loan officers that follow this same practice. But for some reason, I am getting more people this year that have had bad experiences than I did in previous years.
Overall, why is this? In my opinion, once supbrime mortgages left the market place and conventional loans became harder or more pricey in rate, many lenders applied for FHA approval. You can read about the 3 lenders and why they were suspended in this press release. HUD press release in suspending 3 lenders
Summary : I would love to see more actions taken amongst lenders and loan officers. The 3 lenders that were suspended were for other related actions outside of your normal bad business practices of lying and such. In what I call, the bad performance of a lender or loan officer, to where they either bait and switch, or that they just mess up a semi simple deal. And in some cases, that deal gets delayed and or very poor service is involved. Please read this blog for a few examples that have taken place amongst two new clients of mine. The further that I dig into the first one, they would have never come close to the settlement date, based on some hard core evidence that I found. In my opinion, the previous lender was going to miss the settlement date by at least 7 to 10 days. To me, that is just unacceptable, because there was no urgency in what they were trying to accomplish. Don't get me wrong, I do understand that things happen and can delay a settlement. But this was not the case. Please read about it here.... False information in regards to who gets the origination fee
Other HUD practices against unfair lending practices -
If the public and government ever needs to hear our voice, it's NOW !!! I never like to sound negative in my blogs, but we need to face reality. Yes, there are some reports saying that the economy is turning around. There are some reports that say that people are spending money. And even some realtors are saying that they are busier than ever before, in the last 4 months or year. But let's break down some of the reasons why it might seem positive, when overall, I believe that it's really bad out there. This is just my opinion.
Keep in mind, most of what is mentioned below would not cost the taxpayers extra money. So important.....
Real Estate is very local. Some markets are flourishing now, some are average, and some are just outright sluggish. Part of the problem is that many first time homebuyers can't buy, which doesn't allow for those that own a home to move up or out. I call this the ripple effect. I'll talk about this later.
The news reports that people are spending more money. Okay, but what about unemployment that might hit 10% very soon. What about the fact that many Americans just got their tax refunds back and might just be willing to spend it, rather than save. The summer and nicer weather makes many of us spend also.
Many companies reducing their prices, such as airlines and companies that book trips. People are using this to their advantage. Yet, specific foods are costing much more, which isn't mentioned often.
Let's not forget about the news. People report what they want us to hear in many cases. No matter if it's right or wrong. In other cases, realtors or loan officers are interviewed, giving misleading information. Or there are some that claim to be experts in their field, yet they have no clue in what they are talking about. I wrote about it here, "Hey media outlets, I am pissed."
Overall, we need to be heard, in regards to real estate solutions. Talk to those in the trenches and possibly help correct this mess.
Target Money - We need to create better outlets - Call to Action
- Foreclosures- We keep seeing more and more foreclosures and inventory that is not selling. We need to figure out a few programs to help get these foreclosures off the market. I talk about possibly using the seller-funded DPA's as a way to increase the purchases of foreclosures. Please read : Seller-Funded programs can work and have worked in the past.
What about using the $8,000 Tax Credit as a way to help curb the foreclosures. How allowing to get the whole tax credit and be able to use it as your down payment, if you by a foreclosure. How about increasing the first time homebuyers tax credit to $10,000 if you buy a foreclosure. And keep in mind that HUD has a $100 down payment program on all HUD programs. Why can't we make something like this work on foreclosures? At least try something.
- Investor properties- How about making better programs and giving incentives if you buy an investment property. Now, I am not talking about just anyone. You would need to have a proven track record when it comes to investment properties. There have been many realtors that have stated that rentals have picked up in certain areas. Beth Forbes wrote about how she solved the housing crisis. Explaining how we can turn around some of the real estate crisis by getting investors more involved.
- Seller funded down payment assistance programs and or 100% financing - Many of you will disagree with these statements, that we need to bring back seller-funded down payment assistance and or 100% financing. Sure, I will agree partially that buyers should have some skin in the game. But what about VA loans and USDA loans. They allow for 100% financing and they have a decent track record. I am currently working on some stats to prove this. As mentioned above, how about allowing some of the first time homebuyers tax creditbe used for the initial down payment. As of now, this is how the tax credit can be used. : Tax Credit can be used for partial down payment & closing costs.
