My New Outside Blog

What a Realtor should anticipate from underwriters

I put this post together as a suggestion from Mona Gersky. Thanks for the idea Mona.

Underwriters will very rarely have direct contact with the Realtor and will typically go through the processor or loan officer to get conditions satisfied. My job is to present the underwriter with the most complete file possible by anticipating what she will ask for and getting it to her in advance. These are some of the most important items needed from Realtor’s side to ensure a smooth transaction:

1.       A complete and legible fully executed contract.  Legible being the critical component. I have gotten many, many contracts that were re-faxed several times before it got to me and the end result is an unintelligible blur. I understand that it is sometimes unavoidable, but if I can’t read it you can be assured the underwriter won’t even try.  Scan and email the copies back and forth if you can and if you can’t, send me a copy of the unsigned final contract prior to being faxed to use as a reference alongside the blur. Sometimes I can get the underwriter to accept it, but it will delay the process.  

•        A fully executed contract may seem basic, but I can’t tell you how many times I've gotten contracts with missing signatures because the Realtor was in a rush to get it to me or didn’t think it was important to give me a fully executed contract. The underwriter will kick it back and put the file on the bottom of the stack, so I won’t even bother to submit the file.  
•        A complete contract means complete including addendums, so please attach any and all addendums with the contract.

2.       I take great care in reading the contracts before submission but I am not a Realtor and may miss a piece of critical information within it so it is always helpful for you to point out any potential issues like unrecorded easements, zoning irregularities ie; non conforming legal, well water test requirement, bodies in the basement that need exhumation or anything unusual that may hinder or potentially delay the process.

3.        Please contact me during or BEFORE the negotiation stage so we can coordinate a strategy based on the buyer’s financial limitations. You would need to know the buyer may not have enough cash to close or may need a certain level of reserves to meet the approval requirements so the closing costs and/or pre-pays as well as escrows may need to be included in the negotiations.

4.       Whether you think it’s important or not, please provide the termite letter as some underwriters are asking for it on every deal.  

5.       Let me know if there is anything unusual or deficient about the house that may come up in the appraisal. Things like handicap provisions built into the house, peeling paint, broken windows, an unrecorded addition or recent addition, in-law suite, more than one kitchen, no access to basement through the house, water stains from leaking roof(old or new), missing handrails, missing sheetrock, etc. Some of these are deal killers and others just need to be addressed in advance.

6.       Is the house on public sewer system or septic? Some states require the septic system be tested and certified prior to transfer and the underwriter will ask for it.

7.       Most of all, I will ALWAYS take your call or call you back promptly so please do the same for me. I’m not calling you to chit chat, but to relay a piece of information, convey an issue with the file or ask a specific question. Sometimes that piece of information is critical to the deal and cannot move forward without it.

8.       If it’s a condo, I need the condo management company’s information to order the questionnaire and bylaws. More often than not, they are difficult to work with and I may ask your help to get me the paperwork I need. Most will also charge for providing the required information so you need to work that out with the seller’s agent in advance because I will not pay for it.  

9.       Before we get started, let me know if the condo complex is FHA, USDA or Fannie Mae approved so I’ll know how to structure the deal or if it can be done at all. It would also help a great deal if you know the investor concentration.

10.     In order for me to disclose to the buyer I need to know who is the title agent/attorney you are using for this deal to establish their fees. The new GFE is binding so I need to be accurate. If there are any changes to be made after I disclose, I have to wait 3-7 business days to re-disclose (depending on the situation) or wait to close the deal. I've found some small title companies are reluctant to issue a preliminary HUD. If you can, let the title agent know I’ll be calling to avoid delay. The file does not go to the underwriter without a complete signed disclosure packet.

11.     Let me know if there is something about the buyer I should know about so I can deal with it accordingly. There’s nothing worse than getting blindsided.   

12.   Don’t get mad at me when the underwriter approves the file with some silly conditions. If I’ve come to you looking for that condition, it means I’ve already verified the guidelines, discussed it with her and her supervisor and there is no alternative. Underwriters are under a lot of stress since a big part of their job hinges on their default rate long after the deal closes, so you know they will pick that file apart no matter how clean it is. It’s just a sign of the times.

