Monday, August 6, 2012

Mortgage lending and things you should know

  If you are thinking of buying or refinancing or just looking to give some advice to a friend or family member, read ahead.  Some words of wisdom: that we can all benefit from:

  •  If you are speaking to a loan officer at a bank, a mortgage banker or a mortgage broker and they ask that you help them fill out an application without going over your financial pedigree, you may be asking for a lot of trouble.
  •  If you are refinancing your mortgage to pay off credit card debts, you may very well be asked by the lender to pay the balances to zero AND close out the account.
  •  Always ask your loan officer what happens and what your options are if the appraisal comes in less than what you expected.
  •  Know what your approximate closing costs are before doing an application.  If your loan officer doesn't volunteer the information, ask.
  •   Be prepared for a long, tedious process.
  •  Banks will not look at your liquid asset statements if there is 1 page missing.
  •  Assume that the bank will ask for a letter of explanation for the smallest of deposits in your account.
  •  Any credit inquiries on your credit report within the last 90 days will require a letter of explanation.
  •  Be prepared to sign many disclosures that don't make a lot of sense.
  •  If you are buying a home and the appraisal comes in at less than the purchase price, you will probably have to write a letter that says you understand the value is below the purchase price and you still want to move forward.
  •  At this point in time, no matter what rate you end up getting, you're a winner.
  •  Never assume that the appraiser has done everything correctly.  Mistakes are made all the time.
  •  "Common sense" underwriting no longer applies.
  •  Loans are getting closed despite what we see on the news.  Just be patient, give the bank everything it asks for and be patient. (I said that already, didn't I?)


Wednesday, April 4, 2012

Does Twitter really grow my business?

Let's start with the following statement-I really like Twitter.  I find it fun, thought provoking and informative.  Wherever I turn, I hear that social media is the way to go.  It's the wave of the present and future and if you aren't doing it, you are in the dark ages.  Is it really?

From a pure social standpoint, its great.  But is it helping me actually grow my business?  Since I have only been "tweeting" for a few months, I decided to ask a real estate agent that is a veteran of the business and more importantly, a veteran of Twitter.  His tweets, people who follow him and people he follows are in the thousands.  Surely, I could get some positive feedback from him on how Twitter has helped him grow his business.  Surely, he would be able to tell me a wonderful story about how a tweet he sent regarding the increase in purchase transactions struck a chord with someone and how they contacted him immediately to be come their real estate agent and how he sold them a $2,000,000 property. 

I started out delicately asking him how he can constantly come up with new things to tweet about.  I mentioned that I have done like 100 tweets and I feel like I have nothing left to say.  (That could be due to the fact that I don't use Twitter to let people know what dressing I had with my oriental chicken salad or where I would be at 3:12 PM).  OK.  Let's  get back to the story.  He said that it's hard work and required time, effort and dedication.  I then asked him the $64,000 question as to whether this has helped his business and his answer-I don't know.  There it was.  Thousands of tweets, endless hours of work finding informative articles and writing witty things and it's an "I don't know".  Boy, that didn't fill me with hope.  My mind started to race. "Left behind"? "In the dark ages if you don't do it"?

Maybe others were and are having great success with it so that begged the question-what am I doing wrong?  Wait a minute.  Am I actually doing something wrong?  For the most part, I try to give informative information and I target real estate agents, attorneys and potential borowers.  Information that will help them on a daily basis and help grow their business.  It could be a good article that I found or just something new in regards to underwriting or rate changes.  Surely, that would attract people to follow me, right?  Not yet.  I'm mostly getting real estate consulting firms in places like Kenosha Wisconsin to follow me.  Don't get me wrong, Wisconsin is a wonderful state and they make great cheese but it's not really the target audience that I am trying to attract.

Maybe I wasn't doing this the proper way so I set out searching the internet with queries like-"how to increase twitter followers" and I find some of the information interesting and somewhat of a help but after reading all that stuff, the basics of how to attract people are all the same.

Are there not enough people in residential real estate using it?  And for those that are, are they mostly using it for social purposes and not business?  Does the social aspect of it attarct business?  I think that's what many would say but I am not interesting in telling my life story so I won't go there.  Am I not giving it enough time?  Yes, that must be it.  I am too impatient and these things take time, right?  Then I think about my real estate friend that has been doing this for years and has tweeted thoudsands of times and I keep hearing the same thing in my head-"I'm not sure".  Oh boy.

Tuesday, November 15, 2011

Fixed rate vs ARM. Is one better than the other?

  Fixed rate mortgage vs ARM.  Which one is better?  You can make legitimate and salient arguments for both but at the end of the day, there is no right answer.  Each one has its place and its up to the borrower to decide which one is best for them.  The job of the loan officer is to explain the pros and cons of both.

  Let's start with the fixed rate loan.  It is certainl;y hard in this environment of low rates to argue against taking a fixed rate mortgage.  You never have to worry about your rate or your monthly payment increasing.  But, that comfort does come at a price.  Fixed rate loans have a higher rate than ARMs.

