DallasLoanGuy’s - Texas Home Loan Weblog

While this is a shady business tactic…. it isn’t illegal YET!!! 

I received an email saying this was being voted on May 2007. You need to be heard so please contact Texas Legislature. The bill states it takes effect Sept 2007…..so hurry. If you do not know who to write or how to contact your legislators, then follow this weblink to find out how to contact them by email: http://www.capitol.state.tx.us/resources/FAQ.aspx#2

The background on this is that builders have gone from offering a small incentive to go to their mortgage company to now withholding up to $25,000 in upgrades if a buyer doesn’t go to their mortgage company. As a result, an unsuspecting buyer signs a contract with that incentive/penalty, after being assured that the builder’s mortgage company will offer a market rate and costs, only to find out prior to closing that the rate is considerably higher than the market but they can’t get out of the contract at that point - - and are stuck choosing between losing thousands of dollars on the mortgage or losing thousands of dollars of their own purchase money that was supposed to go toward the house. This bill can stop that practice if you and your friends will write your legislators.

House Bill #3798 A BILL TO BE ENTITLED AN ACT Relating to certain sellers of homes offering a benefit contingent on the use of a specific mortgage lender. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Subchapter D, Chapter 35, Business & Commerce Code, is amended by adding Section 35.65 to read as follows: Sec. 35.65. SELLER PROHIBITED FROM MAKING BENEFIT CONTINGENT ON USE OF MORTGAGE LENDER. (a) A person who builds and sells a single-family residence may not offer or provide a benefit to a potential purchaser of the residence as consideration for the purchaser’s agreement to use a mortgage lender specified by the person for a loan to purchase the residence. (b) A person who violates Subsection (a) is liable to the purchaser for: (1) any damages arising from the violation; and (2) reasonable attorney’s fees and costs. (c) A purchaser may not waive the right to sue under Subsection (b). SECTION 2. This Act applies only to the sale of a single-family residence closed on or after the effective date of this Act. SECTION 3. This Act takes effect September 1, 2007.

http://www.legis.state.tx.us/tlodocs/80R/billtext/pdf/HB03798I.pdf <== copy of the text of this bill.

 http://lenderimplode.com/ is tracking the ‘who’s still standing’ amongst subprime lenders 

 

The Alt-A market is feeling some of the same pressures…. Loan guidelines are changing daily….. so much so that it is hard to keep up with what can and cannot be done.

The good news is…. the ‘Full-Doc’ loans are ok… the people who can verify income and a little money in the bank have much less foreclosure rates.

But, the ‘Stated-Income’, ‘Stated-Assets’, ‘No-Doc’, ect loans are the ones that can no longer get 100% financing. It is even harder if the loan is for a non-owner occupied property. So, if you cannot verify income and assets, you should be able to get a hold of enough cash for 5% -10% down payment.

The market is changing…. people may have to downsize on their dream homes and put a little money down. But the market will come back some once the foreclosure rate comes back.

 

 

Tom Burris

www.DallasLoanGuy.com

 

We have seen the writing on the wall. Now, the hammer has dropped. Many subprime lenders tightening up their loan guidelines and 100% financing for subprime borrowers is getting harder to find.

How should Real Estate agents respond?

1. Align yourself with loan officers who have access to FHA/My Community loans.

2. Ask your lender if they have access to the ‘Community Reinvestment’ loans offered by the large banks.

3. Become the trusted advisor. If you have a client with credit challenges, help them get educated about credit. A good starting point would be having them preview my free e-book titled “About Credit’. http://www.dallasloanguy.com/docs/about_credit.pdf . Although this is just a start, it will give your clients a good foundation of knowledge to build upon.

4. Beware of the credit repair companies…. who are more interested in collecting fees for credit repair than they are in DOING credit repair.

5. Be mindful of where your referrals are coming from. You may want to reconsider how much of your marketing dollars go to the referral sources that send you subprime business.

6. Talk to your lender. Don’t be caught off guard by tightening loan guidelines. Get the clients prequalified as early as possible.

The world is not coming to an end…. but there are going to be some clients who could qualify last year that will not be able to get a loan this year. Don’t let this be an excuse for a lack of business….. arm yourself with the tools to weather the changes.

