Danell Merren

I am gearing up to do the 203K FHA loan product. I have found one direct/retail lender who will allow us to send these their way and receive a referral fee for doing these. I am excited about this possibility as finding wholesale lenders for this product has posed a bit challenging.

Does anyone know a Wholesale lender that will actually allow brokers to do the 203K FHA loan? My concern about referring these to a direct lender is the potential loss of control of the file. While I think it is possible to still maintain control of the file, I believe having an actual broker channel would potentially be a bit simpler.

I would love input!

Until recently, it seemed pretty safe to assume that if a borrower did have a foreclosure or did a short-sale to prevent a foreclosure, that they would be protected from future claims from the mortgage company or companies.

I can't speak for areas outside of Michigan, but I can tell you that in Michigan, more and more lenders are trying to recoup whatever possible after a short-sale or foreclosure. Karen Tjapkes, Attorney with Western Michigan Legal Services joins a team of us at ICCF and Providence Home Mortgage that consists of housing counselors and mortgage staff to give us breaking news on the legal side of what is going on in the mortgage industry. It used to be common at sheriff sale for a mortgage company to make a full priced offer for what was owed. They could, therefore, then list the home with the hopes of of selling the home for as much as possible and minimizing their loss. As we all know, foreclosures have been selling at dramatically reduced prices and so we are seeing a new phenomena. The banks are not offering full price. They are offering lower, selling lower, and then coming after the debtor via other means. Per Karen, they will try to collect the deficiency through any means possible. These ways often mean garnishing wages, garnishing bank accounts, etc. For more legal advice on this issue you can contact Karen directly at (616) 774-0672x121.

I did inquire as to what assets are protected- 401Ks, 403Bs, Pension funds, etc. are protected. However, once those assets are liquefied and hit a person's bank account they are free game.

Also, certain funds deposited into bank accounts are protected such as Social Security or Disability benefits.

What Karen has been observing is that more and more people, once doing a foreclosure or short-sale are subsequently filing for bankruptcy.

Two exceptions to the bank's ability to try to collect this deficiency would be if the bank issues a 1099 or if they do a Deed in Lieu of Foreclosure. If they issue a 1099, they are essentially stating that they have written off the difference.

I've been in the housing industry for a little over ten years now, and have been a loan officer for almost five years. I still keep hearing Realtors I know say that their deals are falling apart, and I am astounded! At least four Realtors in four weeks time have shared with me their recent horror stories or what could lead to horror stories. I was corresponding with one Realtor and asked her how things were going and she said,

"Horrible! Every deal we've had going on this month fell apart. I'm going to have to look for another job."

Another Realtor called me for a second opinion about a client I had previously told I was concerned she likely wouldn't get approved until she did A, B, and C, and the Realtor shared that the LO who approved her said, "I'm confident she'll get approved, I'm not really worried, we'll know for sure when we get her in underwriting (they already had a property)." I asked her if the underwriter had seen the file at pre-approval and she shared that the LO said the underwriter doesn't like to do that, that they only like one touch per file...

I met with yet another Realtor yesterday who when I explained that I always ask the Realtor or client to call me prior to making an offer so that I can look up taxes, estimate payment accurately before an offer is written to make sure the buyer is comfortable and that the debt to income ratios work, and I figure out prorations to make sure the Realtor asks for the correct dollar amount, she said, "Well, this has been a problem with another LO- often we get to the table and the payment is worse and the buyer needs several hundred more into the transaction that they don't have."

I have been talking with a close realtor colleague about a potential borrower that has been "approved" at another company, but we don't know the details of the approval, if the client's profile has been through computer automation or not.

In one regard, I'm shocked that these weak pre-approvals are still going on in our industry, but on the other hand, I'm totally not surprised. Sales people in our industry, both Realtors and Mortgage Consultants sometimes get a really bad name as just that- just sales people.

The problems above are so easily preventable! Formal pre-approvals, reviewed by a human underwriter and processor may take a little more time on the front end but will save a lot of time in the long run for the Realtor, the borrower, and the loan officer!

