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.

Tuesday, October 25, 2011

What's it like trying to process and close mortgage loans these days.

  To the best of my ability, I am going to try and explain what its like trying to get a mortgage loan closed these days.  My clients never hear this side of the story as I do a good job of shielding them from the day to day nonsense of dealing with banks in 2011.  Frankly, if I told my clients everything I deal with, they would be suicidal and probably not believe half of what I tell them anyway.

  Just getting the loan to the bank is much more difficult and paper intensive than it used to be.  It used to take me about an hour to put a file together.  It takes 3 times that now. The lenders have added (and continue to add) new disclosure forms all the time. Mostly, they are due to new legislation or amendments to current legislation.  When we receive them, we most often are not sure exactly how to fill them out and we get very little direction from the banks on how to do it.  Added to that, we can speak to 3 different people at the bank and get 3 different answers.  Its crazy but a most of the time, the banks are getting no direction from the regulators because the laws are all subject to interpretation.  Its the blind leading the blind. The politicians pass the laws and its like the wild west after that.  Good examples of this would be the Good Faith Estimate and the Mortgage Broker Disclosure Form.  The updated GFE is more than a year old and I still have a hard time explaining to clients how it is structured.  Here are some more examples o wha i deal with getting a file to the bank:

1. Most of the dates on the paperwork must match. 

2. If some of the documents are not filled out properly, the bank may cancel the loan and the interest rate lock.

3.  If you submit bank statements that comprise a hundred pages and the last page of the statement is missing, some banks will suspend the file pending receiving that last page.

    Getting the commitment letter can take 2-3 weeks.  In a normal environment, it would be 2 days.  The appraisal process is a disgrace and that's not an understatement.  It used to be that I could order an appraisal through an independent appraiser who I knew and trusted and that appraisal would be good at any lender.  Now, the bank orders the appraisal and I am not even allowed to speak to the appraiser.  In some cases, I am 3 people removed from the appraiser.  What should take a few days, is taking weeks.

   We are seeing more bizarre conditions now than ever before.  I had 1 bank tell me that he borrower needed to change the address on their drivers license because it didn't match their home address and that they needed to explain why their bank statements were coming to their primary residence.  How do you explain this type of stuff to a client?  I have seen banks sign off on appraisals and then weeks later ask for additional comparables right before closing.  Moving files into the closing department is like pulling teeth.

   The positive in all this is that my clients know almost none of this as I do a good job shielding them from the nonsense.  Most of the time, all they know is that it takes a little longer to close a loan and there are more documents to sign than before.  Their experience is very different from mine but that's the way I want it.

Tuesday, October 11, 2011

Another refinance boom?

   Boy, its been a while since my last post.  I have been saying for weeks that I need to write something, anything new.  But, I have been so busy with new applications, that I have not had a chance.  I guess its good news, but it actually has some downside to it as well.  You would think that not having a minute to spare in the last 45 days would mean I have a hundred loans.  Well, the answer is no.  It is taking 2-3 times longer now to prepare a file for the bank.  Additional  disclosures, Good Faith Estimates that need to be perfect, making sure the file will get approved at the bank.  Loan officers are working much harder now and for less money (but that is a discussion for a different day).  It just feels like I have done the work of a hundred loans.

   Rates fell below 4% for a 30 year fixed conforming and the rates for ARMs (even the jumbo loan) are off the charts good.  In some instances, the rates are below 3%.  I recently closed a loan of $900,000 on a 5 year ARM at 2.5%.  After the tax deduction, its like free money!!!

   There is also a very good government program out there called HARP for those that are underwater or close to being underwater.  No its not a perfect program but I think many people don't realize that they can benefit from it.

   With Operation Twist in full swing, rates will stay low for a while.  The key is to make sure you are prepared.  What does that mean?  Make sure that you work with your loan officer to have a package ready to go to the bank at a moments notice.  Rates are very volatile and can go up and down quickly.  If you have the package ready to go, you can lock the rate and get it off to the bank quite quickly.  If you lock the rate before having a package ready for the bank, trust me, you will not close within the lock period.  Banks are overwhelmed and understaffed.  A lethal combination.

Friday, August 19, 2011

How to benefit from lower mortgage rates

  Wow.  The last 2 weeks have been crazy!  A tremendous number of inquiries and lots of people taking advantage of the lower rates.  I have seen banks below 4% for the first time in my 10 years in the business and from all indications, these are the lowest rates in history.

  Anyone who has a mortgage rate of 5%, regardless of the type of loan it is, has the ability to save money on a monthly basis.  But its crucial to make try and check every aspect of your deal before submitting your file to the bank.  Here are some things that you must think about prior to submission:

1.  Type of property- If its a single family home, then its simple.  If its a co op or a condo, make sure the building is checked.  Just because the bank did a loan in the building 2 months ago, does not mean the building is still approved.

2.  Income, assets and credit-  Everyone should know this one.  Make sure you meet the credit and debt ratio requirements of the bank.

3.  Home value- With values continuing to fall, you must be careful and try to assess the value as best you can prior to the appraisal.  Federal law no longer allows the appraisal to be ordered before you submit your file to the bank.  A law that I believe has hurt the real estate market.  Too many people have spent money on an appraisal only to find out the value isnt there and the refinance dies.

  If you are thinking about refinancing, now is the time to do it because short of a tax cut, there is no better way to put money in your pocket.  Just make sure you have done your homework with an experienced loan officer before moving forward.

Friday, August 5, 2011

Mortgage rates are down. Refinance activity up

   I must say that I am really starting to love twitter.  The instantaneous information is terrific but the downside is that its quite hard to make coherent statements in 140 letters.  Thank goodness for the blog.

  Unless you have been under a rock for the last 10 days, you know that the stock market has tanked.  You probably also know that mortgage rates have come down.  The typical rule of thumb is that when the stock market declines, there is a flight to safety to bonds and that causes mortgage rates to go down.  Talk about the definition of mixed emotions!  We are seeing 30 year fixed rates at about 4.125% for a conforming loan and 4.875% for a jumbo.  Adjustable rate mortgage are just at obscene numbers.  5 year ARMs in the low 3% range and in some cases, below 3%.  Even a 10 year ARM is at 4%.

