DallasLoanGuy’s - Texas Home Loan Weblog

I have heard this one before. A borrower buys a new home with 100% financing with all of the closing costs rolled into the loan or Down Payment Assistance Programs were utilized. Now, their ARM is adjusting and they do not have the money for closing costs. Desperate times call for desperate measures. And although I rarely suggest this, it just might be the ‘Silver Bullet’ that the homeowner needs to save their home.

The No Fee Home Loan or No Fee Mortgage or No Closing Cost Loan. It can be called many things, but they are all the same thing. But they are usually just simply billed as a loan with No Closing Costs. And don’t let anyone tell you that it is a ’special in-house program only’. These have been around forever. Let me tell you how it works. But first, some facts: Fees are real. People have to get paid on a home loan. No one ‘waives’ fees. They simply charge those fees a different way. Ken Cook wrote a nice piece about The Truth About “No Closing Cost” Loans. A good reference for more info on this subject. Ever see those commercials on TV that say ‘NO CLOSING COSTS’?!?!?! Well, there may very well be no closing costs on the settlement statement, but the borrower will pay those costs over and over again through higher interest payments. Somebody lied.

When a loan officer originates a mortgage, they can offer their clients any rate they wish, really. By that, I mean that they can offer a competitive interest rate based on their costs of that rate. Or, that loan officer can mark up the rate and earn a commission from the investor for the extra interest that will be earned on the loan. This bonus is called Yield Spread Premium(YSP). So, if a borrower qualifies for 6.5% rate, the loan officer can charge 6.75% and earn an additional 1% of the loan amount in commissions(pricing varies and commissions earned varies for each .25% increment). Well, not all loan officers work for just that 1% origination fee, so this is very normal. Brokers do it. Banks do it. Don’t let anyone tell you that they offer the best rate….. they don’t.

But, how can we look at this in a positive way? Let me put an interest rate of say 7.25% on the loan. I now have earned almost 3.5% of the loan amount in extra commissions. That extra commission can be used to pay the customers fees in the event that they cannot come up with the money. 3.5% of $200,000 = $7K. MORE than enough to cover all of the borrower’s closing costs.

Problem solved? Not yet….. it is NOW TIME to make sure the client gets into a fixed rate. No need to try and do this over and over.

While this little ‘Silver Bullet’ works for a lot of folks….. there will be borrowers still too far upside down on their home. The property must appraise for the loan amount!!! This is an example of a positive way to use YSP to the benefit of the borrower. And just might help save someone’s home.

Tom Burris
DallasLoanGuy.com

A Home Loan For Every Texan

Texas Home Loans Texas Cash Out Loans No Closing Cost Loans

 I often get this question. “How many times are you going to pull my credit report?” Well, the answer to this is… as often as it takes to get my client the best possible deal!!

A credit pull by a lender is considered a ‘Hard Inquiry’. Which is a reporting of the borrower trying to establish credit. The FICO scoring model will recognize that you are trying to establish credit and lower your credit score a few points. You usually get those points back when you establish that account. “Soft Inquiries’ are permissable credit pulls by creditors that you have a wroking relationship. They may pull a soft inquiry on occassion to make sure their money is still safe with you or if thy are conteplating a limit increase on your revolving accounts…. soft inquiries do not affect credit scores. Noone sees soft inquiries except YOU when you pull your own report.

So, we have two issues here.

1. Why do lenders pull credit so many times?
2. What is the impact on my credit score?
#1 is easy. #2 is a little more convoluted….. but there is an answer.

