Lenders category archives

America’s service members sacrifice a great deal to keep America safe. That’s one of the reasons they enjoy some special protections against foreclosure and mortgage default through the Servicemembers Civil Relief Act.

Someone apparently forgot to tell officials at JP Morgan Chase, the nation’s second-largest mortgage bank.

The finance giant overcharged thousands of military members on their mortgages and improperly foreclosed on dozens of active duty service members. The staggering details, recently unearthed by NBC News, highlight rampant violations of the SCRA that put thousands of soldiers on the brink of financial ruin.

Under the SCRA, service members struggling to keep up with mortgage payments can have their interest rate reduced and be insulated against foreclosure. Chase officials apparently flouted the law, charging as many as 4,000 service members well above the 6 percent cap spelled out in the SCRA.

They also initiated foreclosure proceedings against more than a dozen homeowners.

For their part, Chase officials have characterized the mistakes as “grim” but not malicious, according to NBC.

The company said it would issue about $2 million in reimbursements and ensure that foreclosed upon property owners return to their homes.

“We are deeply appreciative of those who fight to protect our country and Chase funds a number of programs that provide benefits to military personnel and veterans, and while any customer mistake is regrettable, we feel particularly badly about the mistakes we made here,” Kristin Lemkau, chief communications officer at JP Morgan Chase, said in a statement to NBC News.

The Chase debacle underscores the need for greater consumer protections for military homeowners. And that’s why the recently announced Office of Servicemember Affairs is so important.

Part of the fledgling Consumer Financial Protection Bureau, the OSA will closely monitor unscrupulous lending practices against service members and provide education for military families nationwide.

Holly Petraeus, wife of Gen. David Petraeus, current commander of U.S. forces in Afghanistan, is heading up the new agency.

Multiple studies and surveys have shown that military members are more likely to be financially overleveraged than their civilian counterparts. Deployments, changes of station and other elements unique to military life can take a toll on families and their fiscal health.

“Those who serve in the military should be able to focus on their jobs and their families without having to worry about getting trapped by abusive financial practices,” Elizabeth Warren, special advisor to the Treasury secretary for the CFPB, wrote on The White House blog. “America’s national security depends on that basic premise.”

Image: Allan Ferguson

The top mortgage lender in the country has called for borrowers to come up with 30% down if they want to avoid higher mortgage rates and more restrictive lending tied to the “risk retention” requirements related to the Dodd‐Frank Wall Street Reform and Consumer Protection Act of 2010.

Essentially, the government wants to ensure that banks and lenders who write higher-risk mortgages actually retain some of that risk (5% to be exact), instead of selling it off to investors and wiping their hands clean of it.

After all, this originate-to-distribute model was arguably how we got into this mortgage crisis to begin with.

However, since the legislation was introduced, banks and industry players have come up with a number of ways to be exempt from this new rule, including:

“requiring documentation of income and assets, setting debt-to-income ratio standards, and restricting things like prepayment penalties, balloon payments, and negative amortization.

But Wells wants to take it one step further and ask that both those purchasing and those refinancing have 30 percent down payment/home equity.

Critics (including most other banks and lenders) believe this will lead to a large pool of loans subject to the five percent risk retention rule, greatly increasing mortgage rates.

In fact, the MBA believes rates could be as much as three percentage points higher on loans subject to the rule.

FHA loan lending would also increase because it’s not subject to the risk retention rule, putting more strain on taxpayers.”

Wells Fargo argued that half of mortgages already carry a 30% down payment, but critics believe the move could shut out smaller lenders and increase market share for the top banks, who already have plenty.

If down payment requirements/mortgage rates do rise, it could throw a wrench in the housing recovery everyone’s hoping will get underway this year and next.

(photo: thetruthabout)

If you happen to live in a home that has a party wall, chances are when it comes to refinance if you don’t have a party wall agreement, it may come up as an issue.

But it doesn’t have to be — it really all depends on the lender … and sometimes more importantly the title company!