  Several months ago, we actually saw the 30 year fixed below that at 4% and it was always my contention that if it ever hit 4%, there would be a massive refinance boom in which the whole world would take lower rates and put money in their pocket. Well, I was wrong on that one.  I will explain that in a bit.  Some thought the purchase market would take off and get those that were on the fence, off it.  I thought that to be total hogwash and on that one I turned out to be right.  My feeling was and is that people prioritize what's important.  Will I have my job in 3 months?  Will I get a bonus this year?  How will I pay for my kids college education?  A lower interest rate simply is not enough incentive to overtake the other questions and jump in and buy.

  Let's get back to the qyuestion as to why people didnt refinance when the rates hit 4%.  I think the answers may tell us why it might not happen again:

  1.  Much tougher underwriting guidelines knocked many out of the box.  Although the financial pedigree may be good, there is a line the banks will no longer cross and too many people were sitting on that line.

2.  Many people already had rates in the low to mid 5's because they either bought when rates were really good or they refinanced between 2002 and 2004 when the rates were just as good.

3.  Declining home values knocked so many people out of the box.  Think about it simply.  Many, many people bought their homes with 20% or less as a down payment.  Now, values are down 20% to 30% in some cases through no fault of their own.  So you start the refinance application and when the house is reappraised, you are hit with a lighting bolt.  The house you bought in 2006 for $600,000 with a mortgage of $480,000 is now valued at $500,000.  Your loan to value just went from 80% to 96%.  That's when you get a disturbing phone call from your loan officer telling you that the loan won't close.

4.  Condominium and co op building approval guidelines have gotten much tougher.  I can't tell you how many people I turned away because I couldnt even take them back to the same bank only months after the purchase.  The argument that they would use with me was sound-"I don't understand.  The bank did my loan and approved the building 6 months ago.  Why in the world would they say no now?"  It wasnt even a question of being qualified because they all were.  It was that the building no longer met the guidelines.

  So where will rates go?  Will they go below 4%?  Don't know but I am getting a lot of inquiries.  Here is the best advice I can give when rates start to plummet:

  • Don't have paralysis by analysis.  If you like the rate you are quoted, take it.  Overanalyzing will do you no good.
  • Don't get greedy.  You may wait because you think rates will continue to fall but you are taking a risk.
  • Be prepared to strike at a moments notice.  If you are interested in refinancing, contact your loan officer and ask them to prepare a package for you ahead of time.
  • Getting loans to the bank and closed is much more laborious than it used to be.  Be prepared to be efficient but have patience once the loan is submitted.

Monday, August 1, 2011

How to make the mortgage process a pleasant one

  My father taught me a long time ago that you cannot do a job properly unless you use the right tool.  At the time, I pondered the statement and finally said to myself "no duh"!  It wasn't until I got older, went into the workforce, got married and had children that I realized this wasn't just a simple saying but rather one that could be applied to all aspects of life.  In my case, the mortgage business and for me, the right tool is infomation.  Who needs this information?  The borrower, the real estate agent and the attorney. 

Information that the borrower needs:

  1.  How much can I afford?
  2.  Do I have the proper down payment funds?
  3.  What are my closing costs?
  4.  Whom am I allowed to get a gift from?
  5.  Where are current rates?
  6.  Is a fixed rate or ARM product best for me?
  7.  What are the steps in the process?
  8.  What is my monthly payment?

Information the real estate agent needs:

  1.  Is my borrower qualified?
  2.  Is the co op or condo nuilding I want to show the potential buyer a viable one?
  3.  Do they have the post closing reserves to meet the requirements of the board?
  4.  Can the borrowers afford the house I want to show them?
  5.  Can my buyers buy the house before they sell their current one?

Information the attorney needs:

  1.  When will we receive the commitment letter?
  2.  Are there any conditions in the commitment that are of concern?
  3.  When will the appraisal be ordered?
  4.  When will the bank be ready to close?

  Closing a loan these days feels like trying to coordinate the Super Bowl.  Understanding that, the proper tool to achieve the goal is information and processing it properly.  Just think about this-how many times have you called someone needing a price quote or information necessary to get a job done and not received a phone call back?  Or, received a phone call after days or weeks?  If you have the same experience as me, it happens all the time.  Frankly, it amazes me how some people stay in business and thrive.  delivering quick and efficient information is the key to a pleasant mortgage experience for al involved.

Friday, July 22, 2011

New York has the highest closing costs

July 22, 2011 

  I am sure you will all be thrilled to know that according to Bankrate Inc., NY leads the US as the most expensive state for mortgage closing costs.  According to their reserach, origination and title costs on a $200,000 mortgage in NY average $6,183.  Nationwide, on the same loan average, the cost was $4,070.

  Although, I cannot confirm these figures, it does not shock me.  The biggest culprits that I can see are the title fees, appraisal fees and mortgage tax. 

  In many cases, its impossible to pinpoint your exact closing costs, especially when their are escrows involved but its critical to get a real good handle on what they will be whether it's a purchase or refinance.  ask your mortgage professional and your attorney for guidance.

Wednesday, July 20, 2011

Be proactive when shopping for a mortgage

  This business used to be much more simple than it is now.  A few years back if you had good income, assets and credit, it was a slam dunk.  Nowadays, there is no such thing anymore.  That's why the buyer has to be proactive when it comes to their mortgage.  The tiniest little blip can alter the financing picture and make your mortgage process a very unpleasant one.  Here is just a sample of those things that I have witnessed over the last few years.  Read them and take notes:

1.  If you are taking an ARM product, most banks no longer qualify you at the actual rate you have.  Many times they add 2% to the actual rate.

2.  Borrowers must show a 2 year history of bonus at the same job.  I have had many Wall Street clients that earn significant incomes but couldn't qualify because of a change in jobs.

3.  If you are buying into a condo development, is the building approved?  Years ago, the banks didn't care how many units were sold or in contract.  Now they do.

4.  Many lenders no longer allow interst only loans.

5.  Many lenders no longer allow interst only on co ops for certain loan amounts.

6.  Some Fannie lenders allow up to a debt ratio of 50%, while others are at 45%.  Knowing the difference and who does what can make or break your deal.

7.  Many lenders use the actual payment from the credit report on a Home Equity Line of Credit to qualify a borrower's liabilities.  Others use 1% of the actual line amount.  That can be a significant difference.