Why DO lenders pull credit so often? The first thing I do when I take an application is pull a credit report. Coupled with the loan application, I can usually determine with great accuracy what type of loan to put this borrower in to. With good to decent credit(along with other factors) my first stop is to my Automated Underwriting engines through Fannie Mae or Freddie Mac. I re-issue the credit report into their system(reissued, not a new credit pull), then let the computer spit out an answer as to whether they will back the loan. If I get what I am looking for, then I shop a few rate sheets and quote the client….. all with one credit pull!! If not, then we may have a situation where we are going to be looking at Alt-A products or subprime. Most of my lenders will use my credit report. Some will not. So, I manually qualify the borrower based on the info in the loan application and credit report. It is common to have the actual lender pull another credit report when the loan is submitted(after the borrower inks a contract). I might have a client who has a really unique credit profile, like job gaps or a short credit history, but with some decent compensating factors like high cash reserves. To get a full pre-approval, the hypothetical loan must be submitted to the lender where they actually pull their own credit report. <= They may even pull it again when the borrower finds a home and is under contract. They may even pull an additional credit report right before closing just to make sure the borrower hasn't gone nuts and bought a new car and a bunch of furniture as that can affect debt ratios.
Whew, thankfully, that lender took the deal..... because if the file is denied, then it must be submitted to another lender who will start all over pulling 'Hard Inquiries' on the credit report.

What is the impact of credit inquiries on FICO scores? In their ‘What to know about rate shopping’, Fair Isaac says the following: Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though youre only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score. <= Source: MyFICO.com
MyFICO.com is the consumer division of Fair Isaac Co, who developed the FICO score.

Was that a mouthful? Well, I don’t know for sure, but I don’t think many reputable lenders are pulling credit out of the trunks of their cars on an antiquated system. So it is a pretty good bet that you have a solid 30 day (maybe 45) window to shop for a loan or ‘be shopped around’ by a broker.

This can all be very different Banks, Mortgage Bankers & Credit Unions. They typically have in house underwriting and can use the same credit report for a variety of loan types. While I wouldn’t be surprised to see a lender pull multiple reports, it is less likely than with a Broker.

Want to know more about credit scores and repairing/rebuilding credit? http://www.dallasloanguy.com/docs/about_credit.pdf Please read this free e-book About Credit. This book is intended to provide a basic foundation of understanding of your rights and relationships with your creditors. Please do not consider this legal advice.

Tom Burris
DallasLoanGuy.com

Texas Home Loans
Dallas Mortgage

 I still get the occasional call from someone wanting to cash out their mortgage to consolidate bills and they have little or no equity.
Texas is unique in that they do not allow a homeowner to access their home’s equity above 80% of the appraised value. That’s right, Big Brother is watching out for you. If you owe more than $80,000 on a home that appraises for $100,000 you cannot tap into that equity to use as you see fit. This rules applies for Owner Occupied, Homestead properties. Non Owner Occupied(investment) properties are exempt.

While I disagree with the law, I do understand it…. and maybe Texas was wise to put this into place. Bryan Tutas wrote a fantastic article on this subject. Your home is your castle, not an ATM machine! With Real Estate coming back down to reality in recent months, many people are upside down on their homes because they cashed them out at the height of the market. Like drunken sailors, they took all of the cash out and bought fancy cars and big screen TVs with the ‘found money’. Some of them don’t have enough cash to pay the realtor fees when it is time to sell.

But let’s look at this: If I owe $300,000 on a property woth a solid $400,000….. I cannot acces that $100,000 to pay off medical bills or put my kids through college. This is where it hurts people. This is where Big Brother gets in between me and my money. If I want to borrow that $100,000 at mortgage rates, which is pretty cheap money, to invest elsewhere…. the State says I cannot.

Regardless, there are still homeowners out there with plenty of equity should they need some emergency cash. I just hope they spend it wisely.

Tom Burris
DallasLoanGuy.com
Texas Home Loans

Texas Cash Out

 This is a rant…. mostly. I cannot tell you how may times I have received a contract that was not legible. Some of these are so bad, I could post an example and NOT have to edit out any personal information because you couldn’t read it. These things look as though they have been faxed 25 times.

What is going on? Where do we get these fax machines? If you fax your contracts for signature, the fax machine shouldn’t be that $69.99 Office Depot Special. There is better equipment out there…. please equip yourselves. And please don’t ask a hundred questions of your lender about why the document isn’t good enough. It is a legal/binding document. Maybe a drive across town is in order?!?!?! I nearly got into an arguement with a realtor over why I couldn’t use the document they delivered. <== I am a professional too, and when I say it isn't legible the correct answer is: "Oh, so sorry, I will correct that".