Party Wall Definition
When getting an FHA loan, a party wall or common or shared wall is a wall that is located on or at a boundary line between two adjourning structures or parcels of land. A “Party Wall Agreement” is an agreement that identifies ownership and responsibilities between the owner of attached dwellings and parcels of land who share a “party” wall.

Party Wall Ownership: Who Owns A Party Wall?
A party wall is used by the owners of both properties and each share equally in the ownership of his/her portion of the wall. I usually see party walls most frequently in attached dwellings or row housing, but it also may be common where a shared driveway exists on both properties and where a shared wall fence exists.

Party Wall Requirements
A copy of the agreement, if one has been drawn, is usually not required to close a loan, unless the title insurer takes exception to it in the title policy. If the title insurance company takes exception, then chances are that you are going to need to provide a copy of the existing agreement or an agreement must be drawn between the owners. Generally speaking, any kind f legal binding agreement between the parties will be sufficient.

Now.

Practically speaking, if you have a party wall as part of your property but no party wall agreement in place, when it comes time to refinance …

It puts a damper on the party.

Safe Mortgage — A Simple Definition:

As part of the Frank-Dodd financial reform bill that passed earlier this year, mortgage lenders will be required to hold 5% of the risk of a loan that is packaged up into a mortgage-backed-security. When the law was passed, there was an exemption for certain loans called “qualified residential mortgages” from the rule that requires lenders to hold 5% of the risk.

Currently there is a discussion of what qualifies as a “qualified residential mortgage” and a decision on what exactly qualifies as a qualified residential mortgage is sometimes also referred to as a “safe mortgage” because the lender can lend money on a safe mortgage and not be required to retain 5% of the risk.

Safe Mortgage — An Expanded Definition:

Should you really care what the decision is as to what mortgages can be determined to be safe mortgages?

Probably.

Simply put, whatever mortgage products are determined to meet the qualified residential mortgage exemption are most likely to be the ones that lenders focus on providing and possibly may become the only mortgage products that lenders will provide over time.

The most probable types of loans that will require a lender to retain 5% of the risk include loans that:

There is also a big “maybe” group of mortgage products that are up for debate as to whether or not lenders will be required to hold 5% of the risk including adjustable rate mortgages and interest only mortgages.

Regardless of what mortgage products are determined to be safe mortgages – one thing that is likely to happen as a result of the Frank-Dodd act passed is that whatever mortgage products that are defined to not meet the qualified residential mortgage exemption are not very, well …

safe.

A “one touch” file is a loan package submitted to the underwriter that includes every piece of documentation required for them to stamp the folder with three words every loan officer wants to hear – Clear To Close. – Baseball has home runs, football has touchdowns. Loan officers have one touch files. This is the goal top originators strive for when submitting a file for underwriting approval. Let’s take a quick look at how a loan package flows from start to finish.

Loans start by completing all the fields in the 1003 (the loan application). Experienced loan officers realize there will be need for further investigation. Additional questions allow originators to better assess a client’s situation and go a long way toward preventing issues with the loan later in the process. Let’s look at a few examples. Payroll deductions such as 401K loans, child support or even tax liens not disclosed at loan application can increase debt ratio and kill a loan. Consumers do not always disclose these deductions, however, they always get discovered. Whether or not someone else will be on the title is often something that doesn’t get asked. Do you own other properties? Do you owe the IRS any money? Do you pay alimony or child support? Are you obligated to any other debts not disclosed in your credit report? Have you filed a bankruptcy? These are questions required for a complete loan application but often overlooked.

