mortgage underwriting Archives - Real Estate News and Commentary

December 15, 2017October 9, 2018

Mortgage lender shell game

Realtors and other real estate professionals eagerly look forward to the annual Profile of Home Buyers and Sellers. The Profile, published by the National Association of Realtors, provides insight into the preferences and decisions of home buyers and sellers. After thirty-five years of publication, the Profile has become somewhat of an important contribution to housing trends and economics. But did you know that the mortgage lender and the mortgage industry has a survey of their own?

The National Mortgage Database (NMDB) is a multiyear project conducted by the Federal Housing Finance Agency (fhfa.gov) and the Consumer Financial Protection Bureau (consumerfinance.gov). The NMDB project incorporates two consumer surveys, the National Survey of Mortgage Originations and the American Survey of Mortgage Borrowers. The NMDB is meant to provide statutory guidance and lending policy direction. The database has yielded interesting data about how and why borrowers choose their mortgage lender, as well as their experiences and interactions during the mortgage process.

The NMDB has produced a colossal amount of data across many aspects of the consumer-mortgage lender relationship. The preliminary analysis indicated that consumers don’t really shop for a lender. Many home buyers use the mortgage lender recommended by their agents and others. Most notable is that about half of the home buyers surveyed only considered one mortgage lender. Not a surprise is that the small percentage of home buyers who apply to more than one lender are typically motivated by better terms (such as interest rate).

The mortgage lender is an important aspect of the home buying process. Unfortunately, the NMDB suggests that home buyers are not doing their homework, and possibly choosing their mortgage lenders for the wrong reasons. The mortgage process is an intricate dance between the buyer, the loan officer/processor and the underwriter. The mortgage lender can either provide a smooth and “stress free” closing, or a bumpy process that can cause anxiety and delays.

When you’re buying a home, “time is of the essence” (it states that on the first paragraph of your contract). Choosing the wrong lender can cause delays and potentially cost you money. Issues can occur with any mortgage lender at any time during the mortgage process. Problems can sometimes stem from the inexperience of the loan officer/processor, who does a poor job communicating what is needed from you. More often, issues arise during the underwriting process because of a slow turnaround time.

Believe it or not, many mortgage lenders have their loan officers, processors, and underwriters separated in different offices. Sometimes the different offices are located in different cities, which can add time to the process. Sometimes. lenders have their processing and underwriting all in the same office, which helps facilitate communication and a loan approval.

As a home buyer, RESPA gives you the right to choose your mortgage lender. The process of choosing the best lender for you should not be much different than choosing your Realtor. Ask your agent and others whom you respect for referrals. Do your homework and consider at least three of the referrals, if not more.

In addition to comparing interest rates, compare the lender fees. Lender fees can vary and can add unnecessary cost to your closing. Since you will be communicating with the loan officer and processor a great deal through the home buying process, talk to them to get a feel for how they interact with you. Besides to asking about their company, ask the loan officer about their background and experience. Find out how their underwriter operates and ask about the underwriting turnaround time. And make sure the lender is licensed. You can check a lender’s licensing by checking with the consumer portal of the Nationwide Multistate Licensing System (also known also known as the Nationwide Mortgage Licensing System or the NMLS).

Original located at https://dankrell.com/blog/2017/12/15/mortgage-lender-shell-game/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

November 20, 2014December 13, 2022

Why real estate and home sales will rebound in 2015

The recent stumble of the housing market recovery has been a head scratcher for many. Surely low interest rates and an abundant number of homes for sale should have been incentive for any home buyer. But alas, many have been disappointed by the 2014 housing trends; even with sparse anecdotes of quick sales and bidding wars. However, many are optimistic about the housing market for 2015 because of the combination of low mortgage interest rates, increased access to credit, and moderating home prices – which could transform reluctant “looky loos” into eager home buyers.

Don’t count on low mortgage interest rates, per se, to incentivize home buyers. Although interest rates have been historically low since shortly after the financial crisis, it seems to not have been an incentive on its own to purchase homes. Industry experts have tried to pinpoint the timing of rate increases since rates first dipped below 5% in 2010. And even though rates were anticipated to have jumped when the Fed tapered its asset purchasing program this year, rates continue to be relative to historical lows. The average mortgage interest rate according to the Freddie Mac Primary Mortgage Market Survey (freddiemac.com) is 4.01% (as of November 13^th); yet home sale volume continues to lag behind 2013 figures.

