Ron Withers ----Retired Mortgage Professional

My CommunityMortgage (MCM): MCM is Fannie Mae’s affordable lending Product developed to serve low-and moderate-income communities and borrowers.

If you are a loan officer/broker, or a Realtorthat takes an active role in providing mortgage financing information to your prospective clients you really need to know about the recent enhancements that FannieMae has made to their MyCommunity Mortgage product. Every now and then a new product or enhancement comes along that makes a difference in providing affordable financing alternatives for those in pursuit of the American Dream. FannieMaes’ recent enhancement to their MyCommunityMortgage does exactly that ….in a big, big way! In fact, their enhancements’ to this product are so fantastic I really believe that this is the best thing to come along since sliced bread!

Buyers seeking 100% mortgage financing along with little or no money out of pocket for closing and settlement costs has become a “norm”in today’s marketplace. Until recently, many of these buyers had to resort to an alternative mortgage or even sub-prime mortgage program. Quite often the structuring of their financing is 2 loans (80/20) to avoid private mortgage insurance which has become rather costly. Frequently their rates for the first mortgage are in the high 7% range and higher and the second mortgage in the 11% range or higher. A blended rate greater than 9% is not uncommon. Even more terrifying in accepting this as “a means to justify the end” are the other loan features which exacerbate their financial position such as prepayment penalty, short-term adjustable rate mortgages and interest-only option.

For many years the mortgage industry has used credit scoring among other factors to evaluate the risk of doing business with a given borrower. The quality of terms that a borrower could obtain was driven by this risk assessment. Now buyers can afford the home of their dreams without mortgaging their future as less than perfect credit will not affect their payment amount or interest rate.

Bottom lineis that the MCM has put the “affordability” back into affordable financing. Unfortunately, the buyer still has to deal with the issue of median sales prices.

Below are the new enhancements to the MyCommunityMortgage……do your clients a big favor by recommending that they check it out.

New enhancements and features include: No down payment required, Homebuyer education not required, Terms up to 40 years, Fixed or Adjustable Rates Available, Reduced Mortgage Insurance, No first-time homebuyer requirement (Cannot own another home at closing), 2-1 buydowns permitted, Maximum mortgage to $417,000, Up to 6% sellers contribution allowed for closing costs and pre-paid items, Boarder income may be allowed, State and County Down Payment Assistance may be used , Non-Traditional credit may be used, Interest-only Option available.

With Automated Underwriting: No minimum credit score requirement, No cash reserves are required, effective May19, 2007 unlimited collections may remain open (previous guideline was to $5000), No set maximum debit ratios, Cash on-hand for closing may be acceptable, Flexible with sources of funds for additional funds into transaction.

Mortgage Loan officers/Brokers and Realtors this program will get you more deals closed while doing right by your clients. This mortgage product combined with state and county down payment assistance programs is making a lot of my clients very, very happy!

P.S. Several days ago I made a post just before ActiveRain went down with a hardware failure. I understand that comments may have been lost due to this failure.

You are invited back to this post RE: Setting Expectations.

Copyright 2006, Ron Withers, All Rights Reserved

On two occasions this past week I had two different Realtors call me to screen their buyers who came to them with pre-approval letters from a mortgage lender/mortgage broker. In both circumstances their clients needed 100% financing with up to 6% seller contribution.

In the first case, the client had a pre-approval for a $250,000 purchase. Credit score was mid 500’s and she made $12.50 an hour in a service industry job. She could not qualify for even a $100, 000 purchase much less stick out her proverbial neck for a reduced documentation loan. Furthermore, she had a stretched comfort zone of $900 a month for a piti payment. After discussing all this in detail with the client thanked me for the time to discuss her needs and being straight forward with her and that she knew all this “WAS TO GOOD TO BE TRUE!” ……Arbeit Macht Frei!

In the second case, the realtor (seller’s side) got the loan officer with “that other company” on the phone to me. The Realtor had negative vibes as he had previously had a less than desirable experience. My realtor wanted the mortgage broker to fax me a copy of the credit report to review. At first the mortgage broker indicated that he would do this as I assured him that I would take no interest in his deal. As we got deeper into the scenario and the buyers qualifications he started changing his tune and became un-cooperative. The selling Realtor says “ok great, that’s enough; I’ve got what I needed to know!”…..just another…..Arbeit Mach Frei!

