Over the past few years, as lenders have become very strict with underwriting guidelines and stopped lending to borrowers in situations resulting from a bad economic environment, (self employed, less than 620 credit score, BK or foreclosure in the last four years, for example).will this growing group of people ever be able to qualify for home loans again?    If the economy struggles on for another couple of years, as may well be the case, the number of people who can’t qualify for loans under the current underwriting guidelines will grow to be a very large number.   Will they all be destined to be renters for the rest of their adult lives, which is not such a bad thing, but certainly not the American dream.   Or, will lenders be able to bring back portfolio lending and start to address the merits of each loan individually?

Will underwriting standards change to address particular situations that were not the borrowers fault?   How big will the pool of people be that can’t get loans under the current guidelines?

If the number of people gets really large will the government feel obligated to get involved and force lenders to make loans to people in this large pool?

Are we on a path that will start to replicate itself as a multitude of previous home owners want to be homeowners again?   What about that person who had perfect credit until their company went out of business and they lost their job?   Can we turn back the clock and consider only their credit history prior to the job loss that wasn’t their fault?

The longer people continue to fill that bucket of unqualified borrowers, the more need there may be for creative lending in the future.   Isn’t creative lending what got us into this mess in the first place?   Does history truly repeat itself in the mortgage business?

Not only have people asked why we created RateWindow they have asked what does it do for real estate agents. In an attempt to answer those questions– 1st of all Why?

We created RateWindow because as an owner of a financial planning firm, in a former life, we were always dealing with our clients and their mortgages on purchases and refinances. As we dealt with those clients we came to the realization that the biggest purchase most people make in their lives is their home. We also realized that the three most important things about real estate ARE NOT location, location, location. The three most important items are financing, financing & financing. As we dealt with this more and more we decided to dig deeper into how mortgages were priced and how they could be structured to serve the best interests of our clients. We didn’t have to dig too deep to realize that our clients best interests were not being served by the lending community at all, but were serving the pockets of the lending institutions and their mortgage originators.

From this investigation came the idea for RateWindow, a tool for consumers to be able to see all the interest rates available from a mortgage originator and make the choice that was best for them not the originator. RateWindow reveals the rate sheet to the borrower in a simple, concise, and understandable way so they can choose what is best for them. As an example if a borrower needed some additional funds to cover closing costs then they can choose a higher interest rate and use the attached YSP (yield spread premium) to offset those costs. They can also see what the higher interest rate would do to their payment and they can see it in 30 or 15 year fixed rates or for 5/1 arms. The borrower could also choose the par rate or what it would take to buy the interest rate down. Borrowers armed with that information created a great deal of trust with a mortgage professional who worked off the platform of trust and full disclosure, including a fixed fee for the service the mortgage professional performed.

This included that all third party fees such as processing, appraisal, and other fees were passed through at cost and did NOT include any junk fees that further padded the pocket of the originator. Clients of both the real estate agents and mortgage professionals loved the transparency of the transaction so we decided it time had come to bring it to as many borrowers as we could and thus came the creation of RateWindow.

Secondly, what does it do for the Realtor? We have designed RateWindow as a small application (widget) that will run on anyone’s website including real estate agents sites. Real estate professionals work really hard to get people to their sites so RateWindow provides their sites with additional adhesives so they will stay there. A real estate agent could say to a prospect, “Go to my site and not only can you see all the real estate for sale, you can also check out all the mortgage rates available and if needed get cash for closing costs.”

Not only can you wear the White Hat for your prospects and buyers to expose them to total transparency in the mortgage world, RateWindow also will send a “soft touch reminder” newsletter with your branding and most recent blog post to those who opt in for updates on the rates available. All of this comes from your website and doesn’t take your hard earned traffic somewhere else!

There seems to be the thought, in some circles, that the new Good Faith Estimate required on all residential lending transactions as of January 1st, has somehow infused the mortgage industry with instant integrity across the board.

Nothing could be further from the truth.

There seems to be little argument that mortgage professionals could use a bolstering of their reputation and integrity, but the new GFE is not to vehicle to accomplish the task.   As the days of December clicked by and implementation of the new GFE came closer and closer, my inbox was regularly filled with lender invitations to attend training sessions on using the new form.

These invitations contained descriptions like, “we will teach you how to keep charging YSP”, and “the new rule does not mean we can’t keep charging YSP.” Some went even further by stating, “you can still charge YSP and we will show you how to get around the new rules.”

Just as the new GFE was mistakenly concocted by those without a thorough understanding of the lending process and sensitivity to the needs of the borrower, it seemed those charged with championing the implemetation of the misdirected form were also void of borrower understanding, and what’s more, didn’t seem to care about their integrity in the arena of public opinion.   The central place where borrowering customers are found and retained.

