Strong Warning From CFPB On Misleading Mortgage Advertisments

CFPB- Consumer Financial Protection Bureau

Just last week a warning was sent out regarding misleading mortgage advertisements.  You can read full release here.. What this is saying is they've found some recent advertisements are misleading to consumers and not disclosing all the information about true costs and terms of the loan agreements. 

I actually think this is a good thing.  All the ads out there that show 1% interest rate or super low fees or whatever the case may be is very misleading and I can't tell you how many times customers tell me about these deals and I let them know that those are just bait and switch ads but you won't find out until deep into the process or it's too late and by that time you're pissed off.

Sometimes it works and sometimes it doesn't and they have to go and find out for themselves the truth.  The problem is...now they don't trust anyone and that makes it hard to do business in the future...

...and we wonder why consumer confidence is low with lenders and loan officers in general.  

Now all companies don't do this type of activity but you do see some "creative" advertising to get people to pick up the phone and call.  

I take a different approach because what I have found is people just want you to be real with them.  

They will do business with and buy from people they like and trust and if I can develop a relationship with them; they will not only do business with me but will send referrals. 

Most companies are just in it for the quick buck and that should not be the approach.  

You'll make money and get some business in the short run, but this isn't how champions and professionals do business and it surely will kill you in the long run.  

Anyway...that's my two cents on it. 

I aim to build value and confidence so that customer has a great experience.  And truthfully, if you just explain things to people in plain English; all the terms, go over the benefits of how the loan will solve their problems and have a solution based presentation, people will come chasing you to do business with you.  

I don't really have to prospect anymore I just get referrals from clients, agents, and other sources because they know I'm for real; I don't sugar coat, I know what I'm doing, and I give realistic expectations.  

It's not rocket science here folks...

Just a little warning...for those of you who buy leads from these crap companies, I would stop because they have ads on the web for all kinds of ridiculous things that are misleading to get people to click and give up their information.  

So as the CFPB comes cracking down if you're buying from them ---guild by association.

Plus their sold to multiple people and companies.  The best way is to build your business organic which takes time.  

Check out the release above on the CFPB site and look out for more announcements like this as the CFPB gets up and running on all cylinders inspecting the practices of the all the lenders and brokers out there.  

Get ready we're headed for more changes in the future.  

Who will win in this environment? The Champions will... all the weanies will be pushed out and quite frankly...can't wait to see ya go...

FHA Fund In Deep Doodoo

FHA's Finances

You're probably laughing at the title but it's true folks...FHA is in DEEP doodoo (my spelling I don't care) and has been for a long time.

Rueters released an article recently stating that unless FHA does something soon it will be drawing money from the Treasury...

So what's new in Washington? More taxes, more bailouts, more losses being covered up and now FHA will increase fees yet again to try to shore up the balance sheet and avoid a so called bailout.  However what's the difference right? All of us as consumers are bailing them out by paying higher fees for the mortgages.

The fund is a total disaster and the program is so outdated it's had little changes since it's inception in the 30's.  They know it needs restructured but choose to kick the can down the road. (just like everthing else, ha)

FHA now insures 1.2M mortgages and their share of the market has increased to 15% from 5% in 2006. The article went on to say that it missed needing to draw from the Treasury due to $1B in settlements from servicers...hmmm.. could that be why Wells was the next target?

Estimation is the fund will not be back to it's 2% capital ratio requirement until sometime in 2017...this just strengthens my prediction we're not going to see rates go anywhere upward - they just can't - anytime soon; they're relying too much on new activity and higher fees to keep the ponzi going.

Plus with the lawsuits they're hoping to generate some more revenue for the fund.

We're playing a dangerous game of Russian roulette here.    Just see this quote from Maxine Waters below

"At a time when the private market constricted, the FHA stepped up, providing crucial liquidity and access to the mortgage market," said Representative Maxine Waters, a senior Democrat on the House Financial Services Committee.


She warned against taking any actions that would "precipitously" choke off loan availability.

Oh yea...they know what's up.  If we choke off credit - crash and burn baby...

So What Mindset Should You Have About All of This?