8.  Credit scores that are above 740 can still have a negative impact on rates depending upon the amount borrowed.  Know your credit scores!!!!

9.  You can still do 90% financing at some lenders but be aware that even though the lender will allow it, the Private Mortgage Insurance Company that insures it may not.  Sometimes their guidelines are tougher than the bank.

10.  No interest only loans are qualified at the interest only payment anymore.  Just the principal and interest payment plus the 2%.

11.  If you are buying a co op, does the building have the proper fidelity bond coverage?  This covers against malfeasance on the part of the managing agent.  2 years ago, this was a serious problem because almost all co ops did not have the required Fannie Mae fidelity coverage.  Now, it's less of an issue but still an issue nonetheless that never existed before.

12.  For refinance transactions, the appraisers are being very conservative on values.  Years ago, if there was a concern of value, I would always encourage the borrower to do the appraisal before starting the loan application.  This ay, it could save a lot of headaches down the road.  The law states now that you can't do that.

  The idea here is that you must discuss all facets of your situation before getting involved in a contract signing.  Don't assume you will have no problem obtaining the financing.  It could be the difference between getting your loan or not.

Wednesday, July 13, 2011

Communication, relationships and value are key

  Good relationships,communication and value are topics that I have touched on many times in my postings. It is the cornerstone of success in the residential real estate business and there are 2 levels to it:

  1. How those relationships and the communication within create value, bringing you repeat and steady business.
  2. How that dynamic works once a deal is in play.

  You've heard the cliche "it's not what you know, but who you know".  Well, how does a cliche become a cliche?  Simply by being true. Knowing the right people, building the right relationships is everything in this business.  The residential real estate market is a complicated one and demands hard work, diligence, knowledge and good communication skills.  The players in the game-attorneys, real estate agents and loan officers cannot do it all on their own.  Everyone plays their part and must play it well and just as important, everyone needs each other or the deal will not close.  For example:
  • Any real estate agent worth their salt will insist that the buyers they work with be prequalified by a mortgage professional prior to taking them to view property.  I guarantee you that the vast majority of successful brokers have a "go to" mortgage professional they work with.  Successful agents worst enemy is wasted time.
  • After speaking to the potential buyer, the mortgage professional should call that agent and tell them exactly what the financial pedigree of the borrower is.  This will give the agent all the information they need to know-purchase price, loan amount, type of property (single family, co op or condo), credit scores, etc.  Now, everyone is on the same page and everyone knows what is doable and what is not.
  • Once a contract is signed, it's my opinion that it's incumbent upon the mortgage professional to reach out to the buyer's attorney either before the loan has been approved or immediately subsequent to approval.  During that phone call/e mail, the mortgage professional should let the attorney know where we are in the process, what conditions need to be addressed, etc.  If its post approval, the real estate agent should be contacted and told the same information.  Again, this is being proactive and gets everyone on the same page.
  • Once the bank is ready to close, the mortgage professional should call both the borrowers attorney and the agent to let them know we are all set.
  Through this constant communication, relationships and trust is built.  You know what else is built?  Value.  That's right and it may be the most important part of this equation.  Peace of mind, trust, comfort, efficiency.  These are all terms that encompass value.  You want that borrower walking away from the transaction saying "that was the best experience of my life. I have never worked with a more professional and knowledgeable group".  Building relationships, fostering good communication and building value is what will get you repeat business.

Monday, July 11, 2011

Fannie mae lenders continues to tighten guidelines

  Whenever I experience something at my job that I sense will have a major impact on borrowers moving forward, I feel the urge to let you know about it.  I recently closed a loan with a Fannie Mae lender that asked my borrower to do something that I have not seen before and when 1 lender starts to do it, it is inevitable that others will follow.  Before discussing exactly what it is, I think a little background would certainly help:

  For most Americans right now, the job market is a scary place.  Companies are not hiring.  Bonuses are down or non existent.  Unemployment continues to hover around 9%.  People are just plain scared of losing their jobs.  But, the one thing that never stops are the bills.  Like clockwork, they come every month and they need to get paid.  For many, credit card debt continues to pile up.  One way to battle that debt is to pull equity out of your home at a much lower percentage that you are paying the credit card companies.  It's a valid and good way to pay off debt in a sound and reasonable manner.  I have had many clients do it and they would call me afterward and say that what I helped them do "changed their lives".  It's a really good feeling. 

   It's fairly simple to understand.  Let's say you have $30,000 worth of credit card debt at 12% and you currently have a 30 year fixed loan with a balance of $120,000 at 6%.  You can refinance, take out a new loan at $150,000, and pay off the credit card debt at closing.  You now are paying all your debts at 6%, you have instantaneously improved your credit and you have some breathing room.  Your credit card balances are now at zero.  Here is how it's changed:

If the credit cards being paid at closing are revolving lines of credit, the credit card must be closed in order to close the loan.

   You can no longer pay off the debt and keep those credit cards.  Is that something you would want to do?  For some, they would have no choice.  Again, not every bank is doing this but I bet we see it more and more.  The economy continues to flounder and people need choices to keep themselves going but many of those choices are disappearing.

Tuesday, July 5, 2011

What you need to know about closing costs

  Whether you are buying or refinancing, it is essential to know what your costs will be prior to applying for the loan.  Let's deal with purchase transactions first.  Buying a home can be very stressful and confusing and you can add 2 layers to that if you are buying property in New York.  You are worried about all sorts of things like down payments, movers, interest rates, etc.  For the most part, the closing costs that the lender charges are minor compared some of the other items like title insurance and real estate tax escrows.  Title insurance is a state mandated number based on the loan amount.  Then, you have your "ancillary" title fees like searches and recording fees that quickly add up.  Your title bill can easily run into thousands of dollars.

   If you want to pay your taxes with your mortgage payment (as most people do), realize that the bank is going to collect any taxes due within 60 days of closing PLUS collect anywhere from 2-6 months of taxes for the escrow account.  The bank wants an assurance that they can pay your taxes if you skip payments or pay late.  In some parts of the the country (especially the suburbs of NY) the tax burden is tremendous and the taxes collected at closing far surpass the closing costs that the bank charges.