 

http://www.dallasloanguy.com/

 

I burst their bubble today. That couple who took some bad advice from another loan officer last year and started paying off all of those little bills from 5 yrs ago….. well, they did it….. they got it all paid off!!!! And their credit looks like a train wreck. Their scores dropped a LOT. What happened? They took unpaid collection from their credit report and paid it off. Making that trade line a very recent ‘paid collection’. The FICO score had all but forgiven that past stuff because these folks have a good recent pay history. Now, it looks like they have not paid ontime recently. It is unfortunate that the system works the way it does…. and that is why I have put together this FREE e-book about credit. Just go to my website an ownload it for free. Nothing to sign up for unless you want to be put on my mailing list. If you really want that home at a decent interest rate….. it ‘might’ be best to leave those old collections alone until after you close. Because, time and again, I have seen folks pay their way out of a home because they were not rewarded by the credit scoring system(FICO) for paying off old debts.

http://www.dallasloanguy.com/docs/about_credit.doc

http://www.dallasloanguy.com/docs/about_credit.pdf

http://www.dallasloanguy.com/resources.shtml

http://www.dallasloanguy.com

DallasLoanGuy.com provides free one-on-one credit consultations to ANYONE who will FIRST take the time to read this free book and purchase a scored credit report. This information can save people thousands of dollars over the life of their loan.

Last Week in the News

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After falling or remaining flat from September to November, consumer prices climbed 0.5% in December, as gasoline prices staged a momentary rebound, the Labor Department reported January 18. For 2006 as a whole, consumer prices rose by 2.5%, the lowest increase in three years. Wholesale prices, the cost of goods before they reach the consumer, increased 0.9% in December, down sharply from a 2% jump in November, the Labor Department said January 17. Total 2006 wholesale prices were up just 1.1%, a dramatic improvement over the 5.4% surge in 2005. The preliminary reading on U.S. consumer sentiment by the Reuters/University of Michigan Surveys of Consumers rose to 98.0 in January from 91.7 at the end of December. The reading — the best in three years — was propelled by falling gasoline prices and a favorable view of personal finances and the economy. The number of Americans filing new claims for jobless benefits dropped by a surprisingly large 8,000 last week to 290,000, the lowest level in 11 months, the Labor Department reported January 18. Analysts had expected new claims to reach 315,000. Meanwhile, rates on 30-year mortgages hit a nine-week high, as financial markets reacted to these and other positive economic reports, lowering chances that the Federal Reserve will move any time soon to cut interest rates. This week look for updates on existing home sales on January 25 and new home sales on January 26.

Courtesy of: American Home Mortgage Investment Corp.

Well, if you can afford it…. then it probably isn’t worth the price!!!

The credit bureaus have stated that the only thing you can do to ‘repair’ your credit is pay your bills on time and wait…. and wait…. and wait.

Well, they are partially right. There are some things you can do to speed up the process. But if you have been solicited by someone who says they can remove unpaid collections, or bankruptcies on some little technicality…… RUN!!!

What can you do? Well, that depends on your file, and everyone is different. I will spell out a few things that will help.

1. Don’t hide from your debts. If a collection agency calls, be nice and take down ALL of the information you can. Original creditor, amount of principle, interest, late fees…. generally, what makes up that amount they are collecting. Get the name and address of the company along with any account numbers. Then, politely say that you need to research it, or you need time to gather the funds. Immediately, send a ‘Cease & Desist’ letter certified mail to the collection agency. Huh? Cease & Desist? Yes!!! The collection agency is offering you an undesireable service…. and you can ‘fire them’. If you do this right away, there is a great likelihood that it will not get placed on your credit report. If you are in this circumstance, i don’t have to tell you, that these debts get sold & resold and can show up 2 or 3 times on your credit report. Stop them in their tracks. Now, I am not suggesting that you NOT pay your bills. But you should pay the original creditor when possible.

2. Keep those credit card balances down. The number one killer of a FICO score is the high utilization of revolving debt. And if you get a Home Equity Line of Credit(HELOC), then get a bigger credit line than you need. Why? Because if you need $10,000 and get a $10,000 line….. it is ‘maxed out’ from day one. Another little trick you can do is ‘convert’ that revolving debt to installment debt. A bank or credit union would be where to start. Although you may have to ’secure’ that debt with some type of collateral.