As I reflected on the events of the past week and was exploring ideas for my first formal blog the thought of all the incompetent and unethical people we have in this profession. How is it so easy to “tell them what they want to hear”….we’ll throw it against the wall a little later and see if it sticks……Arbeit Macht Frei!

For much of my professional life I was on a dual career path; Financial Services/Mortgage Lending and a Career Reserve Commissioned Military Officer retiring after 25+ years of service. I spent three years active duty stationed in West Germany with my family present. During the summer in two of these years my wife’s parents came over and spent 4-6 weeks with us.

Her father was a veteran of WWII having landed on D-Day and fought thru Germany ending up in Dachau near the end of the war. I managed to get some leave time hear and there and a few long weekends. Her father decided that he would like us to visit Dachau which was just a 2 hour drive form where I was stationed. Upon arrival at this Nazi WWII Concentration Camp we were greeted by this massive iron gate with this Nazi slogan (propaganda) scrolled across the front of the gate. “ARBEIT MACHT FREI!

For those of you who don’t speak German….translation….Work Shall Set (or Make) You Free! Now imagine if you can the 100’s of thousands of Jews that passed through these gates only to be systematically exterminated. Arbeit Macht Frei…….the setting of False Expectations!.....in the cruelest of ways.

A fundamental tenet of our business is setting the appropriate level of Expectation with our clients. With decency and respect, not like animals on the way to the slaughter house!

This information may be known by most of you, however there is always "good to know stuff" that seems to slip through the proverbial crack. As such, I thought it was worth a post.

From time to time you may have buyer’s who do not know or are not sure of what their credit report files contain. On January 1st of 2005 the FACT Act was signed into law by President Bush. One of the features of this Act was to allow consumers free access to their credit bureau reports from all three major credit bureaus (Equifax, Experian & Trans Union). Every consumer is entitled to this free credit report once every year. Should you want to provide any of your clients with this useful information you can refer them to: http://www.annualcreditreport.com/

There is a similar website that is heavily advertised on radio and TV that is easily confused with the one listed above. That site is http://www.freecreditreport.com/. This is NOT REALLY FREE! Consumers/subscribers must sign up (fee based service) for a credit report monitoring program to be entitled to their "free credit report." It seems as though there will always be those enterprising souls who like to capitalize on the similarity of names to generate a buck or two.

This subject matter is probably the most common or frequent question I receive from borrower's and even Realtors. As such, I believe it is important to dispel certain myths about the negative impact of credit inquiries on the credit scores contained in each consumer's credit file by providing you with information, facts and answers so that you may better serve and educate your clients.

Do multiple inquiries into a borrower's credit file serve to lower their credit scores? Answer is YES it can, ...... but not necessarily! The primary myth on this subject matter is the half or partial truth which is frequently used by unscrupulous loan officers/mortgage brokers that will choose to use this myth as a scare tactic to enhance their personal advantage depending on how they choose to explain the impact of credit inquiries to the prospective client. They frequently will tell the truth......but not the WHOLE TRUTH in cautioning borrowers to not allow additional lenders to pull their credit report. They believe that this tactic will deter the prospective borrower from further shopping for their mortgage loan thereby increasing the probability that they will get the deal!

Background:

First and foremost, it is important to understand that credit scores are not a measure of past credit performance. They are a predictor of the likelihood or probability that the consumer will experience financial problems in the future such as late payments, default, bankruptcy, etc. The lower the credit score the greater the probability of credit issues happening. As such, the credit industry has evolved to the point where the credit score is the "key" element in assessing the risk of doing business with a consumer.

Businesses that extend credit to consumers and pull consumer credit reports as part of their decision to extend credit are users of this information. Every business by type (mortgage lender, consumer finance, credit card, auto dealers, insurance company, retailer, etc.) is assigned a subscriber code which tells the credit bureau agency what type of user is making the credit inquiry. In years past it was very common for some users to "shotgun" a consumer's application for credit to several lenders simultaneously (most prevalently the auto dealer). Their intent was to get the fastest possible credit decision/approval on their client as well as create competition for their business. Obviously, this process served to exacerbate the credit scores of the consumer due to excessive credit inquiries.

