...

Shopping for a mortgage? Protect yourself from bait-n-switch, scams, and predatory lenders

Protecting yourself against predatory lenders, mortgage scams, and Loan officers screw-ups

Mortgage rates are amazing. That’s great news for veteran loan hunters.

But for inexperienced shoppers who don’t watch their backs, the mortgage business can still be a scary place to travel.

The internet especially has make it easier for sly lenders to mislead and take advantage of naïve consumers using any number of tricks, from quoting bogus rates over the telephone to slipping gratuitous costs into their loans. To avoid these problems — as well as other trip-ups posed by the confusing mortgage process itself — consumers have to brush up on their mortgage shopping skills.

Market is ripe for tricks and trip-ups
In the past few years, when the market was hot, a lot of rookie Loan Officers and small brokers came into the market that may not have the experience level you’re comfortable with. There was money to be made, and it was easy. Just sit back, and the phone will ring with customers wanting to refinance. The number of lenders and Loan Officers TRIPLED from 2001 to 2005. Lending volume also TRIPLED to the highest numbers in history!

Since the mortgage market meltdown, which really kicked into high gear in mid 2007, mortgage volume is down dramatically, and many companies are desperate to stay in the business. They will say and do anything to capture a deal.

The reality is that most lenders and brokers aren’t out to fleece customers and the complexity of the home loan process — rather than anyone’s malfeasance — takes the blame for some of the obstacles consumers face. Many trip-ups don’t rise to the level of “predatory lending” either, regardless of what the media claims. Nevertheless, they can cost borrowers serious time and money, and guarding against them becomes even more important during the boom times.

There’s kind of a range of games that get played and they’re pretty broad, from fairly benign stuff to outright fraud.

Problems can pop up long before a borrower fills out any paperwork. Indeed, just finding out how much a mortgage closing costs can be confusing, especially when looking at the new Good Faith Estimate when you are used to the old Good Faith Estimate.

Be as specific as possible
Many potential customers simply call lenders up and ask, “What’s your rate?” But they fail to indicate what kind of loan they need, how long of a lock period they want, how many discount points they’re willing to pay, how long the rate is good for or anything else. Consumers have to specify all of these things or lenders can pretty much say whatever they want, then provide different figures when the customers come in and blame the lack of specificity.

A loan with a lock period of just 15 days, for instance, usually has a lower rate than one that a consumer can lock in for 60 days. Most consumers opt for loans with longer locks because they need more than two weeks to close. But loan officers sometimes quote rates on their shortest-lock loans over the phone or in print just to sound cheap, knowing full well that many callers will never be able to obtain those loans. Companies can provide interest rates that include several discount “points” to make their rates look better, even though most of our customers either can’t or don’t want to put down several thousand extra dollars at closing for “points” to lower the interest rate.

In most of newspapers, once a week or more, they’ll have a list of rates by lender. But frequently you’ll find the rates they put in the paper were rates that were really never available. They kind of low ball their rate. When you come in, they’ll tell you the market has moved and the rates are now higher. They get away with this because the rate they list in the Sunday paper is usually submitted on Thursday. You read the paper on Sunday, then call the lender on Monday…

Figure in the fees
Borrowers often forget to ask about fees, and don’t compare lenders based on their closing costs. That allows companies to pad their bottom lines by adding “processing fees” and other miscellaneous charges to the loan at closing. Lenders don’t control certain fees for services provided by third parties, such as title searches and appraisals. But they can adjust their own fees.

Don’t believe everything you read
It’s a competitive business. Lenders understand this, so creative advertising is everywhere. Consumers need to watch out for advertising tricks, too. Companies have been plugging “no cost” refinance loans lately, but the tagline really means “no out-of-pocket costs at closing.” Borrowers pay higher rates on these mortgages and lenders use the extra money to pay the costs themselves. There is no such thing as a no closing cost loan!

The annual percentage rate, or APR, found in advertisements can be misleading as well. Mortgage lenders don’t always include all the fees they charge in the calculation that determines APR, so customers who use that figure to shop rather than an itemized breakdown of rates, points and fees may end up comparing apples to oranges.

Of course, it’s difficult for borrowers to compare fees when they don’t know what they are. By law, lenders and brokers don’t have to give what’s called the Good Faith Estimate document to customers until three days after they apply. But there’s nothing preventing shoppers from asking for it before committing to anything. Reputable lenders will provide one. Please read my article- Beware of the Bad, Good Faith Estimate, so you know what to look for when you do get your estimate!

Banker, Broker, or Direct Lender. All are “Loan Officers”, so who is best?
When you’re looking to get a mortgage loan, you may work with a loan officer, but where they work makes a difference! People often confuse the lender types even though all will glean the same results: a home loan. However, it is important to understand the difference between the three types of lenders so you know what to expect from them during the mortgage application process.