The next step in the loan process is to gather documentation. Most often this is done by the loan originator. Sometimes this task is is done by a loan assistant or processor. The documentation process is critical in determining how smoothly the loan will flow to closing. One important thing to remember when it comes to underwriting and exceptions in the mortgage world of 2010. There are no exceptions. Complete loan files contain the same documentation all the time even if underwriting findings don’t ask for it. Pay stubs covering the most recent 30 days. W 2′s for the most recent two years. Tax returns for all self employed (business returns to be included). Most recent statements covering three months of all assets you declared on the loan application, 401K, savings, stocks etc. Documentation of any loans against a 401K to include monthly payment and balance owed. Child support agreement. Divorce or separation papers. The loan originator should attempt to probe with questions to be certain the need for additional documentation is met. Seasoned loan originators understand the importance of additional documentation. Establishing value via com parables and appraisals are critical. In the case of refinancing, home valuation can be a quick deal killer. It is also important to make sure credit bureau reports are up-to-date. Payoffs for all liens must be ordered as well as any subordination agreements.

Now the loan is ready to be prepared for submittal to underwriting. It really is a team effort at this point. If a processor has to stop to gather additional loan documents the loan originator failed to obtain, the loans waiting in line to be processed come to a screeching halt. Inefficiency extends the time it takes to close a loan.

Underwriting guidelines are pretty much cut and dried these days. If there is a guideline for it, documentation must be there to back it up. Most lenders order a 4506T from the IRS. This is a copy of tax transcripts and the document that shows any additional loss or income other than shown on the loan application. In other words, if you did not disclose any business income or loss it will be discovered at this point and your loan file will be subject to re underwriting once new income figures are adjusted. Not only that. it sends red flag signals to the underwriter reviewing the loan. The way in which vesting is on the title is now required to precisely match the mortgage clause on the insurance binder. The underwriter checks for this as well.

The one touch file becomes reality when conditions come back from the underwriter stamped “clear to close“. Often the most completely assembled files come back with conditions (stips) that may not have been flagged during application or processing.

If you find that your loan officer and/or processor submitted and received a one touch file on your deal, give them a thumbs up as they have achieved the ultimate mark of efficiency in the loan process.

Agency — A Simple Definition:

When buying a house using a Realtor, the Realtor has an “agency” relationship with you and is bound by certain legal items that also include ethics/fiduciary responsibility items.  When choosing a mortgage lender, there is not currently a set of laws that establish an agency relationship with your loan officer – which essentially means buyer beware when choosing a lender.

Agency — An Expanded Definition:

Even though there is a nationwide mortgage licensing effort making its way through the states, there is still nothing in place that establishes an agency relationship between home buyer and loan officer.  At best, your relationship with a loan officer can be guided by the fiduciary duty / moral set of guidelines that your loan officer will get you the best possible deal for your situation.  This fiduciary responsibility of the loan officer has quite a bit of wiggle room and you will most likely find that what is right for one lender may differ for another lender.

When choosing a lender – no matter what lender you select – it is important to remember that they work for the bank and have the bank’s interest in mind when helping you select your loan.  Don’t be confused that your loan officer has the same agency type of relationship with you as your Realtor — they don’t.

Stability Of Income — A Simple Definition:

One of the factors that underwriters will consider on a loan application is “stability of income”.  The stability of income risk factor is one where the underwriter will attempt to measure how likely it is that your income may continue based on what your previous work history looks like.

Stability Of Income — An Expanded Definition:

While there may be a wide range of things an underwriter can consider regarding the stability of income, there are a few specific things that an underwriter will look at when considering the stability of income.

These include:

Gaps in Employment – If there are any gaps in employment that are longer than one month, be ready to provide an explanation.  If you happen to be a seasonal worker, allowances can be made but be ready to provide documentation.

The Probability Of Continued Employment —  What are the chances of continued employment at your current employer? What are the chances that you can get a similar job based on your qualifications, previous work history, education and location.

Frequent Job Changes — If you have a history of changing jobs, it isn’t necesarily a bad thing as long as you can document that you have changed jobs for advancements, more money, benefits or other related topics.  Remember, the underwriter is looking at the stability of income – not necessarily how long you have been at one company.