So what does this mean for those in the industry? Consumers? Well folks you can't change it; it's happening and you're not personally going to do anything about it so if you're shopping for a loan and all you qualify for is FHA, you're just going to have to take it from behind...and you'll be forced to like it.

If you're in the business like I am I know what's going on and I understand it.  For the consumer I know it's hard as you don't go through it every day like we do.

The good news, because I try to focus on the good because you'll cause nothing but anxiety and stress if you don't, is that there is a real opportunity to utilize a program FHA offers and to take advantage of it.

What is it? It's the 203k renovation program.  I've said in earlier posts that this will be the new real estate trend, and it already is beginning to be, for some time to come.  Without going into full detail as my blog post will explain, you can buy a fixer upper and finance the cost of the improvements into the loan...
and your maximum financing is based on after improved value of the property...This is an awesome program but it does suck that it will be more expensive now...

However - if you find a property that is priced well below market value and put the right improvements into it, you CAN create instant equity.  Go here for details and read my blog post on it. 

Again folks, please keep in mind it's not your loan officer or realtor who caused all this mess...(see below)


Yeah Buddy!



It's these guys...they know, knew it, and let it happen because there buddy lobbyists were filling their pockets full of cashish. 

Stayed tuned and lets see what happens now that the election is over and we'll get to hear some nice juicy stories like we've been like the General Petraeus's little affair and whatever else they want to release now that Obama is back in for 4 more years.

Hold your hats...







Mastering Credit Scores

Mastering Credit Scores

We all know how important credit as become. In this day in age where all that is used by lenders is credit score, an accompanying story and relationship has become a thing of the past. With the new instruments on Wall Street such as credit default swaps and other derivatives make it nearly a necessity to have a high credit score in order to even look at you as a candidate for financing.

 

 

The most frustrating part about this is that it takes years to build credit and just minutes to destroy it. Then after something happens it can take years to rebuild it. In many instances there are situations where credit inaccuracies, which are highly common, can prevent you from getting the financing you need whether it be for a business or personal usage. There have been laws put in place to help consumers like the FACT act and the FCRA act but without detailed knowledge of these acts, which most consumers don’t, trying to remove inaccuracies is time consuming, frustrating, and result in consumers just giving up.

 

 

The FACT Act stands for the Fair and Accurate Credit Transaction Act and FCRA stands for the Fair Credit Reporting Act, the FACT act was passed in 2003 and amended the FCRA act in order to provide more regulation that consumers can get one free copy of their credit report each year. With hundreds of provisions in each act it’s a stretch to require consumers to know these statutes inside and out. So how does a consumer become educated in this? With the internet you can find out just about anything but sometimes this comes with a price, some expensive some not.

 

 

You could always hire and attorney but this can be expensive as well. I know you’ve seen it, the many “credit repair companies” out there promising they can remove negative remarks some can help some not at all. Some of these companies are very expensive others are fairly cheap. The most important thing to remember, when dealing with credit, is to monitor your credit report and pay your bills on time.

 

 

I’m going to give you some resources that I’ve found online to be helpful in helping me “Master” my knowledge in the area of credit scores. The credit reporting companies provide you with information and also offer credit monitoring every month for a low fee and offer unlimited credit reports to help you take control of your credit.

 

 

The one thing that is frustrating is not KNOWING the algorithm at which they calculate your score. I’m going to give you a guide below as to what your score is comprised of and what information the credit scoring companies use in order to calculate your score. However this does not give you the concrete formula to which they use. Really to maintain great credit keep revolving balances low, don’t get into too much debt, and pay things off as fast as possible.

 

 

We are all bombarded everyday with “specials” and “once in a lifetime offers”, this is just targeted marketing designed to make you believe you can’t live without it or you are lesser of a person if you don’t buy it NOW. Please don’t fall for this. Now that is not to say some of the books and products that are marketed to you are not valuable, I’m merely saying don’t run to “every” special once in a lifetime offer that is presented to you, use your better judgment. The key is to spend less than you make and I know sometimes this can hard when we “justify” it in our minds by thinking we can handle the payments. But when you have this payment and that payment and then you have to borrower money to make this payment, you know where I’m going with this.