HUD did try to get 100% financing approved, but congress shot it down. And HUD wanted seller-funded DPA's discontinued at the same time. I will agree, that with these types of loans comes higher risk. But many of the figures from the past were of those that had credit scores under 600. If we raise the standards and requirements on these kinds of programs, it will lower risk in my opinion. There is a main reason to these foreclosures, and it wasn't seller funded DPA's. Sure, some did foreclosure, but so did every other type of loan program. Besides, most FHA programs require 620 credit scores now anyhow. SO we can use this as a standard/guideline. And I would rather my client keep $3,000 to $5,000 in their pocket after closing, then dump it into the house. In my opinion, Lenn Harley did a great job in bringing up this point. And please read the 2nd comment. Please read : Skin in the game? WHo? Homebuyers or Wall Street?
Conclusion : Here is some information that doesn't get mentioned often. The tax credit being raised to $15,000, in my opinion, will not open up the real estate flood gates. Keep in mind, you need at least 3.5% of your own money for the down payment. Also, these tax credits will cost the tax payer money in the near future. Who do you think is paying for this kind of money being printed by the government.
Foreclosures, because of 100% financing? So many scream that you need skin in the game, money into the real estate transaction. This can be a matter of opinion, backed up by misleading information. Keep in mind, the subprime market and 100% subprime loans didn't help in many cases. Coupled with borrower who had low credit scores and who were assisted with such programs as the seller-funded down payment assistance. Let's look at the reality of this. People losing jobs is a huge reason to why people lose their homes and go into foreclosure. We can sit here and point fingers at so many issues, such as the DPA programs and or not putting skin into the transaction. People without income, just can't pay their bills.
Lastly, those that state that the current tax credit, and possibly raising the tax credit to $15,000, will boost the economy. That it will stimulate it immensely. Yes, it will help, but I don't think it will solve our real estate industry or help it as some think. As mentioned, we need to make the monies available upfront to be used as your initial downpayment.
My pleadge to you : I want to make this work, hoping to get some changes made in congress now. Not waiting for the economy to get worse. If you have other ideas or want to add to some of my ideas above, please list them in your comment. My goal is to get some loan officers, realtors, and politicians to meet at a round table in the next month, to possibly hear these thoughts and opinions. I am working on this and hope to get some big time media coverage for this event also. Anyone that has any contacts with both politicians or the media, please let me know. And anyone that might want to participate in this round table discussion, please let me know. My goal is to possibly hold something in D.C. in the next 3 weeks. thanks
Further thought & explanation - Matt Stigliano expanded on my post and we actually think a like. He did an excellent job at breaking down some of my thoughts and elaborating on them, expanding on them. Please read : Thoughts from a Round Table
It's time to have a quick class on FHA loans, the fees for FHA mortgages, and just a basic understanding on how all of this works. This is truly frustration on my part from some loan officers blatantly lying to borrowers, just to justify their fees and such. It's total BS and it needs to be talked about.
Just today, I spoke to a borrower that is having a concern with their 2nd lender, after the first lender failed them miserably. This lender is charging them 6.00% with 1 1/2 points as an origination fee. His credit scores are above 670 and the purchase price is $272,000 with the minimum down. And they are being charged a $495 commitment fee. With this scenario, they should be getting at least a 5.50% interest rate. Here is what they are being told.....
So here is the story of one borrower after speaking to their current loan officer. They were told that they are getting 6.00% and not 5.75%, because of his credit score of 670. Well, I don't know one investor as of 6/13/09 that would charge you 1/4% percent, let alone, a 1/4 point, for credit scores above 670. He was told it was because he didn't have a credit score of 700.
Secondly, he was told that out of the 1 1/2 points of the FHA origination fee, that a 1/2 a point goes to FHA and the other 1 pt goes to the lender that they are selling this too. Even if the other lender was collecting something, FHA or HUD doesn't collect origination fees. Sadly, this is the 3rd time just this year that I have heard a loan officer tell a borrower that part of the origination fee goes to FHA. Rut Row... see Pinocchio's nose on the loan officer? His nose should be much longer, because this is one of the biggest lies that I have heard. The commitment fee being charged? Very average in most csses.