This attitude of mortgage professionals, centered around “saving our precious YSP and the ability to control the borrower”, just reinforced the untrustworthy label conveniently stamped on the industry professionals by the bureacrats and main stream media as the lending environment has deteriorated over the past couple of years.

This has been a huge lost opportunity for loan officers and originators everywhere. What should have been a huge opportunity to bring integrity and transparency to the lending process has simply been squandered.

For decades, Realtors have been totally transparent with their fees.    Sellers understand that there is a cost associated with having someone market, show and sell your property.   Borrowers would understand if mortgage professionals transparently disclosed their fees up front as well.   No one expects others to work on their behalf for free.   Hiding broker or loan officer compensation in line 2, page 2 of the new GFE is no improvement in disclosure and certainly no feather in the cap of transparency in lending.

I applaud the FHA working in concert with the OIG (Office of Inspector General) in researching the underwriting guidelines of 15 mortgage lenders. The main thrust of the investigation is to make sure that these mortgage lenders are not issuing loans that would undermine the financial viability of the FHA. These 15 mortgage lenders had a higher than normal incidence of defaults on the loans that they issued.

With the FHA being one of the major sources of home mortgage financing it is imperative that they are protected from what we have been through recently with Fannie and Freddie loans.

David H. Stevens, Assistant Secretary of Housing for the FHA has said, “It’s important to note that FHA has been taking actions against poorly performing lenders since the day I took this job six months ago. This cooperative effort with the OIG is another indication that we will not tolerate lending practices that pose a risk to the FHA fund, and we have pledged to assist the Inspector General’s Office in any way we can. The Inspector General’s initiative will help us determine whether there is fraud at these companies and better manage risk in the long run.”

We here at RateWindow will be cheering you on!

Are you thinking of becoming a first-time homebuyer?   Then put on your running shoes and get moving!

Time is quickly ticking by for folks looking to enter the housing market before the $8,000 federal tax credit expires.  That deadline?  November 30, 2009.

Sure, you’re just winding down your summer vacations and getting the kids ready to head back for school.  It’s likely that the last thing on your mind is what will happen after Thanksgiving.  And that could be a mistake.

Why?  You see, because of recent changes in lending laws, mortgage companies are simply unable to close loans as quickly as they used to—even those who are committed to transparency in mortgage lending.    Underwriting that used to take a matter of days now takes weeks.  Appraisals are taking longer.  More homeowners are (wisely) getting home inspections done prior to the sale.  And some homeowners are buying properties under short-sale agreements, which only lengthens the process even more.  As such, it’s wise to count on about 6 weeks to 2 months to go from loan application to the closing table.

That means that RIGHT NOW is the time to be pre-qualifying for your loan and working with a real estate agent to find the right home.

If you’re not sure what the tax credit is, here is a great “fast facts” overview prepared by Chicago Tribune columnist Kathleen Lynn in an article earlier this month:

• The tax credit is equal to 10 percent of the home’s purchase price, up to a maximum of $8,000.
• Buyers can claim the credit on either their 2008 tax return or 2009 tax return. If the closing occurred after April 15, 2009, a buyer can claim the credit on a 2008 tax return by filing an amended return. For more information, go to www.irs.gov.
• The home sale must close by November 30, 2009.
• Full credit is available to buyers with modified adjusted gross incomes of $75,000 (single) or $150,000 (married).  A reduced credit amount is available for people with incomes of up to $95,000 (single) or $170,000 (married).
• Two programs — one state, one federal — offer bridge loans or “prefunds” so eligible buyers can use cash from the credit on their home purchase this year. For more information, go to www.fha.gov.
• Buyers do not need to repay the credit if they occupy the home for at least three years.

So if being in your new home for the holidays is on your wish list—and if you want to get the benefit of a fairly hefty tax credit—lace up your shoes, stretch our your hamstrings and begin the marathon that is buying your first home.

On your mark, get set….GO!

I’m sitting at my desk going through a stack of papers and contracts and checks that somehow seemed to multiply exponentially when I was in California for a few days, and I just realized that I could save a lot of time if I stopped reading things and just started signing things willy-nilly.  And, given the number of not-so-discreet glares and throat-clearing “hints” from the administrative folks around here who are waiting for me to get my part of the job done so that they can do theirs, I discern that there are those in my office who think that I should just put pen to paper and get it all over with.

But here’s my problem:  I actually want to know what I’m signing.   As such, I actually have to read every word of every line of every paragraph because, to be honest, I rather assume that there is language in there somewhere with the potential of throwing me, my companies, my family, my friends, and the flowers along my front walk under the proverbial bus.  And I’d prefer to at least try to avoid it if at all possible.