 

 

We are in the age of “automated underwriting systems” that help expedite credit decisions for lenders to improve time efficiency and lower costs. The problem with these systems is they are driven by score and your credit history, they cannot read your story. So for an example banks didn’t use these systems, they would evaluate your score based you and what you have to say. Keep in mind that underwriters looking at your application do not see you or know you therefore all they go by is what’s on paper. This is a huge disadvantage for the consumer but there are some advantages as well, including speed, efficiency, which improve customer service and the overall experience. KNOW your credit score and become educated in this area because its only going to get more complicated especially with the growing financial problems in the economy surrounding credit.

 

So lets get to some of information I have for you and resources you can use to help you with the “Mastery of Your Credit Score”.

 

BCS Alliance offers a credit kit that is 101 pages total and gives you some of the information I’m going to share with you now. I paid $14.99 for it; a small price to pay for information that could save you tens of thousands of dollars in the future.

 

 

 

Credit Scores

750 or higher – considered excellent credit

660-749 – considered good credit

 

620-659 – considered fair credit

 

350-619 – considered poor credit

 

 

 

How Credit Scores are Determined?

 

• 35% - Past payment history - Late payments, charge offs, bankruptcies, etc.
• 30% - Outstanding debt – amounts owed on all accounts, number of accounts with balances, debt-to-credit limit ratio, etc.
• 15% - Length of credit history – Time since accounts were opened, time since last activity, time since last delinquency.
• 10% - Recent credit applications – Types of new accounts, recent inquiries, and how many inquiries.
• 10% - Account mix – Types of various accounts (car loans, credit cards, mortgages, etc.)

 

Factors that are NOT used are demographic information, salary, type of job, etc.

 

To purchase this credit kit go to www.bcsalliance.com

 

Remember if you keep you expenses low and keep more than you spend, you can gradually increase your credit score overtime and when a need arises you will have no problem obtaining credit and you will pay substantially less in interest and finance charges because of your good credit history.

 

Thanks again!

 

“The key to life is accepting challenges. Once someone stops doing this, he’s dead.”

 

Bette Davis

 

 

FHFA Releases Plan on Fannie and Freddie

Yesterday the FHFA (Federal Housing Finance Agency) released it's plans for the ailing government sponsored enterprises, aka GSE's, and it's no surprise the whole report is blah, blah, blah.  Its the same ole crap we've been hearing - they are going to stabilize markets and increase fees to shore up the GSE's portfolios.  Yea, while they still suck money from the Treasury as they hemorrhage cash, still losing money, while the housing market just muddles along.

So basically they have no long term plan just alot of lip service.  The execs will still keep getting paid the big bucks to run the mortgage market into the ground.  Next month Fannie is raising it's delivery fees yet again.  This cost is spread to the consumer making it even more expensive to get a mortgage loan.  FHFA says it's "market risked-based" pricing but really it's nickel and dime everyone to death because we're bankrupt.

No wonder they keep coming out with these refinance programs so they can keep churning the books with the refi's and yielding higher delivery fees.  The FED keeps pumping the cash into the system helping fuel the refinance frenzy we have going on.  Obama wants to yet again modify the refinance program to allow all non GSE owned mortgages to qualify. 

Read my previous post http://swigartsmortgagejournal.blogspot.com/2012/09/obamas-refinance-plan-take-four.html on the Obamafi program(s) for details.  The market is a mess right now.  We still have lending tightening up more; problems with appraisals; lenders are short staffed and for the sake of profit do not want to hire more people.  I know people in the business working like a slave just banging their heads against a wall with all the hoops you have to jump through to get loans done these days.  It's a struggle from beginning to end.

You can find the story regarding the "strategic plan", if you want to call it that here to read for yourself and formulate your own opinion.  I don't think much will be accomplished until after the November election with regards to Obama's proposal for the new refinance program; or legislation on FHA with changes to mortgage insurance premiums yet again.  Too many distractions right now and the smear campaigns are heating up as we near November election time. 

How To Be Prepared At Application

The mortgage industry has changed quite a bit from a few years and months ago...heck sometimes even just days ago.  Changes are the norm so I'm writing this to help you with the application process as this day in age it's documentation, documentation, documentation and for some people this can become annoying and upsetting at times. 