So, let's define FHA origination fee or just origination fee. It is explained to be a fee charged for the processing of the loan application. This is even the same definition in the HUD buying handbook. The fee is often expressed as a percentage of the loan amount, which does vary among lenders. The basics behind this, no matter who gives what definition? It is a point to pay for your rate. Either the lender is buying your rate down, or using it for extra profit. In my example above, it is being used for a larger profit.
So, what does HUD/FHA collect on all FHA loans? Just the Upfront Mortgage Insurance Premium (MIP) and the monthly mortgage insurance MMI. The lender gets all other lender related closing costs. I hate saying this, but if a loan officer tells you that part of the origination fee goes to FHA, don't walk, run very quickly and far away. This is not my opinion, but a real cold hard fact.
Will the flood gates open for home sales? Through some news reports such as Bloomberg and other media outlets, those lawmakers in Congress are looking to change up the current $8,000 first time homebuyers tax credit that ends on November 31st, 2009. The new bill was introduced on June 10th, 2009, but pending. This could be some good news for more than just first time homebuyers. But I have a different opinion on just the basics, from raising the tax credit from $8,000 to $15,000. But what are the changes that are being talked about?
New proposed Tax Credit changes ....
The tax credit of $8,000 would be raised to $15,000
They would take away the income restrictions. The current income caps are : Single - $75,000 and Joint return - $150,000.
Making this available to anyone, even if you aren't a first time homebuyer.
Extending this for 1 year after the new bill becomes active.
Let's talk about this now..... I will agree that this could even help those that aren't first time homebuyers. It would help those that owned a home, that are upside down, who sell their home, yet have no money now.
Now, here is my problem about the current first time homebuyers tax credit or even if this is revived shortly. Yes, we will be printing more money then ever before, even from the last stimulus bill. Want I would like to see is the government and HUD put their heads together to come up with a plan to allow the homebuyer to use this money even for their initial 3.5% down payment. If you aren't sure what I am talking about, please read this. First time homebuyer tax credit approved by HUD to get the monies before settlement.
Conclusion: There are some that have argued with me that this new change, that HUD will allow you to get the monies before closing, to be used for part of your down payment and closing costs, will help a lot. I have been arguing this point 2 months after the $7,500 tax credit was approved in early 2008. My argument is that this will help some, a few, but not as many as the government projects or hopes that it will help. My argument? You need some of your own money first to be able to buy. Yes, you still would need 3.5% of your own money and in this economy, not everyone can save this in a timely manner. And many of these people that can't save adequately would still be good to excellent buyers... at least in my opinion, from 16 + years of lending.
Overall, if we could come up with a comprimise to allow all buyers to use this money even for their initial down payment, then that would open up the flood gates. People, keep in mind that we have the USDA loans and VA loans that allow 100% financing. This shouldn't be about having skin in the game, because these 2 programs have a good success rate. I will be writing about this over the weekend, my thoughts on what we can do, so please stay tuned for this. Thoughts? Opinions? thanks
PS..... UPDATE.... Per Lenn Harley's comment & Pat Kennedy's, don't get me wrong, I am not a big fan of printing all of this money. I have talked about this in such blogs as :
I need my quick fix now, please pass me that 4.5% rate now. - why we can't afford to keep lowering the interest rates, thinking that this will help now. This kind of thinking is just for consumer confidence, but will bury us in the very near future, which is mentioned in the next link below, inflation vs deflation.
Do you put 110% into your clients, yet you don't feel appreciated at times? Do you get beat up in this business? Do you feel like you spin your wheels, especially in today's market place? Overall, does your pain show, even when you think you have your happy face on?
Well, in the last 2 weeks, this has all happened to me one way or another. This post is not to brag about my ethics, how I treat clients, and that I feel that I am better than most when it comes to mortgages. But more so a form of therapy for me, which I wanted to share.
How many wear your heart on your sleeve? How many of you have a heart larger than life? How many of you have passion for what you do?