Currently the industry is seeing the biggest problems with loan officers exactly where most customers wouldn’t expect. The big banks. Why? Most states have enacted strict guidelines for non-bank lender and brokers. These include criminal background checks, mandatory education, stricter underwriting guidelines, mandatory disclosures, and more. BUT, state banking laws can not trump federal banking law. Federally Chartered Banks (all the big bank names you know) only have to follow less restrictive federal law. Basically they get to do whatever they want! Thanks Washington!

  1. All Loan Officers are required to have an NMLS number (Nationwide Mortgage Licensing System and Registry). This gives the FALSE APPEARANCE of bank loan officers having a license.
  2. Bank employees are NOT required to have background checks, do not need any state or federally mandated up-front or ongoing education, and do not have pass any state of federally mandated tests to be a loan officer.  They could have been flipping burgers yesterday!
  3. All NON-BANK Loan Officers MUST have a personal license.

Know the score
After customers apply and have their credit scores pulled by their lenders, they should ask for those too. Companies have no obligation to share them, but those scores often dictate whether borrowers get loans and how much they have to pay for them. Customers who obtain their scores can get rate quotes tailored to them, rather than receive quotes that may apply only to borrowers with better or worse credit.

If I would say at the application stage to my lender, “Hey, when you pull my credit report, will you tell me what my scores are?” and he said no, I think I would go somewhere else. Why not go with somebody who is willing to tell you? You need to know.

Last-minute maneuvers
Closer to closing, borrowers also have to watch out for counteroffers from their current mortgage lender. When borrowers refinance their loans, their new lenders request “payoff letters” from their old lenders. These letters spell out exactly how much the old lenders are entitled to at closing and are often the only indication that a borrower is refinancing.

To avoid losing customers, lenders who are about to get the boot sometimes swoop in and offer to lower their borrowers’ rates or refinance them into new loans themselves. While the offer may sound competitive, they almost always are aren’t so.

Another source of confusion is the assumption that your current lender can do a loan for lower fees. The vast majority of the time this is NOT true. Loans are ‘packaged’ to be resold. The vast majority of lenders resell their loans and therefore any changes to the original loan require a complete new package, new closing, new note, new closing costs, new appraisal, new everything, etc. Plus, they usually come very late in the process. Borrowers who accept them can end up having to forfeit application fees or other monies to the lenders they planned on using.

By learning about all of these miscellaneous traps, consumers can take advantage of today’s lower rates and refinance without worrying about being taken for a ride. After all, experts say, preparation is the best defense against shady lending practices.

It comes back to education. If I’ve called five respectable lenders – I know about what rates and costs are. It’s going to be pretty easy for me to know whether one lender is pulling the wool over my eyes.

How do you know if they are are respectable lender? Read “How to Shop for a Lender” for some good clues.

One final word of advice. OUT STATE INTERNET LENDERS, NO MATTER WHAT THEY CLAIM, can NOT offer you anything you can’t get from the local lender down the street. These out state lenders are by far the worst in terms of misleading quotes, miscellaneous traps, and shady lending practices as they have no connection to the community YOU live in.

Need a great lender in MN or WI?  Apply HERE. Have an answer in a few hours.

.

A petition to Bolster the Housing Market by Reforming Regulations Concerning Short Sales

Bolster Homeownership and the Housing Market by Reforming Regulations Concerning Short Sales

• Have the FHFA change Fannie and Freddie’s guidelines regarding how long a consumer waits to be eligible for a new mortgage after a short sale to no waiting period if there were no late mortgage payments prior to the short sale and 1 year if there were.

• Have HUD amend FHA’s requirement to wait 3 years after a short sale where the consumer had late payments in the 12 months preceding the short sale. It should be amended to a 1 year.

• Have HUD clarify their guidelines regarding buying a short sale where the consumer didn’t have late mortgage payments prior to the short sale.

• Have the FHFA, pressure PMI companies to waive their right to deficiency judgment in the event of a short sale.

• Impose a 5 year moratorium on deficiency judgments on first mortgages.

CLICK HERE TO SIGN THE PETITION

PASS THE WORD using the social media links below!

###

HARP 2: Another Obama Housing Refinance Failure?

The Federal Housing Finance Agency plan to revamp the Home Affordable Refinance Program will result in just 17% of Fannie Mae and Freddie Mac 30-year loans qualifying for refinancing, according to one analyst.

Sarah Hu said there are some benefits of HARP 2.0, which is how bond investors refer to the plan, but also believes hurdles remain.

READ THE FULL STORY

.

HARP 2. Underwater Refinance Program changes announced

FHFA, Fannie Mae and Freddie Mac Announce HARP Changes to Reach More Borrowers

Washington, DC – The Federal Housing Finance Agency, with Fannie Mae and Freddie Mac (the Enterprises), today announced a series of changes to the Home Affordable Refinance Program (HARP) in an effort to attract more eligible borrowers who can benefit from refinancing their home mortgage. The program enhancements were developed at FHFA’s direction with input from lenders, mortgage insurers and other industry participants.