Do not get upset or frustrated as the industry, one loan at a time, is trying to restore confidence in the marketplace and to investors.  The key to making the process smooth is several fold but the most important thing is your initial file quality at submission on your application for financing. 

The more prepared you are upfront...... the better!

When your loan officer asks for something - get it turned in as quickly as possible so there isn't any delays in the process. 

There is an extreme amount of pressure put on them to turn things around when documentation is delayed being turned in and will, and does, cause for the need of extensions to your closing.  This can be unnerving and complicate things for you.




Stressed!


Everyone's situation is different and sometimes additional documentation is requested. 

Realize that there are some issues, concerns, and compliance requirements on the back end that we as consumers don't see or always here about, so underwriters are checking, double checking, and sometimes over conditioning the loan files; but this is an attempt to make sure all compliance rules and regulations, file quality, and documentation requirements are being met.

When making application make sure you have all of your income and bank account information (to all accounts) available.  Since each loan is different more documentation maybe requested and this is not all inclusive, so in preparation have ready:

• The last three years of income tax returns (make sure page 2 is signed and include business returns if self-employed), w2's (all w2's for all jobs) and a full months of paystubs.

• Be prepared to explain any changes in income or if you've had multiple jobs in the last 2 years

• Bank statements should be all pages even if one says "intentionally left blank"

• Be prepared to explain any credit inquiries you've had recently and if any new debt was acquired from this inquiries.  People ask about this all the time but the idea is if more debt it out there that is unknown, this has an impact on your debt-to-income ratios and your ability to repay the mortgage

• Be ready to explain any large and unusual deposits into your account (untraceable cash deposits are not acceptable) to prove they are from an acceptable source.

• Explain any derogatory or late payments on other credit accounts and collections

Again, this is by no means all inclusive but is a short list of items you'll need and other things to be prepared for when meeting with your loan officer.  The better quality your loan file is at submission, the smoother your process will be. 

Remember - there are many parts of the process that are not under the control of the lender so communication is key as everyone is working toward the same goal - closing.


God Bless,

The New Real Estate Trend

What is the next real estate trend? You can ask many and you'll get many answers.  As a professional in the business I can tell you that I see renovation as the next trend for the coming years.  Why?

• Aged inventory - many houses are old, have not been updated which includes kitchens, bathrooms, plumbing, HVAC, and could really use a face lift.
• Foreclosures galore! The market is saturated with foreclosed REO properties that need repairs.
• Older homes with outdated floor plans or are too small compared to other homes in the area (by the way part of the renovation process can include adding square footage to the property through an addition to home)
• Can add a personal touch to make it yours - turn a home you just like into one you love
• Many homes with health or safety violations or hazards which can be remedied through renovation
• Many many more reasons.

So what can be done about it? Well you can call it a secret (not really) but a program that has been around since the 80's - the 203k (no this isn't like your 401k) - allows the for the purchase of the property plus the cost for repairs to be rolled into one loan, one payment, and your maximum mortgage is based on the post-renovation value.  This is a little known loan through FHA and 203k is simply just the section of the act (the National Housing Act) for the program just like the 203B is the "regular" or "normal" FHA loan we've all grown to know very well.

Especially since the housing debacle and Conventional financing has tightened up; more people are getting FHA insured loans.

So you can literally turn this

and even this

into this

and even this

Now you're probably thinking..."yea right, that looks nothing like the other houses." But yes you can do this (turn ugly into stunning). 

You can do anything from light to moderate repairs (kitchen and bathroom updates) to more major renovations like foundation work, and even tearing the house down and rebuilding on the same foundation. 

With the 203k you just can't do anything consdered "luxury" repairs in nature like a gazebo, hot tub, or install a swimming pool. The key to this is after-improved value - which is the home will be comparable in it's renovated state to other properties in the area.

This doesn't mean build a 6 bedroom home in a 3-4 bedroom market, however if you wanted to change the design and floor plan of the property and make a major renovation you can. 

There are so many things you can do with this type of financing.  By the way FHA isn't the only one that has this program available.  Very close versions of this are available in the Conventional world through Fannie Mae and Freddie Mac but most lenders do not offer this type of financing. 

