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What’s First? The House or the Mortgage?

From Dean Hartman of KCMBlog

Most people get it backwards. They shop for a home, THEN, they try to structure the financing for it. They make the emotional decision of buying the home of their dreams, THEN, try to apply logic in how they pay for it. Many even go “online” and play with what is affordable by underwriting standards without TRULY considering their future.

I am always fascinated by mortgage underwriting “standards” when they don’t even take into account some very large variables that affect an applicant’s cash flow, and thereby, their ability to repay the loan or maintain a lifestyle they want:

 

  • Are you single or a family of six? Costs for food and clothing alone are very different.
  • Do you live in a state that requires State Income Tax or not? Another significant part of the equation.
  • How often do you like to eat out or vacation? Are you willing to sacrifice these things for a bigger or nicer home?

Falling in love with a home without considering the REAL impact on your lifestyle is a recipe for unhappiness….either in re-adjusting to a “lesser” home or disappointment over the lack of vacations or nights out.

My advice is to first work on your financing. Go the logic route. Find out what you can afford from a lender’s underwriting perspective, but then, spend some time considering the cash flow realities of your choice. Work with your loan officer to make wise choices.

Additionally, your loan officer should be advising you on ways to properly represent and transfer your assets, how to explain and document your income, as well as, assisting you in methods to get your optimal credit score. This counsel can be invaluable in smoothing out some of the bumps in the mortgage process, besides giving you the best chance to get the most aggressive pricing available.

To me, the choice is crystal clear…the mortgage before the house!

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Mortgage Rates for June 14, 2011

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Mortgage Rates for June 7, 2011

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Mortgage Rates for May 31, 2011

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Mortgage Rates for May 24, 2011

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Mortgage Rates for May 17, 2011

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Mortgage Rates for May 10, 2011

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What It Takes To Be A Mortgage Expert

From KCM Blog, posted by Dean Hartman on February 24, 2011

In the choppy seas of mortgage finance, you need someone who can navigate the ever changing product guidelines, interest rate environment, and understands your individual circumstance. These professional mortgage originators are worth their weight in gold. Most people enter the maze of mortgages every five years or so, and the industry has evolved so much that it is barely recognizable (and its evolution continues and is likely to appear vastly different five years from now).

The must-have qualities in a loan officer (LO) today are:

1.  Superior Product Knowledge

Knowing all the nuances of the loan product menu is crucial for a loan officer. How will your ability to be approved, your rate and your fees be impacted by your FICO score, Loan-To-Value, or liquid reserves? Being well versed in loan products and being able to see your personal situation as an underwriter is normally a function of experience.

2.  An Educated Opinion On Interest Rate Movements

No one is right all the time. However, I couldn’t imagine working with a loan officer who didn’t have an opinion on where rates are likely to move. Your originator should be in the advice business. They should be able to express their point of view in simple, logical terms. They should site financial data and reports (like inflation and employment data). They should understand the impact of geo-political events. Ultimately, it is your responsibility to decide when to lock in your rate, but don’t you deserve access to the best information possible to make your decision? Shouldn’t your LO provide it?

3.  Understanding Of The Credit Score Model

Your approvability and eventual rate and fees are determined by your Credit Score. You need a LO who knows how to help you get the optimal score. How will paying down a debt affect your score? Should you payoff a collection account before, after or even at all? How about those borrowers with limited trade lines or errors in their credit file?

4.  A Good Working Relationship With The Real Estate Agent

In today’s landscape, with frequent appraisal challenges and the structuring (and re-structuring) of deals, there needs to be excellent communication between the lender and the agent. Great loan officers have an understanding of the position, the responsibilities, and the psyche of the buyer, seller and the agent. The coordination of everyone toward a common goal is important.

5.  Impeccable Listening Skills

It is not a stretch to say every loan is different. You must search for a loan officer who is attentive and engaged. LOs need to ask questions, sometimes very personal questions. They need to understand your financing objectives, your strategy about this real estate acquisition, your current and future income, credit and so on, in order to truly give you the best advice.