“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said FHFA Acting Director Edward J. DeMarco. “Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises.

Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.” Fannie Mae and Freddie Mac have helped approximately 9 million families refinance into a lower cost or more sustainable mortgage product, approximately 10 percent of those via HARP.

HARP is unique in that it is the only refinance program that enables borrowers who owe more than their home is worth to take advantage of low interest rates and other refinancing benefits. This program will continue to be available to borrowers with loans sold to the Enterprises on or before May 31, 2009 with current loan-t0-value (LTV) ratios above 80 percent.

The new program enhancements address several other key aspects of HARP including:

  1. Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
  2. Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
  3. Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
  4. Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
  5. Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.

An important element of these changes is the encouragement, through elimination of certain risk-based fees, for borrowers to utilize HARP to refinance into shorter-term mortgages. Borrowers who owe more on their house than the house is worth will be able to reduce the balance owed much faster if they take advantage of today’s low interest rates by shortening the term of their mortgage.

The Enterprises plan to issue guidance with operational details about the HARP changes to mortgage lenders and servicers by November 15.  Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes.

Borrower Eligibility

In general, borrowers must meet the following criteria:

  1. The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  2. The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  3. The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
  4. The current loan-to-value (LTV) ratio must be greater than 80%.
  5. The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.

Homeowners can determine if they have a Fannie Mae or Freddie Mac loan by going to:

FANNIE MAE LOOKUP or calling 800-7FANNIE (8 am to 8 pm ET)

FREDDIE MAC LOOKUP or 800-FREDDIE (8 am to 8 pm ET)

Mortgage Payment Calculator App

Wouldn’t it be nice to have a handy Mortgage Calculator App on your phone to quickly calculate payments while out looking at homes
or figuring out a refinance payment?

Realtors, wouldn’t it be nice to quickly calculate a payment for the client?

Never again will you have to guess your monthly payment when you’re shopping for homes because you can calculate your payment on the spot…even if you’re in the house you might want to buy! This calculator gives you the confidence you need to make a decision on the affordability of any house.

Install this Complimentary Smartphone app now to eliminate uncertainty that surrounds buying a home and pin point your monthly payment with laser-like focus.

Different loans default at different times for different reasons – Shocking!

Both fixed-rate and adjustable-rate mortgages are susceptible to default, though at different times when the right amount of economic volatility shakes the financial markets, according to a new report from the National Bureau of Economic Research.

However, the factors that end up leading each type of mortgage into default are often quite different.

Read the full story

.

What came first, falling home prices or a slumping market?

What came first, falling home prices or a slumping market?

Chicken or the Egg?

St Paul, MN: While pundits galore will claim many different views, the answer is rather simple in economic terms. After years and years of record home price increases, the market simply couldn’t support the increases anymore. Buyers could no longer afford the prices. House prices started falling first simply because no one was willing to pay the price anymore.

Most loan programs like to see debt ratios no higher than around 40% of income. FHA for example is 43%.  Simple economics apply here. If the average wage in Minnesota is $784 per week ($40,784 per year), assuming no other debt (not likely), 5% down, PMI, taxes and insurance, this person could buy around a $180,000 home. Start throwing in debt, car loans, credit cards, etc., and the maximum home price starts sinking as fast as a rock in water.

As home prices increased, buyers started switching to high risk, short-term loan products to make homes more affordable. As we can see by today’s market, that was a short sighted plan that didn’t work out well for many.

Therefore there really is only one way to get demand up and people to start buying again. Affordable home prices. Simple supply and demand economics. Too much supply because of too little demand forces prices to drop. As unsold inventory clears, higher prices will return (but fewer sales).

Starting around 2000, the normal supply and demand cycle was dramatically upset as people threw caution to the wind and kept demand artificially high. Everyone wanted in, and they were willing to pay whatever price was asked. Everyone figured you could make a killing in the housing market. This was especially evident in the investment property market.

A killing has occurred. Just not the one most people expected as the house of glass broke in 2007.

So what do we do now?

BUY A HOME! Housing affordability has returned for most people, interest rates are near historic lows and there are deals to be had everywhere. First time home buyers should be running in masses to buy a home!

You just missed the mortgage interest rate boat… or did you?

Oops – you just missed the mortgage interest rate boat… or did you?

St Paul, MN:  The headlines are screaming… Mortgage interest rates just hit historic lows again for the forth straight weak. The morning talk shows are asking if it is a good time to refinance your home?  So is it a good time to refinance? The answer is probably yes, but let’s find out the truth about interest rates and how they work.