Don't get me started on the penmanship issues when stuff is stricken out and had written into the contract. If your penmanship is bad, get someone else to write it. There is no room for shortcuts when the buyer/seller has this much money on the line.

Tom Burris
DallasLoanGuy.com
Texas Home Loans

 I feel fortunate to live where I live. Plano, TX is locates in the N. Dallas suburbs in the very desirable Collin County. Driving distance to downtown Dallas. An upscale community, with many amenities…. Malls & other shopping, movie theatres, parks, great schools and safe neighborhoods. Plano Parks & Recreation, for example, provides wonderful facilities for the kids to play outdoor games…. like Baseball!!! I enjoy spending time with my family and friends watching my oldest son play ball. He loves all sports and we can keep him busy year round with activities from the Plano Sports Authority. Their summer programs for kids include arts & crafts classes to karate lessons for nominal fees to residents.

 <== Just look at that form. Think I might know this little guy?!?! LOL

You can visit the Plano Parks Dept here: http://www.plano.gov/Departments/parksandrecreation/ to learn more about their programs. And if you consider moving to Plano or the Plano/Richardson area, you can get more information about the area from a great local Realtor Donna Harris with http://www.DonnaHomes.com

Tom Burris
DallasLoanGuy.com
Texas Home Loans

It happened again this week…. Got an appraisal that came in $10,000 short. I wonder where this will lead?!?!?!

Now, to be fair…. there was some seller paid closing costs(just under 3%). BUT….. The contract was BELOW the list price of ~ $232,000!!!

Typical deal. Realtor writes up contract close to list price with seller paids…. All is good in approval land until the appraisal comes in really low. Then, yep, you guessed it, the listing agent calls me to tell me they have another appraiser who will be able to come in higher. They found some comps that were priced higher. Seems that the builder in town is putting out some killer incentives and driving down the existing sales market for the time being…. But they really feel like the property supports the higher price as it has upgrades itself.

But, it seems that this appraiser was willing to build an appraisal out of a deck of playing cards…. because these new comps are NEW CONSTRUCTION.

Now, lets not even get into the discussion about why you can’t use new construction for an appraisal comp on existing sales. I am sure that Meg Stewart can discuss all the ins and outs of that. But for ANY Realtor, regardless of which side of the transaction you are on, to suggest that we ‘need a new appraiser’ is absolutely ridiculous.

I blogged about this a while back…. “Don’t Be That Realtor” actually got all of 3 comments(one of them was my own comment). It seems that either this topic is a sore subject… or maybe it is just so darn ridiculous that no one thinks it is necessary to mention. But it seems that it IS worthy of mention…. Because it keeps happening!!!!

My first notice of this was when the appraiser left me a message. 30 minutes later I get a phone call from listing agent wanting to use new appraiser. My first phone call was to the referring Buyer’s Agent and she was rolling on the floor laughing. She would NEVER agree to a new appraiser. Besides, the current appraiser is very well respected around town and unless there are some FSBO comps they missed the Listing Agent will have to explain himself to the sellers.

So, we all agreed to have the Seller Agent submit any new comps to the appraiser for reconsideration as they do have a right to challenge the appraisal. And it seems that the Seller Paid Closing Costs will have to be amended out of the contract as the buyer wants to proceed. But myself and the Buyer’s Agent undoubtedly have counseled the borrower/buyer on the ramifications of paying full list price and have encouraged them to resist any thoughts of re-appraising the property so they can roll in the seller paids. Although it would be nice to keep that extra cash free for curtains and appliances, they do qualify with paying those expenses out of pocket.

How do YOU respond when the appraisal comes in low?

Or, for that matter…. how do you respond when an appraiser is willing to fabricate an appraisal out of thin air?

Tom Burris
DallasLoanGuy.com
Dallas, TX

http://www.dallasloanguy.com/

“Cartoon credit: Andy White. Contact for rates.”

Hip Shot Cartoons
P.O. Box 48594
Fort Worth, TX, U.S.A. 76148

Other products and services include: Hip Shot greeting cards, and autographed Hip Shot cartoon prints. He also offers gag-writing services.