  ARM products have a 30 year amortization just as fixed rate loans do.  The difference is that the rate is not fixed for the life of the loan.  There are 3, 5, 7 and 10 years ARMs and the rate is fixed for that respective amount of time.  Think of it this way-its risk vs reward.  The risk is that if you still have the loan after the fixed period is up, your rate may go up.  The reward is that you have a lower interest rate.  Strangely enough, because of current market conditions, those that have ARM products that are adjusting now are actually adjusting lower than the start rate.  Don't expect that years in the future!  Its also important to note that statistics show the average legnth of a loan to be 7 years.

  Understanding the principles above leads us to the trends that guide people in deciding which product to take.  Those that are buying a home in which they will stay long term tend to look at fixed rate loans.  Those that see themselves in the home for 5 or 7 or 10 years, tend to look at the ARM products because the chances of entering the adjustable phase are smaller.

  Know the pros and cons of each.  Run the numbers and see exactly what the difference is in the payment. Its not rocket science.  With that information, make the decision that is best for you or your family.

Friday, November 11, 2011

The mortgage appraisal process and what you need to know

  It has been almost 18 months since the implementation of the HVCC appraisal process.  It feels like its been 18 years.  I understand the idea behind it-reduce the influence of outside sources (loan officers and mortgage brokers) on the apprasiser so the appraisal can be as objective as possible.  Certainly, there was a lot of that going on among the worst elements of our business, but for those of us that are above board and have always acted with integrity, unduly influencing appraisers was not in our lexicon.

  The problem is multi fold and I want to tackle them one by one:

1.  Too much bureaucracy:  The system requires that an appraisal management company that works with the bank chooses the appraiser.  In some instances, there is a vendor management company AND an appraisal management company.  Let me give you one example that speaks volumes.  I have a borrower that wants to refinance her co op in Manhattan.  I process the loan with the bank and give them the contact information for the managing agent so the appraiser can obtain the required information in order to complete the appraisal.  2 weeks go by and I hear nothing so I decide to pick up the phone and find out what is going on.  I call the appraisal vendor company and ask for a status update.  Logic would dictate that the vendor appraisal compnay can talk to the appraiser, right?  Wrong.  The vendor management company puts me on hold and calls the appraisal management company.  The apprasisal management company is told we need a status update so they place the vendor management company on hold and call the appraiser.  Remember, that I am not allowed to call or speak to the appraiser.  Invariably, they cannot get the appraiser on the phone so they leave him a message to call them back.  They hang up with the appraiser, take the appraisal vendor company off hold and tell them they left the appraiser a message.  The appraisal management company hangs up with the vendor management company and the vendor management company takes me off hold to tell me that a message was left with the appraiser.  This all takes about 10 minutes.  This type of exchange goes on about 3 times during the course of the appraisal process.  So when my client asks me what is going on with the appraisal, how do I explain this to them?

2.  The apprasiers:  I cannot confirm this as fact but I have been told by an appraiser that I know and trust with an impeccable reputation that the appraisal management companies choose the apprasiers based on lowest price and they "beat them up" to get their prices as low as they can.  This speaks volumes.  I have also seen instances where apprasiers are chosen who are located very far from the home to be appraised. Familiarity with the area is crucial for understanding values.  Especially in NYC with co ops and condos.

3.  The variation of values: There are some banks that consistently have very low appraised values and some that are more reasonable.  I have seen instances where one bank will appraise a property for one value and another bank, not a few weeks later will appraise it several hundred thousand higher.

4.  Lost money to the borrowers:  Before HVCC, if a borrower called me to refinance or buy a property and was concerned that the appraised value was not where it needed to be, I could call any one of my trusted appraisers and ask them to do a comp search and give me a good ballpark on the value.  Of course, the true value could not be done without an inspection but I knew it would be a good educated guess.  I would then order that appraisal and it would be usable at almost every bank.  Now, with HVCC, we are flying blind on the appraisal.  I have had many client pay for an appraisal, have it undervalued and thus, it kills the deal.  If my client starts with one bank and something in the process goes awry, I cannot take that appraisal to another bank.  We must order a new appraisal with the new bank.  Lost money for the borrower.

  By the way, there are banks that still allow us to at least choose from a list of appraisers or if the value is below a certain number, we can choose the appraiser.  But this is not typical as most banks require the use of HVCC.  Its a tough time in the business and its difficult to close loans.  The appraisal process only makes it that much worse.

Tuesday, November 8, 2011

What you need to know about your credit report

   In order to get your mortgage approved, there are 3 areas in which you have to pass muster-income, assets and credit.  Just a few years ago, that statement wasn't true.  If you had good income, but poor assets and credit, you could still get a loan.  If you had good assets and poor income and credit, you could still get a loan.  Get the picture?  Well, those days are gone and have been for quite a while.  Now, you must be able to pass the litmus test on all 3 in order to get a loan. 