The main item to understand is simple. Mortgage rates go up and down everyday.  Sometimes a lot. Sometimes a little. There are many factors that contribute to rate changes, but a simple one to understand is that negative stock market and negative economic news is good for long-term mortgage interest rates. Good news is bad for rates.

The next big item to understand is all lenders are virtually the same. If one lenders rates do down, so does everyone else. They all underwrite to the same basic guidelines, they have all the same third party fees (appraisal, title company, underwriting, etc), and they all are transferring your file to Fannie Mae, Freddie Mac, FHA, etc.

Rates Change: I was quoting rates at 3.875% on Monday (10/3/2011) for an under 80% loan-to-value 30-yr fixed loan for someone with over a 740 credit score. By Friday (10/7/2011), the same deal was 4.25%. The bottom dropped out of the bond market during the week, rates went up, and every shopper who got quoted a great deal but asked if I thought rates were going to go lower just got burned.

BE CAREFUL: I just heard hear this morning another report from America’s most misleading rate information site,  Bankrate.com. They just said that interest rates are in the 3’s. Hmmmm….  Really now? Be careful. On what program? With how many points, and how much blood do I have to give?

Each Thursday, Freddie Mac reports interest rates. This information is picked up by all the media and spread across all the TV, radio, and newspaper. This is perhaps the most misleading piece of news that is placed into consumers hands on a regular basis. The full story is usually edited down to Twitter sized chunks, and we only see the blurb…”INTEREST RATES HIT ANOTHER LOW” or “INTEREST RATES REMAIN LOW” and reporting about what that indicator is.

This is LAST WEEK’s news. They are telling you what closed and what was already locked previously. If you want to buy Google stock, does it matter what the average of the stock was last week, or today’s price? If the nationwide average was 4.123% two weeks ago, and the average last week was 4.122% – I guess that does count as “INTEREST RATES WENT DOWN AGAIN“.

As many of you who see the news and call around about rates have found out, that rate is not always available and now you know why.

No lender can offer you yesterday rates today. Nobody can offer you what you were looking for in the beginning: Monday’s rates! Frustration, hassle, pestering, over promising, ignorance, lies, demands, promises, etc all take place and you likely throw your hands in the air and say. FORGET IT! I’ll STAY WHERE I’M AT! You missed the boat!

You didn’t miss the boat. You almost got suckered in today’s over hyped mass media world. The reality is it is almost impossible to pick the day interest rates hit a low. Pretty much dumb luck.  On the other hand, getting a mortgage interest rate that is NEAR the bottom of the market is super easy.

Partner with a professional Loan Officer, and get your mortgage application started!

Winning or losing – How to play the Mortgage Interest Rate Game

Mortgage interest rates — just like stock prices — change price daily and you can win big or lose big if you don’t know what you are doing.

#1 Mortgage Interest Rate and Lender Shopping Tip | MN and WI Mortgage Rates | Quote, Float, or Lock? |

For the home buyer that is “shopping” for a mortgage, or waiting for rates to fall, or just “hasn’t gotten around to it”, we suggest you almost always lock, and to do it quickly. The sooner you lock your rate, the less chance you have of losing in the Mortgage Rate game.

If you are refinancing, you can gamble a bit more, but if you have a signed purchase contract in hand, lock your rate as soon as possible.  There is no better way to protect yourself from the fickle mortgage markets. Holding out for 1/8th – 1/4% more is just not worth the risk! If you want to gamble… go to Vegas.

What is a Rate QUOTE? When buying a home or refinancing, it is common to call around to many lenders to get a rate quote. A quote is not a guaranteed rate. Another common issue with getting a quote is you often get one from Lender A on Monday, Lender B on Tuesday, and Lender C on Wednesday. Rates can change daily, sometimes multiple times, so unless you get all your quotes at the same time, you don’t have accurate information. THE ONLY QUOTE THAT MATTERS IS THE DAY YOU LOCK. Many lenders quote you low to get you to stop shopping, knowing that you will usually NOT be locking the same day of the quote – especially for any purchase loans. Be wary of anyone significantly lower than anyone else.

What is a Rate Lock Period? The lender will usually quote rates along with a rate lock period, usually 15, 45, or 60 days. The loan must close within this period. The longer the rate period, the higher the interest rate.

What is a Rate Lock? When you “LOCK” your interest rate with your lender, you and the lender agree this is the guaranteed rate you will receive, and that no matter what the markets do before closing, you will not be charged a higher rate if rates go up, and you will not be able to get a lower rate if rates go down. Your rate lock should be in writing.

What Does It Mean to Float? Floating your rate means means that while your loan is in progress, the rate is NOT yet guaranteed. You are taking the risk that interest rates will either not go up or that they will fall. If rates have been dropping, then you might want to take a chance that rates will be lower by the time you close your loan than they are today. Discuss the floating with your Loan Officer. Sometimes it is worth the gamble, sometimes it isn’t.