The risk scoring models used by the credit bureau agencies are closely guarded secrets! Every consumer credit file is unique unto itself. There are scores of factors which are considered and weighted against other file data which determines the credit score of a given consumer. These models are risk assessments that have been developed and refined over many years using the data contained in millions and millions of credit files. No person, that you or I will ever know, can accurately state the negative impact of inquiries or even other adverse information on a borrowers credit score. This impact is entirely relative to the overall content and quality of the borrower's credit file. Although, excessive inquiries over some specified time frames will serve to lower a consumer's credit score. Repeated inquiries or applications for the extension of credit is viewed as a risk in that the consumer may be incurring additional debt which will serve to degrade their overall creditworthiness

A few years ago the credit bureau agencies finally recognized that when consumers were having multiple inquiries into their credit files by specific users and specific subscriber codes (such as mortgage lenders) that these consumers were not in fact attempting to open several new accounts but rather that they were shopping for services in an effort to obtain the best services and/or terms that they could find. As such, they should not be unfairly penalized with reductions in their credit scores and thereby suggesting that they were becoming more of a credit risk. The credit industry instituted a policy that would allow for a period of time (fourteen 14 days) of increased inquiry activity (by subscriber code) without undue or negative impact on the consumer's credit score giving more flexibility to consumers to shop for their mortgage loan without fear of losing points in their credit score. If a prospective borrower shops for their mortgage loan for an extended period of time allowing numerous lenders to pull their credit report and even have an occasional inquiry for other purposes such as credit cards or auto loan then the consumer's file will most likely suffer a reduction in credit score.

Consumers looking to obtain a mortgage loan (purchase or refinance) should be educated to only start the shopping process after making a personal commitment to complete their transaction in the very near term, preferably within 90 days and the sooner the better (30-60 days). To start and stop and restart the process over an extended period of time will serve to exacerbate their credit scores and possibly do themselves a dis-service by qualifying for a less desirable mortgage program or possibly not qualifying at all.

Also, it would be useful to know that lenders, as a rule, qualify borrower(s) based on what they refer to as a representative score. This score is the middle score of three (3) scores in the borrowers credit file. Where there are only two scores the representative score is the lower of the two. In cases where there is a co-borrower, the representative score becomes the middle score of the primary wage earner.

Whether you are looking to purchase or refinance, you are a first-time homebuyer, a seasoned homebuyer or homeowner I have assembled my basic rules for obtaining a mortgage loan. These rules are based on my many years of experience and stories or circumstances conveyed to me by my clients. It is my belief that they will help you enjoy the many rewards of homeownership as opposed to failing the test of homeownership! They are as follows:

FIRST RULE: WHAT YOU DON'T KNOW CAN HURT YOU!!

SECOND RULE: WHEN IT'S YOUR FINANCIAL FUTURE, THERE IS NO SUCH THING AS A STUPID QUESTION!!

THIRD RULE: DO YOUR HOMEWORK!!

So....Ron, You have these three great rules! What are you really trying to say?

First Rule: If you do not have a clear cut understanding of the nature and terms of the mortgage loan that you are accepting then you can unknowingly set yourself for a potential "nightmare" at some future time. A couple of examples would be a prepayment penalty in the event of a future sale or refinance of your home or accepting some form of adjustable-rate mortgage (ARM) where the monthly payments will "skyrocket" within a few months or years.

Second Rule: Unless you are a very seasoned homebuyer (several purchases under your belt), you may not really know or understand all the "in's and out's" and "lingo" used by those of us in the industry. Unfortunately, there are those "professionals" that will not tell you any more than what you specifically inquire about and nor volunteer information or details that will be important to you.

Third Rule: Prepare for your purchase or refinance by reading and researching information on products and programs and various features/options available in the mortgage marketplace. Again, unfortunately there are those "so-called" professionals that will guarantee and promise you the world (tell you what you want to hear as opposed to...what you really need to know!) and of course there will always be some that practice "bait and switch".. In shopping for your mortgage, assemble a few key questions about getting or qualifying for a mortgage loan. Know the answers already! Like a prosecuting attorney, they ask questions that they already know the answer to....that's their way of tripping up a witness or defendent. This process will allow you to sort through the lenders or loan officers with greater ease and effectiveness.

Very importantly, there is a significant difference between being given partial truths verus whole truths!

Copyright 2006, Ron Withers, All Rights Reserved