And a few minutes ago, as I was about halfway through the second ridiculously complex contract that I’d been meticulously reviewing, I thought how much easier life would be if everyone got on board the transparent bandwagon.

I mean, what if this contract read:  “You promise to pay us, and we promise to do what we say we will”?   No loopholes, no hidden agendas—just a promise to do what is clearly spelled out.

Or what if Congress wrote a bill that said “This is what we want to do, plain and simple” rather than burying the intent in 1000 pages of who knows what with some hefty pork thrown in?  Certainly, it would seem to be helpful in avoiding the recent uprisings in town halls across the country—or at least give the “well-dressed protestors” a more specific topic at which to focus their derision.

But, I feel like I can’t download a song off the internet or buy a gallon of milk with my debit card without entering into a binding agreement that might ultimately result in the surrender of my first offspring.  And as you would expect, the bigger the purchase, the greater the fear of potential loss.

And that’s why I can’t help but wonder why anyone would ever work with a mortgage professional who didn’t believe in absolute mortgage transparency.  Who didn’t believe that his or her clients should know—up front—exactly what they were going to pay, and for what, and why.  Who provided this kind of information not because they HAD to, but because they WANTED to.  I mean, if you’re going to invest hundreds of thousands of dollars in a home, why wouldn’t you demand to work with someone who wanted to give you all of the information you needed—in a way that was easy to understand?    The fact is, I would.  And I hope that you would, too.

All right, I just got yet another glare from a certain staff member, so I’d better get back to it.  At the top of my stack is what appears to a 14-page reimbursement request she submitted which begins “For good and valuable consideration” and is riddled with “party of the first part” nonsense.  And I think I see something about a mental health day, a manicure and shoes in here.  Did someone just hear a bus headed my way?

Does anyone else out there think it’s a little funny that the proposals recently approved by the Fed to increase transparency in mortgage lending ran more than 600 pages a piece?    It is for this reason—among a number of others—that I am more than a little concerned about the government’s rather forceful re-entrance of late (and yes, I know that the Fed isn’t “technically” part of the government) into the mortgage lending industry.

I mean, how many pages does it take to say to mortgage lenders and brokers “disclose all of the details”?  How much legalese must be used in order to require “plain English” disclosures?  Only career politicians and those who aspire to be could take a simple, straight-forward idea and make it into such a convoluted mess.

And that’s why I believe that they should—for the most part—keep their hands out of it.

You see, in order for mortgage transparency to truly be effective, it has to come from the inside out.   Government programs, rules and regulations will always have loopholes.  They will always be the result of a compromise—and usually too watered down to be truly effective.  As our tax code easily illustrates, there is virtually always a way to cover up, get around or turn a blind eye to governmental rules.   It will only be when mortgage lenders decide to use open mortgage practices—either because they choose to do business in a more consumer-friendly manner or because homeowners refuse to do business with them if they do not—that true transparency will occur.

Hmm…seems like I got the point across in four paragraphs and I’m not sure how much clearer English could have been used.   Maybe some folks in Washington should get rid of 599 pages and just take one from me.

There is a lot of buzz in the mortgage and real estate market. Home sales are up and large corporations are talking about an end to the recession. There are some concerns, especially when the stock market is up 8.6% (over 1000 points) in the month of July, the largest gain in 20 years. Rapid increases in value can often be false security as more and more people jump onto this fast moving train. So this week we focus on concerns with the market and how to keep this train from derailing.

1. Why Ben Bernanke’s Incomplete ‘Exit Strategy’ Could Lead To A Decade-Long Downturn
   

   Break up all the big banks and create a greater number of highly localized, community-centric banks. Let community and regional bankers securitize pools of mortgages using transparent “conforming” disciplines.

2. Unemployment spreads distress in U.S. home loans
   

   Mortgages have failed the fastest in the areas with the greatest overbuilding, purchases by speculators and reliance on riskier loan products to improve affordability.

3. Why Isn’t the Gov’t Mortgage Program Working?
   

   …servicers aren’t modifying loans because it doesn’t make business sense to do so. The Post highlights a study by Federal Reserve economists making that argument. Meanwhile, a Bank of America spokesperson told the Journal that many people seem to think they’re eligible for aid when they’re not: “Given widespread public mis-expectations, a significant percentage of borrowers seeking Home Affordable modifications under the imminent-default provisions will not qualify.”

4. Would you buy a mortgage from a car salesman?
   

   He then said I was foolish for continuing to pay my mortgage at my current rate. I’d be better off not making my monthly payments, then demanding a change in terms, he said.

Raise your hand if you’ve got an ARM.  Okay, I admit it—I’ve been waiting to use that one. Especially since a colleague told me the good news about his adjustable rate mortgage.