Doing thorough pre-approvals seems like such common sense, but these stories above convince me that alarmingly a lot of LOs are still handing out their own pre-approvals. Here's a tip that the pre-approval was not issued by and underwriter- the loan officer's name is on the letter!

I'm certainly not suggesting that I am perfect or that 100% of my deals close, but I will tell you that in almost five years, truly only two of my purchase deals fell apart that weren't because of a seller issue. The first was an applicant that I met with during training with my supervising LO present and driving the bus. She asked the client to bring in loan documentation and failed to have her bring in W2s! At this point in my career this seems so basic, but one week into lending, that commonsense eluded me. The client did not have a history of income to support her current income, no education to substitute for job time, etc., and her loan was denied. After watching the client fork out over $700 in appraisal and inspection monies that she could not afford to lose, I vowed that that would never happen again to one of my clients! The only other deal I've had fall apart was due to the unwillingness of my clients to follow the rules. I had one family formally pre-approved multiple times over the past year. They were hesitating to buy. The last time I ran a merged credit report was in April. They finally found a home in August, about one month after their credit report expired. All parties agreed to not run their credit again until they found a property for fear that too many pulls would lower their marginal score. Once the offer came in, I re-ran credit only to find his score had dropped to a mid of 470! I asked the borrower's wife what happened, quite honestly wondering if they had been victims of identity theft! Well, unfortunately, in the time between the two credit reports, they had decided to us a "debt management" company to pay their credit card debt. The "debt management" company uses tactics such as encouraging debtors to cease all credit card payments for three months to get negotiating power with the banks! This is just one reason I am not a big fan of "debt management" companies- they have their place, but not in the middle of a mortgage transaction! This situation could have been avoided if the customer would have followed the rules.

Quite honestly, my processor/assistant and I feel like we throw up on customers with information. We give them a Dos and Don'ts document that actually spells out such commonsense as "continue to pay all bills on time". We always hesitate to give this to families for fear it will appear patronizing, but we explain politely some of the horrors we've seen, and we empathize that people not in the industry just may not know the logic of why or why not to do something. This family as all others was given this information and explained the information.

My processor and I have a line that we use behind closed doors, "This isn't Burger King, you can't have it your way!". Yes, when it comes to customer service, you definitely need to abide by the motto that the customer is always right, but when it comes to mortgage rules, we have to teach them that the underwriter is always right and what that means.

It is our job to take the time on the front end to encourage the customer to come in prior to finding a property and to review their last two years W2s, 30 days paystubs, 2 months bank statements, most recent retirement account, etc. It is also our job to make sure this information supports what we put in the application and to get the entire scenario through a computer approval system and/or in front of a human underwriter depending on program.

I truly believe that if more LOs operated this way, I wouldn't hear agents saying that their purchase transactions were falling apart.

What do you think? Please share with me your input or stories!

Now more than ever a great credit score seems imperative in securing the best financing. That's right, I said great! I did not say good. Gone are the days where a 580 score would buy you a home, at least most of the time. You might get lucky and get approved for FHA on a manual review with a 580 score, but even with FHA, you will pay a higher rate now for that score.

Or you may even be able to go Rural Development with less than a 600. In fact, I just closed a Rural Development combined with MSHDA where my buyer had a 593 middle score! But this is the exception not the rule.

The November issue of Money magazine showed a pie graph chart putting different weights on the different parts of a credit score. They break the score down into 5 categories:

1. Your payment history- 35%
2. How much you owe- 30%
3. Length of credit- 15%
4. Your new credit- 10%
5. Your mix of loans- 10%

I have to laugh because I used to joke that you have to be 50+ to have an 800 credit score or be my co-worker who had an 800 in her late 20s, but her parents opened up a credit card in her name when she was 11!

But amazingly, in the past year, in light of the credit crunch, I've actually had over a handful of borrowers with 800+ mid scores, and they weren't all over 50!