It all boils down to simple communication and cooperation on both sides. I promise you will let you know the status of the application every step of the way and if you let me know the status and projected time line of milestones along the way I can plan for it and we can both ease the buyer’s mind.

My job is to remove as much of the stress from the process as possible by properly qualifying the buyer, ensure the buyer will be approved by uncovering all the potential pitfalls and dealing with them in advance, present a clean file to underwriting and above all make you look like a superstar to the buyer so he can tell everyone how wonderful we both are.

Nontraditional credit, a happy ending

I received a call from a young lady who was referred to me by an existing client. She was very excited as she was looking to buy her first house.  She had a neighborhood picked out, small down payment set aside and style of house she would like.

Unfortunately, she was turned down for a mortgage by several MLO’s before she even applied since she pays for everything in cash or check so she had no credit established and none of the bills were in her name. The other MOL’s (the ones that actually spoke to her) instructed her to open at least 2 credit card accounts to establish credit. Once the accounts were open she would have to wait a year before the trade lines can be used.  

 I spoke to her at length to gain an understanding of her exact situation. It turns out she lives with her sister and pays the utilities as well as gives her sister a monthly rent payment. She pays her cell phone bill in cash directly to the store. All the utility bills are in her sister’s name, so the other MLO’s did not consider using them to establish credit.

I explained that we can still use her payment history to establish a nontraditional credit profile as long as it is consistent and there is a 12 month history. She was very skeptical since she was turned down several times before, but her friend said I would be able to help her so she decided to trust me.

 I asked her to send me 12 month cancelled checks for all the utility bills she is paying as well as 12 month cancelled rent checks to her sister. I also asked her to go to her cell phone provider to get a 12 month payment history on their letterhead.

 Luckily she is very organized and was able to gather everything I asked of her within a few days. Once I had all the requested information in hand, I presented it to the credit bureaus and was able to establish a nontraditional credit profile for her within a few days.

The happy ending is she is in contract to buy the house of her dreams and will be closing on it the end of next week. I love happy endings. If you have a situation you need help with or just looking for a loan officer on your side, please don’t hesitate to contact me.

 extra, extra read all about it, the truth about the housing market!!!

John Mulkey wrote a post called What if the housing market has already recovered? that is essentially about the present state of the housing market as being the new normal. I do agree with him to some extent in the the lost equity theory, but rather than being lost forever I believe it will take some time to recover. I am in complete disagreement on this being the "new normal" based on several points:

1. What we are going through now is cyclical and happens approximately every 8-12 years on average and typically lasts 2-5 years. Some cycles are more pronounced and last longer than others, but the market ultimately corrects itself and comes back stronger than before. Granted this cycle is unusually long and unusually deep so it may take considerably longer to recover, but will come back at some point when we least expect it.

    I believe it will come back in volume close to pre 2006 levels in the not too distant future just based on the birth death ratios that translates to we are a growing population and living longer and as such require housing. Once the employment situation is corrected, it will act as a catalyst. But values will take considerably longer as they were well above what they should have logically been during the last boom. 

2. I think the most prevalent factor in home purchase is employment. If you compare the two charts you will see a direct correlation. As unemployment spikes, housing values drop as a direct result of volume. Most people will not commit to a such a large, long term financial outlay when they're not certain about their employment situation even when they are employed. Given the level of competition in the jobs market I would think most folks are not feeling very comfortable about their jobs right about now and are working very hard to maintain it.  Would you buy a house unless your job was secure?

3. Economic and political uncertainty plays a big part in people's minds. If you don't know where the country is headed or where the economy is headed you will have many doubts about making a large financial commitment.

4. The media feeding negative information on in rapid fire succession about the housing market, looming financial disaster, political upheaval is enough to send most people running for cover. Add to that the constant negative news about the values dropping and industry "experts" touting values will continue to drop leaves potential buyers with the "I'll wait for the prices to drop" syndrome. Unfortunately, most average American consumers do not fully comprehend that the media sells fear and not news especially with the the new technologies we have today that bombards us incessantly from every direction all at once.

Put these factors together and you have recipe for a sideline consumer shaking in his boots regardless of the market conditions because he his too scared to see the truth about the housing market. We, the real estate professionals, all know that with the current interest rates, inventory levels and home values, there has never been a better time to buy. The smart investors see it and are buying, but they can only absorb so much. It's up to us to relay the positive points and change perceptions about home purchase in the consumer since no one else will do it.  