It was rewarding the other day, while speaking to a potential borrower, that she could tell that I have passion for what I do. But why the gloomy face in recent weeks? Feeling like I am lifeless, that I have lost that passion just recently. And because of this, I haven't blogged in the last 10 days or commented in the last 5 days. And because of two specific transactions, I haven't spelt well nor have I eaten as much. Yes people, I take this more than as a job, but as a part of my life. I love helping others, and even though some things happen out of my control, I feel like I have failed. Here are my reasons to why I have felt like this in recent weeks.
I have a borrower that was suppose to have closed on May 27th, 2009. We ran into an appraisal issue that had an AVM fail, not pass. This property is in a declining market. I called everyone, even the listing agent, on the 20th of May to tell them to schedule it for that Friday, the 29th. I have been doing this for over 16 years, and I believe in communication, even if it's bad news. Of course people were going to be mad, and that there were 3 other transactions involved. They finally agreed to this on the 22nd, but we still were having problems with the AVM. Let's define what an AVM is first.
AVM stands for Automated Valuation Model. It calculates value of a property, just like an appraisal does. It uses the MLS to find other properties that are related to the suject property. Many investors and warehouse lines are requiring AVm's now, especially in declining market areas. The problem with AVM's are that they aren't always as accurate and several of the properties are not tagged properly.
In any case, we even missed the 29th and I told them that I don't stop until a solution is figured out. As it stood, they would have to put down an additional 5%, which would have been $30,000 that they didn't have. I reached out to a few of my lender contacts and had someone that could help them. But they decided to use the listing agents recommendation. But as I mentioned, I still don't stop. As of Friday, we finally got the AVM overturned, after several reviews. The buyers decided to come back to me, because rates have climbed drastically. And even though I was 1/2 percent better, I didn't use this against my borrowers to charge them for what it cost me to extend their current rate of 4.75%. And this cost me a pretty penny, even though I am still making something on them. But I didn't use all of this to my advantage, so I would lose this money. My integrity and referrals means more. The overall picture? A happy client at the end.
My other closing? Another AVM issue that was on a property in Florida. The good news is that it's a Fannie Mae owned property. The property was originally being sold for $186,500, and was reduced to $170,000 by the AVM. Fannie Mae came back and accepted this price, which is even better for the buyer. But again, I had to extend the rate lock and I didn't charge the borrower for this.
Summary : Overall, more lessons were learned and it won't compromise my work ethics and how I treat people, even though I was yelled at and talked badly about. The first client, I was yelled at by the realtor for not returning a phone call the night before at 8 pm. Yes, these people involved where use to me calling and accepting calls at 10 pm. I do go beyond the call of duty. Yet, I can't be there 24/7... I do have a life and things do happen. If I don't pick up, it's for a reason. The example of the 2nd client? The realtor that was referred to me, who was in Arizona, because his wife had a co-worker that needed help in Florida? He e-mailed me, telling me that he was disappointed, because we had a closing issue. But the funny thing is that he jumped the gun, thinking that it was my fault. People, in both cases, these were issues not in my control. It wasn't a credit issue... it wasn't a credit issue. It wasn't a problem created by Jeff Belonger or Infinity Home Mortgage. I take too much pride in what I do to have those problems occur. But the bottom line, both deals are still closing.
Question to all of you in real estate and mortgages.... How do you set yourself apart from others? How do you handle adversity? I feel like I should be making $1,000,000 a year, because of my worth to my clients. But we all know that is not how it works in this business. I know a few loan officers that have tripled my income this year, and they truly suck at their job. But I can sleep at night. But as I mentioned, I didn't sleep for many nights, because I do care. Maybe too much... and it showed, because I had co-workers and friends bring this to my attention. Yes, I have a job to do, but I also have pride. And I don't accept failure, no matter who is at fault. Overall, I truly try to set clients expectations to a certain level, which I think is underrated when it comes to mortgages and how others make promises or guarantees, just to appease the people involved. Or, when a problem occurs, that it's not mentioned until the last minute. These are things that you won't get from me. That is my only guarantee......
I just want to educate people about mortgages and the process.
In regards to lending, I am very creative, intuitive, honest, and one who communicates information, may it be good or bad. I am a loan officer that looks out for your best interest.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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