 I’m still seeing 100% financing in the Great State of Texas!!!

I got a call from a realtor on a deal we were working on together. She asked all of the usual questions about what I have done and what she could get for me to smooth this deal.

Then came ‘THE question”.

“Is there going to be any problems with the “100% Financing”? <= I get that one a LOT!!! LOL

What a lot of people do not understand is that the people who 'NEED' 100% financing are more affected by the recent tightening of guidelines than people who 'ELECT' 100% financing. This borrower could have put down 5-10% if they chose, but wanted to reserve their cash until their other house sold.

I still do more 100% financing for Texas Purchase Money Loans than any other deal. And there is nothing ‘dicey’ about them. Full approval requires an underwriter’s review of income and assets, but the conditional approval is just minutes away with Automated Underwriting.

Still nervous about those 100% financing deals on your listings? Then learn what to ask. Brian Brady, America’s Most Opinionated Mortgage Broker wrote about this. Even did a podcast about Realtors Prequalifying Buyers.

1. What type of loan is this? Conforming? Alt-A? Subprime?
2. What conditions need to be met in order for the borrower to get this loan?
3. Are the debt ratios well within lender’s guidelines?
4. Has income been calculated?
I am sure there are lots more questions…. I bet ‘ole Brian can think of some…. because I need to publish this and get back to work.

Tom Burris
DallasLoanGuy.com
Dallas, TX
Texas Home Loans

“A Home Loan for Every Texan”

http://www.dallasloanguy.com/

…….. And ‘go to jail’

I know all the tricks. I hear about the techniques. I know that people can read the “Fair Credit Reporting Act” or “Fair Debt Collections Practices Act” and use that info to remove some bad stuff from their credit reports. I have even seen folks get added to mommy’s credit card as an “Authorized User” to boost their credit depth, and FICO scores as a result.

But, have you heard the latest craze? It’s called “Piggybacking“. For a fee, an internet site will add you to a good credit card with a high limit, low balance and perfect payment history revolving credit account. Net result? 50+ FICO point boost!!!

Some people call this practice, at best, deceptive. Others inerpret this as flat out “Mortgage Fraud”. What say you… Ed Rybczynski? What do you think a loan officer should do when they find out about this? My answer? “Deny the loan”. Why? Well, I blogged about it here => http://activerain.com/blogsview/22154/The-dangers-of-Credit ….. any questions?

While I haven’t seen or heard of any law against this practice… I DO BELIEVE that the current laws can be used to interpret Piggybacking as fraudulent behavior.

Food for thought…. and reason to be very skeptical of any credit repair companies.

Tom Burris
DallasLoanGuy.com
Dallas, TX
Texas Home Loans
“A Home Loan for Every Texan”
http://www.dallasloanguy.com/

 When Banks Compete, You Lose?!?!?! Huh? How can that be? Didn’t Lending Tree tell me differently? Yes they did!!
And they are kind of right, banks competing for your business does help you obtain a lower rate. Borrowers should shop around, getting a quote from both a bank and a mortgage broker. Compare what you have been offered and make an informed decision….But if you use one of the 4 or 5 companies that Lending Tree ‘sells your information to’ then you have to cover their overhead that came from Lending Tree. So, now that you are getting this info, you can make an informed decision about exactly ‘how’ to shop around and ‘how’ to engage a lender/broker.

First, lets look at the facts, it takes a considerably amount of money for a broker/lender to sign up with Lending Tree(or the many other lead generation websites). Thousands of dollars!! $10,000 is a number that I have heard from people who have used them to get leads. Then on top of that there is a fee per lead or a fee after the loan funds which can be in the hundreds of dollars. Who pays that? Do you think the lender/broker pays all of that money just so they can offer you the same rates as everyone else? Or do you think they have figured in the costs associated with buying your information when they offer rates and fees? I bet it is the latter….