  On a refinance transaction, your closing costs are very similar to that of a purchase.  Here are the major items to keep in mind when dealing with a refinance:

  1.  Unlike a purchase, you can include the closing costs in the new loan and not (in theory) have to come out of pocket to pay those costs.  Many people do that but they must realize that they are financing those costs over the life of the loan.

  2.  Even if your refinance with the same bank that owns your mortgage now, they will probably set up a new escrow account.  You will get back whatever is in your old account within 30 days of closing.

  3.  Even though you took out title insurance when you bought the home, you arr required to get a "re issue" of title insurance for the refinance.  The premium is about half of what it was when you purchased the home.

  Whether you are purchasing or refinancing, you have to know what your costs are.  I have heard of too many instances where the borrower gets to closing and they are shocked by the outlay of money that is needed because they weren't informed of the real costs.  Don't let that happen to you.

Tuesday, June 28, 2011

Important mortgage underwriting guidelines everyone needs to know

   A happy and a healthy 4th of July to everyone.  In my never ending quest to educate as much as possible, I thought I would find a different and more enjoyable way for people to understand what banks are looking for these days.  Realize that these are not hard and fast rules and there are lenders that do things "outside the box" but this is a very fair picture of what most lenders are looking for.  I hope you like it:

 My borrower has a high powered job at major Wall Street firm and has been there 1.5 years.  His base salary is $150,000 and he receives a 2010 cash bonus of $1,000,000.  Since he was at the firm for only half a year in 2009, he didn't receive a bonus but did receive one at his previous job for $500,000.  The bank will give him credit for all or some of his bonus for 2010 and 2009.  True or False?

Answer: False.  Banks want to see a 2 year history of getting a bonus at the same job in order to be able to use that income.

 My borrower is purchasing a single family home and the financial pedigree looks good.  Contracts have been signed and the borrower locks his interst rate on a 5 year ARM at 3.125% on $1,000,000 loan with a monthly payment of $4,284.  The bank will qualify the borrower with a payment of $4,284.  True or False?

Answer: False.  This may be difficult to understand but borrowers are no longer qualified on ARM products at the actual rate.  Due to the conservative nature of the banks these days, they assume worst case scenario.  After the 5 years of fixed payments are up, the rate may or may not go up.  The risk of going up now plays a major role in how the bank perceives the loan.  They look at it and say-"if it does go up, can the borrower afford it?"  Many banks now are qualifying at 2% above the current rates.  This can make or breal a loan these days.

  A married couple is buying a home and they are getting a gift from the wife's parents.  The gift money is coming from a line of credit the parent's have on their primary residence.  The bank will allow this gift for the purchase of the home.  True or False?

Answer: True.  As long as the money is properly sourced, the gift may come from a Line of Credit.

  A borrower is looking to refinance her home to save money on a monthly basis.  The borrower is currently working at a new job for 5 months with a base salary and no bonus but in the same line of work as her previous job.  Unfortunately, the borrower lost her previous job because the company was downsizing.  She didn't want to jump at the first opportunity that came along so she took her time and landed the new job after an 8 month search.  The bank will let her qualify for the refinance based on her base salary.  True or False?

Answer: False.  If this is a Fannie Mae loan (loan amount below $729,750) the guideline states that you need to be employed by your new company for at least 6 months if you were unemployed for 6 months or more previous to landing the new job.

  Anyone can feel free to comment or ask me any questions they like.  In today's environment, its critical to know as may answers as you can before you begin your mortgage process.

Tuesday, June 21, 2011

Important mortgage information on Condominiums

 Although I have written about this before, it bears repeating.  Please be VERY careful when it comes to Condominium transactions.  We are in a brutal lending environment and having to deal with a building approval on top of the borrower's financial pedigree just adds fuel to the fire.

Question:  I am currently in the market to buy a condominium and I am fairly sure of my price range.  I am working with a real estate broker who recommended that I speak with a mortgage professional. What are the next steps?

Answer:  There are 2 areas that you MUST focus on right off the bat.  First, we will discuss your finances to make sure you qualify.  Secondly, and as important, what buildings are you looking at?  Give me the names and addresses and I will check and see if you can get financing in these buildings.  If I cannot find the buildings on a lenders list, then I will tell you what you need to do to try and get the building approved.  You see, your pedigree is only half the battle.

Question:  You recently prequalified me and I now have a signed contract for a condominium.  What are the next steps?

Answer:  Congratulations!  Let's check the building right now and see if its on anyone approved list.  If not, it would be my recommendation that we try to get the building approved before submission of your file to the bank.  The last thing we want is for you to be approved and then down the road, have a building issue.

Question:  I am looking to refinance my condo unit in order to save money.  I closed on a loan with XYZ bank 3 years ago.  I assume that I can go right back to the same bank because they approved the building 3 years ago?

Answer:  Let's look at the rate and see if it makes sense.  But, just because you closed with this bank 3 years ago does NOT mean they will do it now as the guidelines are constantly changing and what the bank did last month may no longer apply.  Let's check and see if the building is still approved at that lender.  If it is, then our best bet and easiest road would be to go back there as long as they have competitive rates.  If its not on their approved list then we need to find a bank that does or get it approved somewhere.  My recommendation is that we not move forward with the application until we have building approval.

   Everyone see the pattern here?????  Unfortunately, I have seen way too many situations in which the building is not addressed up front and it leads to nothing but heartache. 

  If you are a realtor, you should always be checking your buildings with a mortgage professional.
  If you are the borrower, make sure you check on the building with a mortgage professional.
  If you are an attorney, make sure that your borrrower, the realtor and the mortgage professional have     discussed the building.

Wednesday, June 15, 2011

Important changes that will affect mortgage loans

Come October 1st, the conforming loan limit will in all probability be lowered to $625,500 in the NY metro area.  In other areas of the country, it will be lower than that.  The important questions to ask are why is it being lowered and what impact will that have on borrowers?

Why is it be lowered ?  I am sure there are several good explanations for this but let me tackle the one that makes the most sense to me.  It is no secret that the Federal Gov't wishes  the Fannie Mae and Freddie Mac problem to disappear quickly.  I am sure President Obama wishes he could pull an I Dream of Jeannie eye blink on the whole matter but he and all of us know that's not going to happen.  As our politicians try to come up with a plan of action on what to do with them, the stated goal is to either eliminate them completely or reduce their role significantly.  One way that they can reduce their role is to lower the limit.  Think about it-reduce the maximum limit from $729,750 to $625,500 and you eliminate a lot of potential government backed loans.  I don't have statistics on it but I have done many loans that fall between those 2 numbers this year alone. 
What impact will it have on borrowers ?

