Mortgage lender shell game

mortgage lender
How to choose a mortgage lender (infographic from

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 ( and the Consumer Financial Protection Bureau (  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).

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Copyright© Dan Krell

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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.

FHA is taking care of business

by Dan Krell &copy 2009

After almost being absent in the local real estate market, the FHA (Federal Housing Administration) mortgage is now the mortgage of choice. Due to the almost eradication of “Alt-A” and sub-prime mortgages from the marketplace, home buyers who have little money for down payment and need flexible underwriting have once again turned to FHA. FHA is not only assisting home buyers, but financially challenged home owners are also being assisted through FHA refinance programs. The FHA mortgage has once again become the workhorse of the mortgage industry

The cycle of home buyer’s usage of FHA mortgages makes sense if you look at the explosive availability of “Alt-A” and subprime mortgages (which had lower credit and/or documentation requirements) earlier this decade. The increased usage of these mortgages reduced home buyers’ reliance on FHA to make their purchases. This home buyer behavior is supported by a study that determined a home buyer’s “mortgage debt decision” (between a conventional mortgage and a FHA mortgage) is dependent on their down payment, amount of the monthly mortgage payment, and mortgage insurance payments (Hendershott, LaFayette, and Haurin; 1997; Journal of Urban Economics, 41:2, 202-217).

With the decline of “Alt-A” and sub-prime lending, the number of FHA mortgages originated has recently increased significantly. Nick Timiraos and Deborah Solomon reported (The Wall Street Journal, “Loan Losses Spark Concern Over FHA,” September 4, 2009) that as of the 2nd quarter of this year, FHA’s “market share” increased to 23% as compared to 2.7% in 2006. As the number of FHA mortgages increased, so has the number of defaults; Timiraos and Soloman quoted the Mortgage Bankers Association statistics of 7.8% of FHA mortgages in the 2nd quarter were 90 or more days late or in the foreclosure processes (up from 5.4% a year ago).

As FHA’s risk exposure increases, so does concern over FHA’s capital reserves. In a September 18th press release (, FHA Commissioner David H. Stevens announced that FHA will take measures to reduce risk in response to the anticipated result of FHA’s annual actuarial study that may indicate that FHA’s capital reserve is below the congressionally mandated 2%. Although Commissioner Stevens stated,” …the fund’s reserves are sufficient to cover our future losses…the FHA will not require taxpayer assistance or new Congressional action,” he made it clear that “…credit policy and risk management changes are important steps in strengthening the FHA fund, by ensuring that lenders have the proper and sufficient protections.”

In addition to the announcement of adding a Chief Risk Officer, Commissioner Stevens announced changes to credit requirements, appraisal requirements, and streamline refinance procedures. Credit requirements on mortgagees (lenders) will change to ensure that lenders are properly capitalized; changes include increased lender net worth from $250,000 to $1M, and submit audited financial statements from supervised mortgagees.

FHA will adopt language from the Home Valuation Code of Conduct (HVCC), already adopted by Fannie Mae and Freddie Mac, which requires appraiser independence. Due to the volatility of the housing market, the FHA appraisal validity period will be decreased to four months from six months.

To tighten standards on FHA streamline refinancing, new procedures will focus on mortgage seasoning, borrowers’ payment history, collection of credit score, and a stated benefit to the borrower. Additionally, the loan amount will be limited to 125% of the value of the home.

This column 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 September 21, 2009. Copyright © 2009 Dan Krell

Mortgage Guidelines Get Tougher

by Dan Krell

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 ( 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.