This is one of the best explanations of APR I've seen written and was written by Mark Taylor in Arizona. The only missing piece I see in this post is that APR also calculates the pre-paid interest into the mix, which really does not make a whole lot of sense. Pre-paid interest is the daily interest paid to the lender from the day of closing to the end of the month. In return you get your first month off with no mortgage payment.......well not really because mortgage payments are made in arrears, but that a topic for another discussion.   

What you need to know about mortgage interest rates!

The mortgage interest rates myth is perpetuated by people (many professionals) that believe the rates are derived from the government's overnight rate or the 10 year Treasury bill. The fact is mortgage interest rates are derived from the mortgage backed securities. The mortgage backed securities are nothing more than bonds secured by mortgages and are traded on the open market much like T-bills.

The T-bills are secured by the federal government which is basically taking a loan from you in exchange for yield (interest rate). In other words, when you buy a T-bill the U.S. government is making a promise to pay back the principle plus the preset interest rate. Seeing how financially strong (at least at this moment) the U.S. government is, it's a pretty secure loan.

On the other side, when you finance your home, the lender that gave you the money to either buy or refinance your home did so with the expectation that you will pay the loan back plus the preset mortgage interest rate. Since you are not as financially strong as the U.S. government, they need additional collateral and put a lien on your home. So, if you don't pay the loan back as agreed they have the right to take your home and sell it to recoup their money or if you refinance, it guarantees they will be paid off first.

Once the bank made the loan to you and many others like you, they take all those notes and sell them to Fannie Mae or Freddie Mac (both Government Sponsored Enterprises) so they can keep making loans. The banks may or may not keep the servicing rights when selling off. You may think the bank still owns your loan because you get the statements and customer service from them, but it is usually owned by the GSE and the bank is just servicing it for the GSE for a fee.

The GSE will take all those hundreds of loans worth $billions they bought from all the different banks and lenders securitize them (turn them into bonds secured by all those mortgages) and sell them on the open markets as mortgage backed securities the same way the U.S. government sells T-bills. When you buy a mortgaged back security it may be secured by your home, your neighbor's home and so on. The demand for the mortgage backed securities on the open market dictates the mortgage rates.  The more are sold the lower the mortgage interest rates but are traded much like the stocks in flurry of activity every day and that's why the rates fluctuate sometimes several times a day.  

If you would like more detail, please don't hesitate to contact me.  

Once upon a time......

Once upon a time in an enchanted land not too far away, there lived many happy Mortgage Loan Officers. They were happy because they worked hard and were able to help many people. One of the ways they were able to help many people was by rebating part or all of their commissions to the borrower for whatever reason they deemed, just like the Realtors. They were also able to charge less if they wanted to because it was up to them to decide just like the Realtors.

But one day, the mean overlords of this once enchanted land decreed that they must protect the borrower and no longer allow such bad behavior by the bad, bad Mortgage Loan Officers. The mean overlords said "if you give your customer any part of your money to help the with the closing cost or charge the customer any less than what you agreed to, we will put you in jail".  So the once happy Mortgage Loan Officers are now very sad because they can no longer help the borrower or deviate from the preset commission in any way.

                                                                         The end!!!!!!

Ok boys and girls, can you guess where this once enchanted land is or what it is called?  Yes, you are very smart.   IT IS the United States of America where capitalism once ruled the land and people of all kinds were able to work hard, make a living and help their customers any way they wanted to.

This a reblog from a California Realtor by the name of Karen Crowson who really sums up the value of a good loan officer. These are her words and how she views the differences in loan officers.

Hey look around you.....who's there???

Hey look around you....who's there? Is it someone you look up to, admire or aspire to learn from? Is it someone that you know you are better, smarter and more successful than? Who do you hang out with and who do you associate with?

Hanging out and associating yourself with people who are not as successful or as smart as you does wonders for the ego and makes you feel like the big fish in the pond that everyone looks up to. The problem with being a big fish in a small pond is that your growth is limited and sooner or later you will run out of oxygen as the pond fills up with smaller fish.

As for me, I try to hang out and associate with people that are better than me in every aspect of my professional and personal life. I want to be around people who will challenge me to be a better mortgage loan officer, a better husband, a better father, a better mentor and a more giving person. I want to be around people that are better human beings just by the virtue of who they are and not by pretense.