If Fannie/Freddie are not buying these then much of the slack is going to be picked up by savings banks and niche lenders.The big banks will end up with less volume and that's what the government wants. 

Banks that will lose production:               Banks that will gain production:
Chase                                                              Astoria
Wells Fargo                                                     Ridgewood
Citibank                                                           Hudson City
Bank of America                                              ISB

The government wants out of the mortgage business.  The next few years will determine just how far they can get out and how far they are willing to take it.

Monday, June 13, 2011

Savings Banks looking to increase volume

  I recently wrote about a few savings Banks that have been the voice of reason in a sea of turbulence.  Well, there is more good news.  Astoria Federeal Savings Bank has just made it easier to get a loan:

1. Lower reserve requirements.  You need less money in the bank, post close to qualify for a loan.
2. They now allow 2nd home Co ops.
3. 40 year amortization allowed on co ops.

What type of loans are best for Astoria?

   a.  Multi million dollar loans.
   b.  Strong liquid reserves.
   c.  Borrowers that are willing to take an ARM product.

Monday, June 6, 2011

Mortgage brokers-Why should we use them?

   It's an age old debate-mortgage broker vs. loan officer at the bank.  Which one is better?  Where will you get the better experience?  Who will get you the best rate?  Which one gives you the better service?  These are all the things that go into the decision making of the borrower.  Let me make my case for the mortgage broker:

   In my humble opinion, there really needs to be only 2 areas that a borrower needs to focus on and they are service and rates.  The rate part is the easy one because it is typically a tangible one.  Assuming that the loan officer (that includes the broker and the loan officer at the bank) is not being deceptive in the rate and the closing costs quoted, rates will not really vary by more than .125%.  In some cases, maybe a little bit higher.  The bottom line is, there will not be a tremendous variation on the rates that are quoted.

   It is the area of service where I think the biggest difference lies.  Service encompasses many, many different things and here are just a sampling of them:

  1.  Availability of the loan officer:  The borrower is making the biggest purchase of their lives in a transaction that has many moving parts.  That bears repeating because it's not just words on a page-The borrower is making the biggest purchase of their lives in a transaction that has many moving parts.  If a problem occurs with any number of issues, don't you want someone available at a moments notice to either resolve the issue or put it in the hands of someone that will?  Ask your attorney, real estate broker or friends what their experience was with the person they used.

  2.  What type of property are you buying?:  This is an especially important in the NY metro area where many people are buying a co op or a condo.  As I have noted in previous posts, the borrowers financial pedigree is only half the battle.  If the building isn't approved then the borrower will not get financing.  Is the loan officer checking the status of the building when they first speak?  If they are, it's a clear sign that the loan officer knows what they are doing as is looking out for the best interest of the borrower.  If they are not, look out!!!!  What you want to avoid, is a loan officer that wants to take your application first and foremost before discussing the landscape.  Just 1 example of what a borrower may not know going into the process.

  3.  Explanation of closing costs:  Simply put, the borrower must know their round about closing costs during the first conversation with the loan officer.  If they are not aware of costs, they do not get the big picture.

  4.  Coordination:  A very wise and successful person in my industry once told me that as the mortgage broker, "you are the well that everyone comes to for a drink".  Be at the center of the transaction.  the loan officer must inform everyone all along the way as to what is transpiring.  When the commitment letter comes in, inform the borrower's attorney, the real estate broker and of course, the borrower.  Same for the appraisal and the final clearance from the bank.  Don't leave anyone guessing as to what is going on.

  5.  Rates:  Any good loan officer will give the client options.  Discuss the pros and cons of a fixed rate vs. adjustable.  If the client is headstrong on 1 product then so be it.  With multiple banks to choose from, a broker has a wide variety of options.  There may be 1 bank that hasd the best rate but another may have a higher rate yet be able to finance a larger precentage of the purchase price.  The borrower may choose that bank with the higher rate because they either don't have the extra money for the down payment or choose to finance more because they can use the money in different ways.

  When making your decision, think about all the things I mentioned.  if you haven't experienced it before, discuss it with friends, family, attorney, real estate broker.  Did the loan officer go over all these things?  If they didn't, did borrower really get the best deal or have the best experience?  Do you want to trust the biggest transaction of your life to someone that did not go over all these things?
 

Tuesday, May 31, 2011

Banks that are doing it right

   As we all are aware, the mortgage lending environment is a mess. The reasons have been alluded to time and time again in print, radio, television and on line.  We have heard the terms ad nauseum- securitization, Fannie and Freddie, liar loans, secondary market, etc.  You are hard pressed to come up with an article or story with a positive spin on this industry.  Well, let's change that, shall we?  Here is an insider's account of who is doing it right, so to speak.  But first, a little background.  I have been on the front lines of the mortgage game for the past 10 years and I have seen just about everything there is to see.  In just the last 4 years, I have seen the pendelum swing 180 degrees. Banks went from offering people with a pulse 100% financing, to declining borrowers with plenty of equity, perfect credit and 7 figure bonuses.  I have a saying that I believe explains the dichotemy-banks were acting completely irrationally at one end of the spectrum.  What makes you think they will act rationally at the other end?  Yet, there are some lenders out there that have and continue to pursue the proper path.  Here are a few of them:

HUDSON CITY SAVINGS BANK- This New Jersey based bank has maintained a simple philosophy throughout the crisis and that is common sense underwriting.  Underwriting is NOT credit score driven unlike almost all other banks. the totality of the credit report is taken into account.  Once the commitment letter is issued, it is basically free and clear of conditions.  Rates are very competitive and they do allow financing up to 90% in some cases.  They do NOT allow financing on co op units.

ASTORIA FEDERAL SAVINGS BANK- Strangely enough, this was  a lender that I was very hesitant to send loans to many years ago.  Now, they are my first choice if the borrower qualifies.  Conservative to their core, they too maintain common sense underwriting.  They do have post close reserve requirements that are tougher than most lenders but if the loan fits, they are terrific.  Extraordinarily good ARM rates.