I decided that while the experts give some pretty sound advice, for example,

1. Obviously pay your bills on time (I seriously saw a 366 score once because the borrower opened up 4 credit cards to "establish" credit but never paid a cent on one of them)
2. Keep your balances at 50% of your credit limit or lower
3. Have a long length of credit
4. Open new credit sparingly

my observations have been a little different. I work in a unique brokerage owned by a non-profit housing developer, ICCF (www.iccf.org), and we have several HUD and MSHDA approved housing counselors, and in my former years as a housing counselor, here is what I learned:

1. Keep your balances at 30% of your limit or less
2. The magic number of credit cards to have open is two

According to the Money article they say not to let an old card go dormant, to charge something every month and to pay it off in full as to avoid interest. However, I decided, by a non-scientific method to take a close look at all of my buyers who were under 30 who had 800+ scores to see what they did, and low and behold, not one of them had any balance on a credit card! They also only used the credit cards on rare occasion, not monthly! And they all had just one to two lines of any kind of credit whether it was an auto loan, student loan, or credit card!

I would say that for a person just starting to establish traditional credit, my observation has been that in order to get a decent score in two to six months, opening up a secured credit card or loan and using it monthly is key, but for those with already established credit, the highest credit scores go to those who barely use credit at all, but use it once in a while!

Now I'm not saying to completely avoid credit. Obviously there are good debts. My general rule of thumb is this: if it can help you build assets- like a mortgage or student loan, or you get some perk like bonus miles, freebies (as long as you aren't spending more to get these perks- see my blog Does going to cash really save 20%?!), then borrow away. And, unlike some of these "credit repair" scam companies who think you have to have an 800 score to get a loan, you don't! But you do need a 720 to get the best Conventional rate these days (or 740 for the best rate on a cash-out), and you need a 660 to get the best FHA rate. I've had many a friend who had high balances have their scores fall into the high 600s.

Please, share your observations too!

I am an avid reader of Money magazine. In fact, I just blogged a couple days ago about Flying Tips during the holiday season: http://activerain.com/blogsview/761519/Flying-Tips-This-Holiday-Season, and many of the tips were from Money.

In their November issue they give a money tip to avoid brokers stating that brokers on average charge 27% more in fees.

Now, my first point is that this is/was likely true, when speaking of averages. As we all know, there were a lot of unscrupulous mortgage brokers out there giving brokers a bad rap for good reason during the hey day of sub-prime lending. I am proud to say that I only did two 2-year ARMS ever before I woke up and had the a-ha that this group of borrowers is not, in general, likely to turn their credit profile around in two years. But this article is referring to averages, and who wants an average broker?!

I would argue that with the collapse of sub-prime lending, the bulk of brokers who charged excessively are gone from the market. In fact, I can speak first hand as I watched at least one colleague flunk out of the business because he couldn't adapt to the changing industry. I own a rental property, and I actually rented the property to a fellow broker only to watch as month after month he could not close many deals as the sub-prime debacle unfolded. Mind you, this is a broker who during the peak of the market, made over $400,000 in one year! But when he could no longer make 5 points on a deal, he just couldn't hang in there any more. He ended up filing for bankruptcy. I've heard recently that he moved on to telemarketing!

My point is really that, from my observation, in order to be competitive in this market, you better not charge more than the next guy or gal! In this, shop til you drop mentality, you better be able to differentiate yourself from the competition! It's hard to do that if your fees are 27% higher than the person who works at the direct lender.

My observation is also that the amount of fees charged really depends more on the individual loan originator whether they work at a bank, a direct lender, or a broker! Having worked for both a direct lender and a broker, I can speak from personal experience when I state this having watched my co-workers charge more at each company.

Money did make a really good point- look at APR not rate! By doing so, you or your client will get the most accurate picture about whether or not fees are excessive!

The best irony of the article was Money'sadvice to shop on your own by going to bankrate.com! I decided to check this out just to see what the competition was quoting today, and I had to laugh as one of the companies featured was another broker! So much for checking out their sources!

Finally, I would like to say that as a broker, there are pros and cons to working at a broker or a direct lender. I personally have found that working for a broker far outweighs working for a direct lender. Every day I have access to multiple banks, allowing me to compare rates for customers without charging more in fees. Rates are often cyclical. One week one bank will be low and the next week another bank will be low. For me, every week, I can find the best rate by having options. And in this market, its hard to compete if your rates or fees are higher!