I think you'll see that change as this piece of the market explodes over the next few years.

One word of advice that I caution people looking to obtain this financing:

MAKE SURE you are working with a specialist.  The reason is they work with these loans daily and a specialist only originates these loans.  You'll have many originators that "dabble" with these loans and only do a few a year vs a specialist who originates these on a daily basis so they are knowledgeable of the intricacies of the program and have a system in place to take you from application to closing with very few, if any, hiccups.

Don't be a guinea pig and search out a specialist.  This should be your first question to the loan officer.  If they are not a specialist ask if their company has one and if not - move on and don't waste anymore time. 

Not all lenders have the same guidelines; some will have what is called credit overlays, meaning they have tighter guidelines than the published FHA guidelines on the program.

I will do a series of blog posts on this, since it will, and already is becoming, a hot topic.  There is much to talk about, so you can be prepared and armed with information when approaching your lender for a renovation loan request.

God Bless

P.S. if you like this blog check out my other blog http://www.livingwithnolimits.net

Inflation Manipulation?

Inflation numbers are due out tomorrow for the prior month. Expectations are .2% increase but one interesting thing to note. The Bureau of Labor Statistics is going to include the subsidized Cash for Clunkers program $4500 dollar rebate as a way to reduce auto prices by the same amount. Hmmmmm.... now isn't that aggressive use of accounting techniques? Keep in mind the government is the one releasing these numbers and we are in a severe recession that many are calling over, but I just don't see how that's possible. So with a 1.8 trillion dollar deficit due to heavy borrowing, who would benefit from lower interest rates? Bingo! The government would.

See bonds are sensitive to inflation since bonds tie up investor money for long periods of time; but bonds can be resold on the secondary market and if prices are dropping due to inflation fears, investors lose money. The way bonds are calculated for their value is by using simple time value of money calculations. Its quite simple. A dollar today is worth more than a dollar tomorrow. So if an investor is going tie up their money for a longer time, they want a good return - or at least a return that is suitable for current market conditions. In times like this, investors flee to safety - in the form of bonds - which are usually safe investments. If inflation is higher than expected this is not good for bond holders because now their return - inflation adjusted - is much less than originally anticipated. So by the inflation numbers coming out in line or lower, its to much of the benefit of the government who still has to borrow very heavily in order to service the existing debt payments (interest) and the barrage of entitlement and social programs and wasteful stimulus programs.

But how does all this affect mortgage rates? Quite simple actually. MBS (mortgage-backed securities) compete with other bonds for investor cash and are susceptible to inflation worries just as other bonds are. What happens is MBS bonds are priced over treasuries in order to attract dollars and be competitive. Bonds have risk factors that investors have to take into consideration and credit default is just one such risk. MBS add another risk factor - early payoff. Mortgage loans in a low interest rate environment have a high propensity to pay off early. This eats into the returns of investors and therefore they need to be compensated for that risk. So what happens is MBS bonds are priced at a fixed spread over treasury yields in order to attract investors to assume that extra risk.

With gold hitting yet another high of $1,080 an ounce; the dollar is weak, and oil is up, this spells inflation. There are few schools of thought out there with respect to the definition of inflation but I side with the Austrian view of the vast expansion of the money supply that we've seen from the FED over the last 18 months IS inflation. I just don't see an argument here. When you expand the money supply and aggregate demand does not rise equally, and wages do not rise with this, you have inflation and rising prices - period. The price level has to rise in order to balance the increase of money in the system. Back when we were on the gold standard, massive expansion of the money supply could not be done like this because you could exchange your dollars for a fixed weight of gold keeping the FED and our law makers honest.

The first time homebuyer tax credit will likely be extended and maybe inclusive of all homebuyers not just first time. While I've enjoyed the short term benefit of the increase in volume, I know that we are just prolonging the pain that will eventually come. Housing isn't out of the water yet, however if you are in the market to purchase I suggest doing it now. Rates can't stay this low for long. Just one year ago before the FED intervened, interest rates were at almost 7% on a 30 yr and then plummeted to below 5% making the investment into a new home very attractive at this point.

God Bless, until next time.