Very low interest rates may continue into 2015. Back in 2012, the Federal Reserve Open Market Committee indicated that interest rates would remain “exceptionally” low through 2014. Fast forward to September’s Federal Reserve Open Market Committee meeting; the October Fed press release (federalreserve.gov) reported the FOMC maintaining the 0 to ¼ percent target rate, even for a “considerable time following the end of its asset purchase program…”

On the other hand, loosening mortgage credit underwriting could help some would-be home buyers; but it is unclear who would take advantage of such programs, and how it will help them. Tightened credit and underwriting standards that resulted from the financial crisis, along with government intervention in the form of the Dodd – Frank legislation, created regulation and stringent lending standards (such as comprehensive validation of financial standing and strict adherence to debt to income ratios); which critics point to as having hampered lenders from making loans. However, some lenders are beginning to introduce less restrictive mortgage programs, which may accommodate the self employed and those with high student loan debt.

Of course, home prices have been a point of contention between home buyers and sellers for a number of years. Home sellers seeking higher prices are sometimes thwarted by home buyers looking for affordability and value. The seeming home price tug-of-war that favored home sellers in 2013, appeared to turn back in favor of home buyers during late summer of 2014. The October 28^th release of the S&P/Case-Shiller Home Price Indices (housingviews.com) reported further deceleration of home price appreciation. The National Index showed a 5.1% annual gain, which is lower than the 5.6% annual gain reported in July. The Washington DC region saw a 3.1% annual increase; but a 0% change in August, compared to the 0.1% change in July.

Additionally, the 15% increase in national foreclosure activity, as reported by RealtyTrac (realtytrac.com), could be a wildcard for home prices. It remains to be seen if the 26% increase in foreclosure activity in the D.C. metropolitan area from the previous year is a trend, or just a result of lenders clearing “shadow” inventory.

January 15, 2008November 23, 2021

Mortgage Guidelines Get Tougher

by Dan Krell
Google+

Like bears awakening from their hibernation, home buyers are slowly emerging from the holiday season and begin to look for a home to purchase. Many home buyers will find that that the challenge of buying a home this year will be more than finding the perfect home, but finding financing. Many home buyers expecting the mortgage process to be quick and painless may find that it is neither quick nor painless; others, expecting to be approved with a sub-prime mortgage, will be turned down. In the recent past, most home buyers found a way to obtain financing; this year may be different as the mortgage crisis fallout has changed the way lenders underwrite their programs.

Ask anyone in the mortgage industry and they will tell you that the entire mortgage landscape has changed. Some popular mortgage programs are no longer available, while other programs have been significantly changed. It may be a challenge for home buyers to locate a lender that offers a reduced documentation mortgage. These programs still exist, but have more restrictive guidelines; reduced documentation mortgages are requiring more verifications, higher credit scores and larger down payments.

Self employed home buyers will find that the popular “No Doc” is no longer available. The “No Doc” loan required no documentation or verifications from the borrower, hence the name. Although the program typically required a higher credit score, the “No Doc” loan was popular with self employed borrowers because employment, income, or asset verifications were not required.

Home buyers who need a low or no doc loan will have to look hard for alternatives. Most “liar loans” are no longer offered, or are offered with some type of verification. If you come across a stated income mortgage program, be prepared to sign an IRS form 4506 that will allow the mortgage company to verify the stated income. You should also expect a higher down payment and a higher than average interest rate.

As a way to assist home buyers with less than perfect credit, Fannie Mae and Freddie Mac created their expanded criteria programs in the mid to late 1990’s. These programs offered these home buyers a mortgage with minimal down payment and a reasonable interest rate; however the interest rate varied on the borrower’s credit score. However, like other mortgage programs, these expanded programs have also changed their requirements which include, among other items, increasing credit score requirements.

As the sub-prime mortgage industry has all but dried up, the FHA mortgage (HUD.gov) has picked up the pace. But even the venerable FHA loan is changing; FHA approved lenders are also tightening up their lending guidelines (in anticipation of new FHA guidelines). Some of the changes include credit score driven approvals as well as variable loan pricing (the interest rate will vary based on the borrower’s credit score).

For home buyers considering purchasing a home this spring (or any other time), talking to a lender should be their first priority. The mortgage crisis has changed the way mortgage lenders operate, including how lenders view borrowers. Home buyers should be prepared to provide more documentation and information to their lenders, as well as a possible higher down payment.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of January 14, 2008. Copyright © 2008 Dan Krell.