Don't get me wrong, there are others out there as well that are very good.  I wanted to give a small sampling.

Monday, May 23, 2011

The confusion about closing costs

   Can anyone know what their closing costs are going to be?  Seems like a simple question with what should be a simple answer.  Take it from me, its not simple.  There are several areas that I want to cover here in an attempt to clarify:

  At the end of the day, I believe that borrowers want to know the following question-how much money do I need to bring to the closing table?  If that's the question you want answered then you have to understand what is a real closing cost and what is a pre paid item. Below is a list of both but does not encompass all of them:

REAL CLOSING COSTS                                          PRE PAID ITEMS
Title insurance                                                               Per Diem interest (1st mortgage payment)
Credit report                                                                 Tax escrows
Ancillary title fees
Bank attorney
Underwriting fee                                                                                                                 Appraisal                                                                 
Mansion tax
Mortgage tax

  Ok, now you know which items fit into which category.  Should be easy now, right?  Wrong. Typically, the real closing costs are fairly easy to figure out.  The most difficult part on that side is the title bill.  For all purchase transactions, the borrower's attorney orders the title insurance and tends to use the title company that they know and have done buisness with.  The title premium is state mandated so no matter which title company is used, that number is set.  Once you get into the area of searches, endorsements, title closer, etc, it can vary from one company to another.  The pre paid items is where it gets complicated as these are not fixed costs.

Per Diem Interest-  Again, this is your 1st mortgage payment.  The bank doesn't want to wait to bill you for that, thus if you close on March 15th, the bank will collect the mortgage payment that starts on March 15th and runs through March 31.  You will not receive your April bill until May 1.  So, the day of the month you close changes that payment number and if you have a large mortgage, it can be thousands of dollars.

Tax Escrows-  If you choose to pay your taxes with your mortgage payment, the bank is going to collect anywhere from 2-6 months of taxes at the closing table.  The method by which it is determined how much they will take depends on a few factors-when the last tax bill was paid, when the next tax bill is due, etc.  Many times, you don't know what month you are closing so its very hard to determine upfront what that is going to be.  Always assume the worst.  Also, realize that if there are any taxes due within 60 days of closing, those will be collected at the closing table

  As you can see, a lot goes into this but there are a few rules of thumb that are important to follow:

  • Always speak to a mortgage professional before entering a contract so you have a good idea of approximately what your closing costs are.
  • When estimating pre paid items, always assume the highest numbers as you do NOT want to be caught short.
  • Speak to your attorney and ask them what the title bill should be.
  • Have your real estate broker, mortgage professional and attorney be on the same page about these costs.

Wednesday, May 18, 2011

What loan is right for you?

There is much debate as to what product makes the most sense for someone buying a home.  Some people say that you can never go wrong with a 30 year fixed rate.  You never have to worry about the payment changing and you can have peace of mind knowing your costs are fixed.  On the other end of the spectrum, Alan Greenspan, the former FED chairman made a comment a few years ago that basically said you should take an ARM product at all times.

My opinion is that the circumstances dictate the product.  Give the pros and cons of each and let the borrower decide.  Let's go over them:

FIXED RATE MORTGAGES:  This is the easy one.  As I mentioned, if you take this product, your costs are fixed in and you never have to worry about change over the life of the loan.  The perfect product for those people that are going to be in a property long term.  It's a product that for the most part, is hard to argue to not take.  What's the downside to it-you pay a premium in rate in order to have fixed costs.

People that tend to take fixed mortgage products:

   1.  Fiscally conservative.
   2.  Plan to be in the home for the long term.
   3.  Steady income earners.
  

ADJUSTABLE RATE MORTGAGES:  There are 3, 5, 7 and 10 year ARMs.  That simply means that they are amortized over a 30 year period but the rate is only fixed in for 3,5,7 and 10 years.  After the fixed period, the rate usually adjusts once a year for the remainder of the loan and there are caps which restrict just how high the rate can go.  The upside to the ARM products is that the rates are lower than a fixed rate mortgage.  Yes, there is more risk but with the risk comes the reward of lower rates.  This is a favorite of people in the financial world.

People that tend to take adjustable rate mortgage products:

   1.  Those that feel they won't be in the home long term and will not reach the adjustable portion of the loan.
   2.  Wall Street workers.
   3.  Bonus driven individuals that need a lower payment because of smaller base salaries.
   4.  Gamblers.  Seriously.
  

Again, this is about the individuals circumstances at the time they get the loan and what they project for themselves in the future.  The most important thing is that you make an informed decision weighing all the pros and cons.

Friday, May 13, 2011

Co Op Transactions

   If you live outside of the NY metro area, you may say to yourself-what is a co op?  To all of you that read this blog, you know exactly what it is.  As mentioned in previous blog posts, its those lenders that were and to this day, remain conservative that have weathered the housing storm.  Its just as true when its comes to building type.  Co op loans have changed very little.  Why?  Its 2 fold.  Firstly, the banks know that the co op is a built in filter and in most instances, the buildings requirements are tougher than the lender.  Secondly, the requirements to get a co op building approved really haven't changed.  If you don't think so, try and buy a condominium with financing these days.  It's a nightmare.  Here are the bullet points on things to be aware of when dealing with a co op:

  •    Taking the mortgage out of the equation, know that boards tend to look at 2 things when looking at a package-post closing reserves and debt ratios.  Every board is different so its crucial that you, your attorney or your realtor know exactly what the requirements of the board are before entering into a contract.  Post close reserves can vary from needing 1 years worth of maintenance in the liquid assets to needing twice the purchase price in liquid assets. Of course, its the higher end co ops that would need the latter.  As far as debt ratios, most vary between 25% and 35% and its normally a simple calculation of what is your gross income vs what your expenses are (credit cards, car loans, student loans, etc).  Be careful though because some boards allow the use of certain types of income like bonus and some don't.  By the same token, some boards count certain liabilities and others may not.  KNOW YOUR BOARD!!!!!!!
  •    Lenders want to see that at least 51% of the units in the building are owner occupied.  Some of the portfolio lenders are a little more strict but thats the general rule. Many times, realtors call me to ask if the building is on a lender's approved list.  Its a very good way to clear one of the financing hurdles quickly or to get a heads up as to whether the building may be a problem.
  • Be careful about locking your interest rate too early.  Many boards have a very long approval process and that can delay things.