Next, let’s consider why people ‘buy leads’ from Lending Tree. Do you think maybe it has something to do with the fact that those loan officers aren’t getting enough referrals from their friends, families and networking partners? It sure does!! Actually, these loan officers that buy mortgage leads are typically new loan officers who haven’t built up a network of influence for referrals. Basically, they buy leads because no one is sending business to them!! Do you want to trust your most important financial transaction to rookie loan officer? I wouldn’t. Now, while there are some very good loan officers who use ‘purchased leads’ as a way to diversify…. I believe that most consumers can do better for themselves by getting referred to good loan officers and doing their own comparison shopping without letting a lead generation website add on some costs.

Have you figured it out yet? Lending Tree spends millions of dollars on marketing/advertising to get the phone ringing. They cover those expenses by selling your information to a bunch of ‘wet behind the ears’ loan officer so these rookies can handle the most important financial transaction that most people will ever make!!

Lets take a pause. Let that last statement sink in………. kind of scary, huh?!?!

Lending Tree is right, when banks compete you win but they left out the part about how thousands of professional loan officers in the business can offer better terms and rates without the added expenses from the lead generation companies.

So, how do we find a loan officer to handle this most important transaction? How do we know who to trust? As you may have guessed, the DallasLoanGuy has some advice on that topic.

First, I always suggest to folks that they ask friends and family or maybe a trusted co-worker who they closed their home loan with and how they felt about the whole transaction. Next, try asking someone like your CPA or Financial Advisor. These folks know financing. They may even have a relationship with a trusted lender. Realtors are also a good source. They refer business to loan officers several times per month. And with many transactions under their belts, they certainly know who is competent and who is not. Now, that you have been referred…. What’s next?

Mortgage Bank or Mortgage Broker? Which is right for you…? Most borrowers these days have seen better rates/fees through brokers. Direct lenders can and do offer competitive deals, but usually those are for the ‘vanilla borrower’ who has a bag down payment and no job gaps or other issues that make their deal unique. But how do you really know for sure? Get a quote from one of each. Compare the ‘Good Faith Estimate’(GFE) for rates and fees. Pay particular to the fees numbered in the 800’s. The other fees are charged by third parties and the lender does not control these costs. Don’t get suckered into a loan with low third party fees to only get surprised later. Need help? Your realtor/CPA/financial advisor can help you compare the GFE from each loan officer to determine which is the right deal for you.

Remember, this could quite possibly be the most important investment in your portfolio. Do your homework and don’t be afraid to ask questions.
Tom Burris
DallasLoanGuy.com
Dallas, TX
“A Home Loan for Every Texan”
http://www.dallasloanguy.com/

 I got this announcement in an email from a lender. =>Fannie Mae Guidelines It contains some good news and some bad news for marginal credit borrowers. These changes will take effect May 19th Seems as though Fannie Mae may be getting a little more conservative on their approvals for the High Risk, High LTV/CLTV loans.

What does that mean? Quite simply, some high risk loans will be getting approvals with ‘Levels’ attached. Which means that they will be paying .5% to 1.5% higher rates than a low risk client. I see this as prudent and very fair for the borrowers. These levels have always existed, so that is nothing new. But the higher risk stuff will be getting ‘leveled’ more often now.

Another announcement, and this is a biggie, is that they do not require collections be paid regardless of amounts. Remember the “collections allowed up to $5,000″? They will now allow unlimited collections that do not affect title. So, the guy who has a 6yr old chargeoff for $5,500 can get into a conforming loan without paying off his collection. Fannie Mae used to require all collection paid if they added up to over $5,000. The presence of collections will still go into the risk analysis of the loan. I could speculate on why these changes are being made….. but it would only be a guess. Who knows what all goes into their risk analysis thinking. But I suspect that Fannie is learning what we knew all along. Some borrowers with old collections can still pay their mortgages on time. And that an arbitrary $5K limit did not make sense. The net result is going to be a little higher rate for the 100% loans as a result of the Expanded Level Approval. And some folks with great recent credit may be able to get into conforming rates regardless of old collections.

Is your loan officer running EVERY FILE through Automated Underwriting? They should be….. because a lot of these people in subprime loans probably would have qualified for something better….. a Conforming Loan.

Tom Burris
DallasLoanGuy.com
Texas Home Loans