In the world today, too many loan officers are “order takers”. You need an advisor. You need an advocate who knows the programs; who has an educated opinion on rates; who can help you get the best credit score possible; who understands the team dynamic between the agent and the lender  and who really listens to ensure that you get the best possible outcome.

Note from Semonin ~ We have several highly competent and caring home mortgage consultants who meet these criteria.  They work with agents in each of our offices, so relationships are solid between you, them, and the agents.  Get connected with one here!

 

Does Anyone Think These Things Through?

Courtesy of KCM Blog

Let’s start with an acknowledgement…the mortgage industry got messed up in the boom times.  People will debate for years to come whose fault it was (loan officers, appraisers, the government, the secondary market, Wall Street, the Big Bad Wolf, Sasquatch and others). Today, we will ignore blame and look to how the Regulators are attempting to prevent it from happening again (besides creating a muddled appraisal process through HVCC) — go after the loan officer (LO).

Step 1 – Tighten Program Guidelines.

Basically, eliminate those “risky loans” (Negative Amortization, High Loan-To-Values, No Income Verification, etc.). In addition, institute risk based pricing, which penalizes weaker credit scores, higher income ratios, and higher LTVs. Make borrowing more difficult. Good conceptually, but the guidelines have probably gotten too tight.

Step 2 – National Licensing of LOs.

Creating standards and testing to insure competency and compliance, as well as, tracking of loan officer performance. An idea that was long overdue; however, was its implementation fair? LOs that had English as a second language did not fare well on the tests. The tests were not, in many cases, a true measure of the talent and ethics of the loan originator.

Results of the first two steps have resulted in the loss of close to 350,000 loan officers (from a high of 450,000 to about 100,000 today). Thirty percent of those who took the tests failed them. Many have argued that those who remain are the “best of the best” and that the majority of today’s loan officers are advisors to their clients, professional in their approach, and dedicated to their industry. Is that enough? Apparently, it is not.

Step 3 – Limit Loan Officer Compensation.

The Federal Reserve has taken a position that LOs get paid too much or that LOs need to have their income defined purely by loan amount with no regard to loan program or terms, regardless of the amount of effort or experience or talent it takes to structure and assemble paper work for these loans. While many industry players and government oversight organizations are disputing the Fed’s authority and/or demanding more clarity on the new rules, it seems to be falling on deaf ears. Therefore, effective April 1st, the mortgage lending world as we know it, will be transformed.

What this means to the consumer

Regulators make a logical argument that LOs should not profit for unethical steering to non-advantageous products. I’ll even concede that leaving rate lock issues to the last minute can lessen the borrower’s ability to shop around. But the new rules will punish the borrower:

  1. Say goodbye to most state loan programs. There will not be enough revenue to pay the LO a fixed number based on loan amount regardless of loan product (as compared to the percentage of revenue generated model most are paid by today). This results in higher rates and worse terms for many first time home buyers.
  2. Say goodbye to even more LOs. The pay cut they will incur will reduce the number of LOs further…to a dangerously low number. Who is going to write these loans? And, the new testing has raised the barrier of entry to new people…..recipe for longer application, processing and closing times.
  3. How about the under-served? We are speaking of those who buy in low and moderate income areas. They have smaller loan amounts. Because LOs will only get paid on loan amount, they will gravitate to higher home priced areas. Let’s face it, the lower loan amounts are less money and a lot more work (multiple borrowers, more documentation, etc.). So, the first time areas (which fuel every other home sale) are going to dry up significantly.

It’s a NIGHTMARE that the general population is unaware of. Politicians and bureaucrats looking for someone to blame are only on a path to drive out the good LOs to more lucrative careers. The people who need counseling and guidance the most will be left with overworked and underpaid people who will be incapable and unable to serve them.

I know there will be some disagreement on my point of view, but I know I am right. Bring it on!

For true mortgage professionals and mortgage information, visit http://www.semonin.com/FinanceTools.aspx

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