Tuesday, May 10, 2011

The Mortgage Market-Where we are and where will will be

We have all seen, ad nauseum, why we are in the predicament we are.  We've read it in newspapers, magazines and on line.  We have seen it on CNBC, MSNBC and every other station- "subprime", "credit default swaps", "securitization", "liar loans", "foreclosure".  I could go on on and on.  My goal is to give you an insider's view of the mortgage market from someone who has been on the frontline for the last 10 years.  Let's start with where we are and finish with where will will be.

   Currently, the mortgage market is a tough one to navigate.  The majority of conforming loans are bought by Fannie and Freddie and we all know what shape they are in.  Because of that, banks are scared to death that any loan they originate will have to be bought back from the GSEs.  Thus, they are nitpicking EVERY single aspect of the loans.  That, along with tougher credit guidelines and dropping property values have made things very difficult.  Don't get me wrong though.  For those out there that have good credit and a steady income, you can get a loan.  Its just a tougher task now.  Everything must be documented to the enth degree.  All large deposits in bank accounts have to be excplained.  Credit inquiries on a credit report need to be explained.  In many instances, bonus income must be consistent over a 2 year period.  If your loan is non jumbo, cross your T's and dot your I's, folks.  Otherwise, you are in for a very bumpy ride.
  
   On a more positive front, many of the savings bank/portfolio lenders (those that do not sell to Fannie and Freddie) have actually loosened up some of their guidelines.  Why? There are several reasons but in my mind, one of the major reasons is out of necessity due to a lack of loans.  You see, many portfolio lenders have weathered the storm very well simply because their historically conservative approach to writing loans insulated them from many of the Fannie and Freddie pitfalls.  That very conservative approach has now bitten them in the rear.  For example, let's assume the lender would only allow 70% financing before the credit crisis hit.  With a precipitous drop in values of homes, that 70% financing has turned into 50%.  How many people out there have that?  Not many.  They have had to loosen up in order to increase loan volume.

   That's a synopsis of where we are.  I can go on, but why bore you with more disappointing facts.  Let's now talk about where we will be in a few years.  of course, this is only a predicition, an educated guess.  From a timing stanpoint, I do not see a general alleviation for several years.  The foreclosure market needs to shake itself out and so do the majority of loans closed that might turn sour within the next few years.  I harken back to George Bush's words about "draining the swamp".  We need to do that and let nature take its course.  Here are some other tid bits that I believe will come to fruition:

  1.  The conforming loan limit will drop and that will allow porfolio lender to have more power and have a bigger impact on the mortgage market.  That will be good for the mortgage brokers that have survived.

  2.  Fannie and Freddie will be minimalized more and more through a conserted effort on the part of the government.

  3.  Within a few years, anything more than 80% financing will be weeded out.  Back to the old days.

Thursday, May 5, 2011

What you MUST do before purchasing a home

The process of buying a home conjures up many things-stressful, confusing, expensive, etc.  There is no guarantee that your process will be a smooth one but there are some basic things that you can do to prepare and set yourself up for success:

  1.  Get prequalified from a professional PRIOR to looking at any property.  I cannot stress how important this is for you and the realtor you are working with. 
     a.  You need to know what you can afford so when you do go looking for your dream home, you are looking in the right price range. 
     b.  You might have an issue on your credit report that you were not aware of.  I have seen many situations where there is a collection or a judgment that the borrower is totally unaware of and it has effected their credit score negatively.
     c.  You should be discussing all mortgage options so you can better understand what your price range may be.  Some products may have a much lower interest rate thus having a lower monthly payment.  Make sure the pros and cons of each product are discussed.

   2.  Know what your closing costs are.  When you buy real property in NY (condo or single family home) closing costs will be significant.  You MUST factor that in when deciding on cash needed for the transaction.  I have seen all too many times when the borrower isn't aware and have already entered into a contract only to find out that they don't have the necessary funds.

   3.  Make sure your realtor and mortgage professional are on the same page.  Good communication is essential prior to looking at property.

Monday, May 2, 2011

Why do I write this blog?

Just like any profession, you are always looking for ways to improve communication with those you work with.  Ever since I started this blog, I have been thinking of ways to do just that and the idea of looking at other mortgage related blogs seemed like good, practical self advice.  So I set about doing research and I was surprised to find what was out there.  Most of the blogs I encountered ( I am sure I didn't scratch the surface of what is out there but I think I got a good sampling) that were considered highly rated blogs, were very nicely constructed, many of them having pictures and advertisements and the like.  But after looking at blog after blog, I noticed a consistent pattern and 2 simple questions kept running through my head:

  1.  Who is the target audience for this blog?
  2.  What useful information are they getting that will help them?

Let's be clear about my main goal-  Educate and inform borrowers, attorneys and realtors about the mortgage process in the tri state area. 

What does a reader get out of the following types of articles I have seen:

   1.  Mortgage applications down 3.5% for the 4th quarter of 2010.
   2.  The median price of a home in the US was down 2.6% last fall.
   3.  How wonderful the service is at XYZ Mortgage Company.
   4.  Lovely charts and graphs showing trends in condo sales.

A realtor in NYC relayed a story to me many years ago and it has stuck with me ever since.  He mentioned  there was a mortgage broker that had a systematic campaign of sending out his monthly newsletter to as many realtors he could find and many of them were not people he had done business with.  Upon receiving this newsletter, the realtor said "if I wanted another article about mortgage rates being up for the week or co op sales being down for the quarter, I would just look at the junk my company spits out on a daily basis".

In keeping with my goal, here is my tip for the week: 

           Gift money from family for down payments MUST be sourced.  That means proof of where the money came from and proof of the deposit into a legitimate account.  Gift money cannot come "from under the mattress" and must come from a spouse, fiance or close family relative.

Monday, April 25, 2011

Purchase before selling

A common dilemma  for many buyers who are actively looking for a new place to live is that they already own a property and they need the proceeds of the sale of their current home in order to be able to do it. Sure, they may have the 10%-20% to put in escrow but not enough cash to be able to take a mortgage that has a payment they are comfortable with.  There are a few solutions for this:

1.  Even in this environment, if you only have 10% to put down, you can get a mortgage.  Banks and the mortgage insurance companies are still writing paper at 90% financing.  Be careful though, you will be limited on loan amount, will need a good credit score and the zip code of where the property is might affect the amount that can be financed.

