Georgia Mortgage FHA

Maybe you haven’t noticed but you will from now on. The mortgage banking industry, one of the most highly regulated industries in the nation short of prescription drugs and weaponry, continuously shoots itself in the foot. How so? By advertising and selling off one of the most volatile components of a mortgage: interest rate.

Here’s the prime example. Look at almost any web portal today (the big ones at least) and you’ll more likely than not see an advertisement saying something like “A $280,000 mortgage for $875 per month. Click Here.”

What’s even more amusing to me is that these ads are usually placed not by lenders or brokers but by lead harvesting companies like Lower My Bills or Lending Tree. Oh, you didn’t know those are not lenders? Nope – they are lead generators only and do not directly offer financing. But, I digress.

Are loans like that available? Yes they are. They are called Payment Option ARM’s or POA’s. Can you qualify for it? Maybe. Is it the best loan for you? Probably not.

Here’s a call my mortgage division receives at least a couple of times per week:

Receptionist: Thank you for calling Novation Mortgage, this is Rusti, how may I help you?
Caller: Yeah, I just heard your ad on the radio and wanted to get a rate.
Rusti: Great. Is this for an investment property or a primary residence?
Caller: Oh, investment.
Rusti: And is this for purchase or refinance?
Caller: What difference does that make? I just want to know what your rates are.
Rusti: Yes, sir. I’ll be glad to transfer you to a specialist.
(Rusti on intercom to specialist): I have a new caller asking for rates on investment properties.
Specialist: Hello, this is Joe, what can I do for you today?
Caller: I’m just trying to get a rate.
Joe: Great. I’ll be glad to help you with that. Rusti said this is an investment property. Is this for purchase or refinance?
Caller: Good grief! Why can’t you people just give me a rate?
Joe: Well, sir. I can just give you a rate. But, we here at Novation Mortgage pride ourselves on being honest and accurate with all the information we provide to our clients and prospects. Now, would you like YOUR rate or will just any rate do?
Caller: Actually I’d prefer my rate but I didn’t know it was so complicated.

Now, had this caller called the average run of the mill lender or broker the call would have been much shorter and would have almost certainly involved an incorrect interest rate which would have resulted in great angst when the time came to reveal the actual rate.

Because of the advertising methods of most of the people in the mortgage industry today the general public really has no idea of the most important aspects of borrowing. What’s more important than rate? Whether or not the applicant can actually qualify for the loan. Without being qualified the rate is totally moot. Secondly is the property. Is it acceptable for this loan product?

If you are an agent selling a house based on the loan you’re likely setting yourself up for extra headaches which you really should leave to the loan officer. Yes, I understand the prospect is going to ask you questions about the loan. I train my RE Agents to refer all questions about financing back to the loan specialist whether they work for my company or another lender. We’ll look at the loan documentation to see if it’s fair and accurate but that’s it.

What I do have my RE Agents address with the client is if they have received a rate from a lender, bank or broker but have not yet completed the loan application that the rate they have is most likely incorrect so be braced for changes. Until an?underwriter sees the credit, the income documentation and the appraisal and gives the approval stamp?the rate, the LTV and even the approval status can change.

Here are?8 very important factors that can cause the rate to change from that pre-application phone call to the closing. Please add your stories so other agents and loan officers can benefit (and chuckle or have nightmares) too!

1. Derogatory credit unknown to the applicant. Credit scores dictate loan qualification as well as interest rate. For lower scores there are “hits” to the rate. While one person with the same job, income, assets, and same loan scenario may qualify for an interest rate of say 6.5 yet another person with just one late mortgage payment may either not qualify for that loan or there may be a 1 point “hit to the rate” making their rate a full 1higher at 7.5
2. Incorrect income provided on the application. Many times we ask at the time of application, “How much gross income do you receive each month?” And to back it up we ask the applicant if they have their most recent check stubs available to look at so we can be sure. Of course they have those available but they still come up with crazy numbers. $5800 gross per month is NOT $7000. Why does this matter? Debt to Income Ratio or DTI. Same results as above.
3. Occupancy of property. Is the property owner occupied or investment? This is one of the number one forms of fraud and lenders are going after it with a vengeance even hiring college students to go knock on doors and take photos of license plates on cars in the driveway months after the closing date. Non-owner loans at higher LTV’s (loan to value) generally cost 1o 2o the rate. If you have a client living in a $500,000 house and buying a $250,000 house as owner occupied they better have a very good reason AND a HUD1 from the sale of their first home.
4. Condition of property. If the property is not in “move in” condition most lenders are going to stop the loan right there unless it is a rehab loan. Some lenders, but not most, do allow repair escrows on properties which are missing plumbing fixtures, flooring, or have other MINOR repair needs.
5.Changes in job status. This one makes me want to scream. If your client has recently changed jobs but stayed in the same industry it shouldn’t be a problem UNLESS they went from being a W2′d employee to being self employed. Most lenders want to see 2 years of self employment history. Worse is quitting the job after application and before closing. Had this one happen recently after 4 months of cleaning up credit and getting the couple to the closing table the lady just decided to quit her job. Of course we, the lender and the closing attorney all attempted to verify employment the day of the closing. She didn’t work there anymore.
6. Missing a payment before closing. This one may not get you but often times it does if we pull credit just before closing. I’ve seen it too many times where a borrower went from a 680 score to a 615 score (for example) because they missed a credit card payment before the loan closed. The best thing that can happen is to get a loan at the same LTV with a higher rate. The worst thing is to lose the LTV and have a borrower have to find more cash for closing.
7. Applying for new credit. My agents say it, my loan specialists say it, my processors say it, and it’s in the letter we send to every borrower in their RESPA package. Do not apply for new credit. How is it that they can’t understand that buying a new truck or bass boat is applying for new credit? This one almost always kills the DTI by increasing monthly credit expenses and usually kills the deal … dead.
8. Getting a separation from a spouse who is also on the loan. Yep – I’ve seen this one, too! I don’t even think I need to explain what could (and usually does) happen here.

No matter how much we train and warn the applicants they’re going to slip through from time to time. This is one place where the mortgage side and the sales side can really be on the same page AND on the same team.

So the FIRST order of business should be letting the mortgage side fully qualify the applicant and then finding a property which matches their needs. In so doing the applicant, who is now a client, should be constantly reminded that the loan parameters could change so don’t buy anything you have to make payments on, don’t charge your credit cards to the limit, don’t change jobs or marital status, and pick a property acceptable to the loan program. Or – expect a different loan result!

Together Everyone Achieves More

-Ken

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