FHA's Comeback

One of the things I want to talk about is FHA loans. This program up until earlier this year had maybe 2% penetration into the market place. Reason for this is the influx of money, from investors, into the mortgage market thus creating a plethora of alternative loan programs that were giving borrowers more options. These loans include no income verification loans, stated income an asset loans, piggyback loans to avoid pmi, and others.

The market became very creative and helped fuel a red hot real estate market that set record sales for 5 years in row. Many people don't realize that while the market was creative in providing alternative loan programs to borrowers, lax underwriting guidelines and fraudulent activity created the majority of the mess we now see today. A severe decline in home values played and is playing a major role itself. I'm not going to talk about a lot of bad news here I think we get enough of that already from the media. Lets face it bad news makes the front page. My intent is to provide information about a old but new program that many steered away from but now is one of the only high loan to value options left.

Lets talk about the benefits of an FHA loan.

1. No minimum credit score- FICO scores over the last 15 or so years have been used heavily by lenders to determine the creditworthiness of a borrower to repay a loan. Being in the people business for 7 plus years now and pulling credit and looking over credit reports I can tell you it doesn't give a very good indication. The system is designed to give you a snapshot in time of what borrowers score is and not a trend of creditworthiness. I say this because I've pulled credit on someone with a 700 credit score and 6 months later they have one late payment and their score dropped to 550. Now is that a good indication of the borrowers ability to pay back a loan? Let me answer that for you NO! With FHA you don't need a minimum credit score to qualify however common sense is needed here. A 400 credit score is highly unlikely to get approved. Now this year FHA has added risk-based premiums to their upfront mortgage insurance and that is credit score driven but overall there is not a minimum criteria for a score to qualify.

2. Low Down payment - With FHA, up until Oct 1, 2009, only has to contribute 3% down payment. After October 1 it goes up to 3.5%. The 3% can come from a relative as a gift or borrowers own funds. This is powerful because right now in the conventional world you need a minimum of 5%, if the property is located in a declining market as indicated by the mortgage insurance companies, you'll then need 10% down. Not to mention you need over a 680 credit score to get the mortgage insurance approved. You might be approved for loan but can't get the insurance. Which moves me into my next benefit.

3. Low mortgage insurance - FHA handles their own mortgage insurance so if you are approved your loan will have the mortgage insurance on it. FHA mortgage insurance also is at a lower expense then conventional and if you put 10% and take out a 15 yr fixed loan no monthly mortgage insurance is required.

4. No income restrictions - For the first time home- buyer group this is huge. Most first time home-buyer programs are designed to meet the needs of low to moderate income borrowers. Well if you make more than the income limit these programs are unavailable to you. FHA has no income restrictions to qualify.

5. Purchase or refinance new or existing 1-4 unit homes - This is a big plus. You can still get 97% on the purchase of a 1-4 unit primary residence. Conventional requires more down payment on multi-unit properties. On cash out refinances there are limitations to loan to value.

6. Financing for manufactured homes - With the credit tightening in the mortgage market some areas have an ample supply of manufactured homes. The same 97% guidelines apply on these but they must meet FHA guidelines and be on a permanent foundation.

7. You can use a non-occupying co-borrower - This is a forgotten rule but if you can have a non-occupying co-borrower, as long as they are a relative, sign on the loan and the borrower can still get the maximum financing of 97%. This is limited to 1 unit properties if the ltv is over 75%. Certain restrictions apply.

These are just a few of the many benefits to FHA financing. It provides a solution for many borrowers needs and helps them fulfill the American Dream of owning a home. I've been in the industry over 4 years now and I love providing solutions for my clients to purchase their first or next home. I get great joy out of what I do.

Stay tuned for more of my blogs and industry news. I've never been a big fan of bad news I like to spread good news but we are facing problems in the housing industry but i believe it when I say its a cycle and we'll survive this storm and come out of it with better times. Remember the market is what you make it. There are still many opportunities out there you just have to change your marketing strategy, do things a little differently, try something new to see what works and what doesn't.

Never become victim of all the bad news because you can sure find a lot of it. Now is the time to become more proficient at what you do and become a trusted adviser to your clients and business partners.

God Bless

"Whether you think you can or you think you can't, either way you're right"

Henry Ford

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