2.  If you buy before you sell, consider taking an interest only loan.  Why?  Because once you do sell your other residence, you are probably going to take a portion of the proceeds and apply it towards your new loan.  With an interest only loan, that principal reduction will cause your monthly payment to go down.  A regular principal and interest loan will not do that.  It will only shorten the term in which it takes you to pay back the loan.

In previous years before the credit crisis, you could show the bank a listing agreement or contarct of sale on your current home and they would discount that debt.  Not anymore.  Aside from only 1 bank, you must qualify carrying both properties.  This of course assumes you buy before selling.

Thursday, April 21, 2011

How to increase business

This post will have a slightly different subject matter but one that is of great importance to all of us and that's how to increase your business.  There is no doubt that times are tough right now in the NY real estate market.  We are all searching for new business and trying to find ways to get ahead.  many times, we marvel at how the top producer do it.  How can they consistently get more business than me?  There are simple explanations.....

Ever hear of the scientific term "Occam's Razor"?  Although misunderstood, the popular version of what it means is "the simplest explanation is most likely the correct one." We all know it and understand it, yet fail to do it as often as we should......marketing.  It is the lynchpin, the key, the whole kitten kaboodle.  here are some suggestions on how to market yourself:

1.  Ask yourself EVERY day the following question- "what have I done to market myself today?"

2.  Keep a database of old and new clients.  Know their e mail addresses and phone numbers.  Always stay in front of them.

3.  Send them a happy birthday e mail or an interesting article.

4.  Write a blog. (haha)

5.  Keep poeple informed about things that interest them, not you.

6.  Lunch, coffee or drinks.

7.  Join a networking group. (Man, I hate those).

Monday, April 11, 2011

Be careful with Condominiums

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Condominiums have become a real pain in the neck.  Fannie Mae has enforced and created new rules that have made the process more difficult.  Realize that there are 2 parts to getting approved- the borrowers financial pedigree AND the condominium approval.  Please look at the following items before jumping into a contract:

1.  Banks want to see that at least 70% of the units are sold/in contract/owner occupied.
2.  No 1 entity owning more than 10% of the units.  That includes the sponsor.
3.  Banks want to see at least 10% of the operating budget for the year in reserves.

These are not hard and fast rules for every lender but please be careful.

Setting realistic goals

I think it always smart to manage expectations from the very beginning as I think it will make life easier for everyone involved.  The mortgage process might be filled with ups and downs but an expectation of just that will alleviate some of the stress.  Some of these will may you laugh and are a little tongue in cheek, but you will understand and laugh because you know they are true.  Here are some examples of the things I say.  Maybe you can use them too:

1.  "Be prepared that I will ask things of you that might not make sense.  To all the rest of us, it doesn't, but to the bank it does."

2.  "If you read the Good Faith Estimate and the bank commitment letter cover to cover and believe every word as gospel, you will be driven insane".

3.  "You will receive disclosures in the mail from the bank shortly after they receive your file.  Don't read them and file them away, never to be read".

4.  "Realize that once we are ready to close, it may take some time to get the closing scheduled.  When managing agents, attorneys, buyers, sellers and brokers are involved, its like trying to coordinate a wedding".

Friday, April 8, 2011

How to maintain good credit scores

This is information we can all use.  With the credit crisis still in full swing, lenders have put a bigger premium on credit scores than ever before.  For lending purposes, everyone should strive to have scores above 740.  Here is how you do it:

1.  Always make your payments on time.  Remember that a late payment does not show up on your credit report unless it's at least 30 days past due.  If its less than that, you will pay a late fee and if its a credit card, you may have your interest rate increased, but it will not show up on your credit report.

2.  Keep your balances under 33% of the toal credit limit.

3.  Maintain at least 4 trade lines of some type.

4.  Many times people have collections on their report that they are not aware of.  Once you are aware of it, pay it off and attempt to get the account REMOVED from your credit report.  If you just pay it, the report will still have the collection but it will reflect "paid".  This will cause your scores to go DOWN in the short term.  It can be a tall task to get it REMOVED, but well worth it if you can as your scores will bounce back much faster.

5.  NEVER, NEVER, NEVER pay your mortgage late.  That will probably have the biggest negative impact on your scores.

Thursday, April 7, 2011

Bonus Income and how its qualified

For many, especially in NYC, bonus income constitutes a nice chunk of a borrower's income.  In some cases, it is the majority of total compensation.  Generally, here is how the banks look at it:

You MUST have a 2 year history of bonus at the same firm
If the bonus was higher in the more recent year, then the bank takes a 2 year average
If the bonus was lower in the more recent year, they use the lower number.
Some of the portfolio lenders that do higher loan amounts may take a percentage of the total bonus

Note that Condo and Co op boards may view this income differently than the bank.

Wednesday, April 6, 2011

Loan officer compensation changes are here!

For those of you that may have seen the e mail I sent out this morning, today marks an historic change in the mortgage world.  All loan officers (and that includes originators at banks) are working under a new set of rules.  We do not have all the data in yet because it will take some time to reasearch rates at other insitiutions, but there are a few definitives that we know of:

1.  Loan officers can no longer make more money by giving a higher interest rate.
2.  As the law stands now, NO OTHER BROKER can offer a lower rate than my company at Citimortgage and Wells Fargo.  These are the 2 banks that handle the bulk of conforming loans through the wholesale channel.
3.  Loan officers can no longer give back part of their commission to cover any of the borrowers costs.

Stay tuned for more information that you can use.......

Tuesday, April 5, 2011

Welcome

Welcome all.  This is the maiden voyage of my new blog.  I never considered myself "technically savvy" but I have been told this isn't too tough.  My goal is to inform, stimulate, make you laugh, make you cry, (if you are in real estate then you understand what that one means).  Most of all, I want people to read what I write and say "that's useful information for me".  I think it especially important at this time, in this lending environment. 

There is so much misunderstanding and misinformation out there about the mortgage world right now and I hope to clarify a lot of that.  10 years on the front line gives me a pretty good understanding of whats going on out there.  I want to hear from you so please feel free to tell me what you think.

Kevin Ungar