I prefer to hang out with people that give freely of their time and themselves, people who are honest  and have a positive mental attitude, people who get the job done and do not lose focus of their goals. People who know their stuff because they've worked hard to get to where they are and are not afraid to share their experiences or roll up their sleeves.

I much prefer to be the small fish in a large pond so that I can continue grow to be a larger fish in an ever growing pond while helping other fish to get bigger also. So look around you.....who's there???

Whose job is it anyway?????

There is a lot of discussion about who is responsible for notifying the buyer about the closing costs as seen from Ralph Gorgoglione post The buyers didn't know about closing costs? Whose fault is that: The buyer's agent or the lender? Seems like a relatively simple and harmless question, but it opened a firestorm in the AR community.

To me the answer is very simple; it's my job and my responsibility as the mortgage guy. I am responsible for making sure the buyer understands the parameters of the deal, what their responsibilities will be, what their actual closing costs will be, what the amount will be they are to bring to the table, what form that amount needs to be in and whole host of other items the buyer may be confused about. I am the "money man" and as such I take full responsibility and if that buyer comes to the table without prior knowledge or even one penny short, I have no one to blame but myself.

It is my job to help the buyer to understand about the closing costs, the escrows and prepays in detail. I want my borrowers fully understanding what they sign, the process, the fees and feeling comfortable about it and I cannot for one minute assume they understand the process as I do.  I do this day in and day out where they might buy one house in a lifetime.     

There are some loan officers that say the buyer should know what is expected of them simply by all the disclosures and many forms the buyers are required to sign at the beginning of the process; I say bullcrap. Those loan officers assume the buyer will understand the (or even read) the myriad of forms they are requested to sign at the disclosure stage. In my experience most buyers will, not only not understand the forms but most won't even bother to read them, they'll just sign on the dotted line. To add insult to injury the new GFE (the one form that is supposed to shed light on all the "money") is not worth the paper it's written on. It has one from a one page fully itemized and detailed form to a 3 page monstrosity that even some loan officers struggle with to understand or prepare properly.   

It's not that buyers are stupid, ignorant or lazy it's simply that they are overwhelmed by the entire process. The buyer is excited at the prospect of buying a home, stressed at the prospect of taking on such a large financial commitment and confused about the entire process. They are nervous and excited about the deal all at the same time and it's my job to make my borrowers fully understand what they sign, the process, the fees and feeling comfortable about it. I will have failed miserably if they are not comfortable about the financial impact of their decision. 

I go over all the numbers with buyer and calculate IN ADVANCE (at time of application) how much the buyer is responsible (and in what form) to bring to the table. I will go through the numbers with the buyer at the time of application, upon submission and once again the day before closing to allow them time to get to the bank and get the cashier check. There is simply no excuse for the buyer not feeling comfortable about the funds and process.

Alparetta, GA fireworks may be rained out

Well it's almost 6:00 PM on the 4^th of July and it's thundering and lightening with a good dose of rain so it looks like the fireworks show may be cancelled here in Alpharetta, GA. Seems like a darn shame, but as I sit here pondering I can't help thinking that fireworks shows are what we associate this great holiday with almost to the point of exclusion of the real meaning behind the holiday.  

We plan trips, visit friends, have barbeque parties, watch fireworks and generally do all sorts of fun things without really giving thought to all the brave souls that have given their lives for us to be able to take this holiday so callously. At this very moment we have many brave souls on foreign lands fighting and putting their very lives on the line so we can have a barbeque.

Our great nation is 235 years old today but would not have been born if our founding fathers had not sacrificed everything to see that she was born. History shows us they fought insurmountable odds and were severely tested physically, spiritually, emotionally and intellectually. Some were actually bribed with incredible wealth to give up the fight and rejoin the crown, but declined.  The sacrifices made by our founding fathers and so many others in our 235 year history are beyond comprehension by today's standards.

Seems silly for us to take this day for granted doesn't it?  Maybe we should all take just a moment to remember all those who have made the ultimate sacrifice for us and all those that are in harm's way right now protecting our freedom.

Wishing you all a happy and memorable 4^th of July.

P.S. I was just informed by a brave soul sitting in the Wills Park dugout that the show will go on rain or shine.