Stability of income is one of the important items that an underwriter will consider when you apply for a loan.  By keeping in mind the simple items of: gaps in employment, the probability of continued employment and frequent job changes you can be ready to provide explanations — before the underwriter even asks for them.

Verification and Validation – how it can affect your loan. -

Today’s economic crisis has taught mortgage lenders one huge lesson they are all living by  - verify and validate every loan file. Documentation – sounds like an easy task, but simply turn the clock back just a few years to the days of stated income loans, no income loans and even no income, no assets, no doc loans (just give me a high credit score) and you have the reason we now live in a Full Documentationworld. Did these loans make sense? Opinions vary, but eliminating as product that was intended for self employed borrowers has restricted business owners from tapping needed equity to stay operational. Ask any business owner you know what they think the chances are of qualifying for a loan would be today.

Below are 7 items that must be verified and validated these days when applying for mortgage financing:

Employment – Even after a loan has been cleared to close, telephone confirmation of employment is now routine just before a loan is scheduled to fund. In other words, don’t quit your job!

Income – 30 days worth of pay stubs. Previous two years W 2′s. If you show any kind of business income or loss, last two years tax returns (business and personal). Signed 4506-T forms at loan application allow lenders to order tax transcripts from the IRS to match up to your income… And they all order them. If you show a loss on your tax returns tell your loan officer upfront and save yourself frustration. This is not always a deal killer but will affect your debt ratio.

Assets – When a loan is run through automated underwriting it takes into account the assets that are stated. If you show money in checking, savings, 401k or any other investment, you will want to validate it by providing statements. Many times the final page or pages of the statements are blank. Include ALL pages of your statements regardless if they are blank. Note – if you are printing these documents from the internet, as a security measure, institutions do not include name or account number. This would not be acceptable documentation.

Deductions –  Provide supporting documentation for payroll deductions such as child support, alimony, garnishments, 401k loans. Anything that affects your debt ratio must be documented which would include providing divorce and separation agreements and terms of of 401k loans.

Appraisals – This verification is done behind the scenes, but rest assured, even with all the new HVCC appraisal regulations, lenders validate appraisal figures through automated valuation models (AVM’s). The days of stretching home values in order to close a deal are long gone.

Gift Funds – Lenders want to see gift money comes from an acceptable gift source. And they way to show this is a paper trail… A bank statement from the gift source showing funds were available and a copy of the transaction transferring monies from the gift account to the borrower if deposited into borrowers account.

Earnest Money Deposit – Also referred to as the EMD. Many times this single item goes undocumented and causes a delay in clearing a loan to close. Sure we need a copy of the front of the check, but lenders want to see that the money was deposited before crediting it to the transaction.

These are just a few examples of documentation to gather when applying for a mortgage. This is just a guideline to use and lender requirements can and will vary, but providing the above documentation to your loan officer, you will greatly reduce the chances of frustration and delays in your loan closing. The mortgage process can be stressful enough these days. Supplying the required documentation the first time a loan is submitted to underwriting will increase the chances of a stress free closing.

The topic of immigration reform is having a polarizing effect on the nation. It sparks interesting debate on both sides of the issue. I know, I know, my grasp of the obvious is legend! What isn’t quite as obvious is how it could have an effect on mortgage lending, specifically re-financing.

We know how FHA views insuring loans for lawful permanent and non-permanent resident aliens.

FHA Guidelines For Legal Permanent Resident Aliens

For people who have been granted permanent resident alien status, FHA will insure their loan under the same conditions as people who are US citizens. The lender is required to document that the borrower is a permanent resident alien in the loan application and evidence of permanent residency must be provided.

FHA Guidelines For Legal Non-Permanent Resident Aliens

FHA will even insure a mortgage made to non-permanent resident aliens as long as the borrower is going to occupy the property as their primary residence and the borrower has a valid social security number. If the borrower has less than one year of history of having their non-permanent status renewed, it is up to the lender to determine the likelihood that the borrower will be granted a continuation with the US Government. So as to the question whether or not a resident alien can receive FHA insured loans:

Yes, FHA will insure the loans as outlined above for both lawful permanent resident aliens and non-permanent resident aliens.