I know, I know—adjustable rate mortgages are bad.  We’ve heard it time and time again over the last few years, right?   ARMs were key in bringing about “the crisis” (it’s kind of like Lord Voldemort: the recession/depression/slowdown/market correction which shall not be named.)

But what if I were to tell you that an adjustable rate loan could actually have an upside even in today’s market?

A friend of mine—I’ll call him Cory—chose an ARM when he purchased his home several years ago.  Now, most ARM’s have a period during which the rate remains fixed; usually anywhere from 6 months to 2 years.  After that, depending on the terms of the loan, the rate begins to adjust every 6 to 12 months.

In Cory’s case, his rate adjusts every 12 months, and he just received his new rate a few weeks ago.  Under the terms of his loan, his new interest rate is equal to 2% above the current LIBOR rate…which just happened to be at 1.75%. So that means that for the next 12 months, the interest rate on his loan is just 3.75%.

Now we have heard about all of the negatives that ARM loans bring, and news cameras are constantly showing men and women who complain that they can no longer afford their homes because of skyrocketing rates.  But if you have an adjustable interest rate I would hold off before allowing yourself to join the panic-stricken throngs.  After all, if the LIBOR, Prime Rate and bonds on which adjustable rate mortgages are tied have fallen to record lows (which they have), it’s a pretty darn good bet that your interest rate has followed or will follow suit.

But if you’re still troubled, consider taking these steps:

First of all, check the terms of your mortgage that are spelled out in your paperwork.  Verify what index your loan is tied to, how often your rate can change, and any caps that might apply.  On many loans, interest rates cannot increase above a certain amount.   Depending on when you got your loan, your interest rate may cap at a very reasonable rate—and one that you are unlikely to reach any time soon.  As such, your ARM may actually be saving you more money than you first anticipated.

If you are worried about your payment increasing too much—and if you anticipate that you’ll be staying in your home for the long haul—you may want to consider refinancing to a fixed rate.  Keep in mind that there are costs associated with refinancing, so you’ll want to balance those costs against the amount you would pay if your interest rate reached its cap.  (Note: Work with a loan officer committed to providing absolute transparency in mortgage lending to keep those costs as low as possible.)

Oh, and by the way…you can put your hand down now.

It’s Friday, so that can only mean one thing… WTMNWU…  better known as the Weekly Transparent Mortgage News Wrap-Up.  Lately, the news and the blogosphere have been abuzz about transparent mortgage services. Since this is the first, of many weekly reports, I’ve included a a couple of older blog posts. From this point forward all posts included in the WTMNWU will be no more than a week old.

• What Should Mortgage Finance Look Like? (Arnold Kling)
  

  We believe their sheer complexity is the core problem and that only increased transparency will unleash the market mechanisms needed to clean them up.

  …It is striking that no one in the regulatory community seems to think in such terms. Instead, the aim of financial reform seems to be to get us back to the financial system of 2005, but with better oversight.

• Zillow Adds Mortgage Cost Comparison Feature
  

  “Truly shopping for a loan and comparing terms and costs on an apples-to-apples basis is excruciatingly difficult for the average consumer to do. This is why so many consumers find themselves in loans they don’t understand,” said Lloyd Frink, Zillow president.

  Great… if it can be done.  At the heart of Zillow is their home evaluation.  But many real estate agents have noted it to be very inaccurate. I just did a zestimate on my home and it was $200K off the correct value.  Unfortunately the value zestimate reported was $200K less than what it should be.  How do I know? I had my home officially appraised by a licensed appraiser just a few days ago.

• New Disclosure Rules Coming for Mortgage Lenders
  

  Starting on July 30, mortgage lenders have new disclosure rules to be concerned about. Mortgage lenders will have to be more transparent about the total costs of a home mortgage loan, providing consumers with more information to make better-informed decisions.

  As with everything else in real estate, another disclosure will always help… NOT. I just put an offer in on a rental property. It’s been a few years since I put an offer on a property, and sure enough there were about 5 more disclosures I had to sign. I think real estate and mortgage contracts are growing by 2-3 pages every year.

• Transparent Brokerage Fees Are An Elephant Slayer (Yes, this is over a month old, but since this is the first WTMNWU, we thought we would add it)
  

  Transparency in mortgage brokerage is a concept that is well underway. Mortgage brokers have always been required to disclose both borrower-paid and lender-paid compensation, on the good-faith-estimate and HUD-1 settlement statement, but rarely used disclosure as a selling feature to customers.

• New Facebook Fan Page for The Transparent Mortgage NetworkWe have started a fan page for the transparent mortgage movement. Instead of waiting for Washington to reform our system in a few years (if ever), let’s inform the consumer that there are transparent services out there NOW. It’s not revolutionary, it’s actually quite simple.
  Please join the fan page and help support our movement, everyone will benefit!