   The one that I want to focus on today is credit which in my opinion has taken the hardest hit.  The Fannie/Freddie government takeover has caused huge changes to how your credit score impacts your mortgage loan.  Here is a perfect example:

   Prior to 2007- If you had a 680 credit score or better, you didn't even have to show documentation of income or assets in order to get the best available rate out there up to 80% financing.  It was called the Fannie Mae SISA program.

   Today-  If your credit score is 680 and you want to do 80% financing, your rate will be .375% to .5% higher than the market.

            - If your credit score is 739 and you finance 80%, your rate is .125% higher than the market.

            -If your credit score is 719 and you finance 70% or more, your rate is .125% higher than the market.

            -If your credit score is 659 and you finance 60% or more, your rate is .25% to .375% higher than    the market.

  The contrast is so dramatic is incredible.  A 739 credit score is very, very good yet you are still penalized.  By the way, for jumbo loans not owned by Fannie Mae, the credit score requirements have not changed much at all.  This is why (if you dont have a jumbo loan) you need to keep your credit as perfect as possible and here are some tips:

1.  Do not have too many lines of credit.  4-6 lines is optimal.

2.  Keep the balances below 33% or the credit limit.  This will insure optimal scores.

3.  Never, never, never be 30 days late on a payment.  Any payments that are late up to 30 days are not going on your credit report.  It's only if you are 30 days late and that kills your scores.

4.  If you have a collection and pay it, your scores will go down before going up.  Most people do not know this.  The only way to get your scores up after paying a collection is to get the collection company or company to remove the collection from your report rather than have it on the report as paid.  Most times, you will not get them to do it.

Monday, October 31, 2011

Are low mortgage rates hurting the purchase market?

  For the last few months, I have seen lots of chatter on this subject.  Twitter comments, articles in major newspapers, etc.  It seems that more and more people are asking this question-are mortgage low mortgage rates hurting the housing market?  My answer has been and will continue to be absolutely not.  Here are some of the arguments that I have seen:

1.  By announcing low rates through 2013, you give buyers the ability to sit and wait until the market hits bottom. 

   On the surface, its sounds logical and plausible but let me explain why I think this holds no water.  Put yourself in the shoes of a potential buyer these days.  Here is what they are worried about:

      a.  Losing their job to cut backs due the lousy economy.
      b.  Not getting their bonus this year.  Something they always count on.
      c.  Rising credit card debt.  The bills never stop and they don't get smaller.
      d.  College education bills.
      e.  If I lose my job, what are the prospects that I will get another quickly, or at all?

  I ask you, will a few hundred dollars in lower mortgage payments or the prospect that real estate values may drop within the next 2 years be a big enough influence to make people buy something?  Not a chance.  People are frozen by fear because the economy is in the toilet.

2.  Everyone is refinancing to a lower rate and in order to recover closing costs fees, the borrowers feel the need to stay where they are for several years.

   I have never once heard a borrower say something like that to me.  If they see a new house that they want, a few thousand in closing costs will never stand in their way.
   I think you would be hard pressed to find someone who doesn't think that the Fed lowered rates to spur the purchase market.  That is, other than myself.  The Fed knows that consumer sentiment is in the tank and that people are scared to buy.  They did it because they wanted to put as much money in people's pockets as they could.  Short of a tax cut, refinancing a home loan is the single greatest way to accomplish that.  Call it the "homeowner tax cut".  Any people that are still buying in this environment could gain from it as well but its intended target are existing homeowners.

Thursday, October 27, 2011

What changes mortgage rates?

  It's truly amazing how volatile the mortgage market can be.  I always tell my clients that rates are like the stock market.  They go up and down and can do so several times within a day.  It's like trying to hit a moving target.  There are many factors that change mortgage rates but  I want to stick to a timely topic-The stock market in relation to the EU crisis. 

  I will start by saying I am not an economist and don't claim to be one.  Nor do I play one on TV.  Besides, why would the lay person want an intricate explanation anyway? Here it goes:

   As a general rule, when the stock market does well, mortgage rates tend to go up and when the market does poorly, mortgage rates tend to drop.

    Why is that?  The bond market control mortgage rates.  When people feel good about investing in the stock market, there is a tendency to move away from the more conservative bond market. More demand for stocks lowers the demand for bonds.  When the demand for bonds goes down, their prices go down and their yield goes up.  Higher bond yields means higher mortgage rates.  The EU crisis is a perfect example of this.  Yesterday was a good day for mortgage rates because there were rumors that the talks to put an aid package together was falling apart.  If they did, people knew that the market would tank and thus be afraid to invest in the market and thats exactly what happened. There was a "flight to safety" in bonds and mortgage rates dipped.

  Once the aid package was announced, a sense of balance and relief was felt by the markets and people felt more secure about investing in the market.  Therefore, the demand for bonds dissipated and rates when up today.

  Sentiment drives market changes.  How people feel about what may happen can and will move markets and of course that includes the mortgage market.