Yes, there are lenders who will loan money to lawful permanent or non-permanent resident aliens.

What About Illegal Residents?

This is a legitimate question that doesn’t seem to receive any of the media attention that swells around the bigger issue of illegal residents:

What about all of those people who financed homes with “fake” social security numbers in the late 1990′s or early 2000′s who are currently making their payments but cannot refinance due to the updated qualification verification?

I don’t have an official estimate, I would guess there could be many, many, many people who are currently residing in homes that were financed with dubious SS documentation provided to lenders prior to the current database verification process. This could certainly prevent them from being able to re-finance.

Along about this time last year, there was a lot of chatter in the news and financial channels about the end of the world.  Well, okay, not necessarily the WORLD, but at least the world of mortgages.  The Fed was putting a deadline on phasing out its purchases of mortgage-backed securities (MBS, the instruments lenders use to determine mortgage rates).  The government was ending its $8000 tax credit.  Rates were going to be 11% by spring.

You might have noticed that this didn’t happen.

Oh, most of it did.  The Fed did indeed stop buying MBS.  The government goosing of the purchase market did (eventually) cease.  And yet, rates did not rise.  Not at all.  In fact, they’ve kept falling steadily all year, to levels totally unimaginable by mortals.  Why?  And what does it mean for the future?

The why is fairly obvious.  While its true that the Fed did stop its purchasing of MBS, other entities have stepped up to fill the hole, and then some.  Lenders are not finding it difficult to collateralize their loans.  There is plenty of money out there in the financial system, and there has been for a while.  Falling rates are reflective of a market seeking a bottom.  So far, it isn’t finding one.  Comparatively, MBS are a great investment right now, which tells you how deep a financial hole we’re in.  But as long as the government is handing out money at below 1%, banks can plow that cash back into MBS and get 4% essentially guaranteed.

But another part of the why is QE (quantitative easing).  That’s a fancy term for “the government flooding the system with money”.  We’ve been trying this as a tool to restart the stalled economy for… oh…about three years now.  My crystal ball tells me it isn’t working, but then I’m just a mortgage guy, not a Harvard PhD in Economics.  One way to quantitatively ease, the normal way, is to reduce the Fed rate.  This is the rate at which the Fed will loan money to its member banks.  That rate was 5.25% as recently as August of 2007.  Now it is between .25% and zero.

That makes all that money coming from the Fed very cheap, which means banks borrow a lot more if it.  How much money would you borrow if the interest rate was 0%?  And that recapitalizes banks, which is supposed to make them lend the money to us.  But they don’t, because right now you and I are a very bad credit risk.  Much safer to buy treasuries and MBS.

The solution? Apparently it is MORE quantitative easing! (QEII).  Since the Fed rate is already as close to zero as it can really get, the situation is more complicated.  Now the Fed has to buy the bonds directly from the banks and the treasury themselves, instead of lending the money to the banks and having them buy the bonds.  This should result in lower bond yields and even lower interest rates.

Yes, I said even lower.  Excited about your 5% interest rate?  Well, you should be.  But now 4% is coming into play.  Last year this time, we’d have said that was impossible, yet here we are.  Is 3% also impossible?  I think so.  But I’ve been warning of skyrocketing interest rates for about five years now, so I’m admitting right now I have no idea.  Certainly all the pronouncements of rates going up any minute ought to be taken with a sizeable grain of salt.

Eventually, the shocks of the foreclosure mess, the subprime crisis, waning consumer purchasing power and exploding deficits will likely create a clear path for the money wizards of Washington to follow.  Until then, however, consult your mortgage professional about the best way to get more of your money to stay in your bank, instead of your lender’s.  From a rate standpoint, things have never been better.  And we may not be done yet.

Photo Credit: Alan M Hughes Via Attribution License on Flickr.Com