3. Pay on time. Yes, it is that simple…. over time, your late pays will hurt your score less and less…. so it is important to come up with a plan that you can stick to and follow that plan. If you can’t stick with the plan, ask for help.

4. Debt counseling. I am not talking about those debt cancelling services, because I have yet to find a legitimate one. I am talking about consumer credit counseling(CCCS). If you DO decide to use a service like this, you really, really need to sign up for credit monitoring and make sure they are paying on time. I have seen folks come out of CCCS with a TON of late pays. Ask up front if your scheduled payments will be suficient to bring the accounts current and be reflected as good accounts on your credit report.

5. Seek advice and counsel from someone who understands the FICO score. A good loan officer can show you what steps you need to take to increase your scores. Sometimes that includes opening new accounts. Whatever the steps are, do what you can when you can and watch your scores increase over time.

More about this subject is available on the resources page of my website. I hope this helps someone.

http://www.dallasloanguy.com/resources.shtml

http://www.dallasloanguy.com/docs/about_credit.doc

http://www.dallasloanguy.com/docs/about_credit.pdf

 By Kenneth R. Harney Saturday, November 18, 2006; F01 When home builders behave badly, some of their customers may have an unexpected resource: The federal government’s “RESPA police,” who say they have become increasingly active in resolving consumer complaints through nonpublic interventions with builders. RESPA stands for the Real Estate Settlement Procedures Act, a consumer protection law that targets kickbacks and other settlement-related abuses. The RESPA police are investigators at the Department of Housing and Urban Development. They are best known for their splashy public settlement agreements with real estate, title insurance and mortgage industry firms, sometimes involving hundreds of thousands of dollars. But with no public fanfare, the RESPA police have begun intervening in complaints brought by individual consumers who say builders are unfairly forcing them to use their affiliated mortgage companies. The affiliates’ loan deals, the complaints say, typically are more costly than those available from independent mortgage brokers and lenders. In one case outlined by HUD officials in an interview, a builder canceled a sales contract and seized an $11,845 good-faith deposit when a buyer refused to use the builder’s affiliated mortgage company. Under RESPA, builders and others generally are prohibited from requiring the use of a specific lender or title company as a condition of a sale. HUD officials talked about enforcement operations on the condition that their names not be printed because agency policy requires that they remain anonymous when discussing nonpublic investigations. According to the HUD officials, after RESPA investigators contacted the builder and gave the company 15 days to resolve the dispute, the builder — which the officials also declined to identify because no public action was taken — not only allowed the buyer to proceed with independent financing, but also paid the buyer’s lender to lower the interest rate. In another recent nonpublic intervention, a consumer complained that a builder seized her $10,000 deposit when she refused to accept the loan deal offered by the builder’s mortgage affiliate. The affiliate’s loan officer “fraudulently altered financial documents,” according to HUD, “that would have placed the consumer in a home she could not afford.” In other words, the builder’s loan officer allegedly was willing to approve the buyer for a mortgage amount and monthly payments that ultimately would cause her to lose the home to foreclosure. After investigators intervened on her behalf, HUD officials said, the buyer was refunded the $10,000 deposit. In a case involving incentives dangled by many builders to attract buyers in soft markets, a prospect was offered a “free” morning room addition to the new house. The builder said the addition was worth about $13,500. The only hitch was that the purchaser would need to use the builder’s mortgage subsidiary. The builder assured the buyer that the rates, fees and terms offered by the subsidiary were “very competitive” with outside lenders and brokers, according to the complaint. But when the buyer checked out the competition, he found the subsidiary’s fees to be bloated — a $5,400 “origination” charge, for example — and far more costly than in the regular market. The buyer complained to investigators at HUD, arguing that the builder was engaged in an intentionally deceptive practice. After investigators hinted at legal action, the builder agreed to waive the $5,400 fee and threw in the $13,500 morning room, too, according to HUD. Investigators actively are pursuing other nonpublic mortgage-related complaints, officials say, including allegations that builders: · Raised the prices of homes when buyers declined to use their mortgage affiliates or subsidiaries. · Required buyers to deposit extra money in escrow accounts if they refused to use the affiliated lender. · Pushed buyers into using a designated lender with the threat of withdrawing a $5,000 “seller’s credit” toward closing costs and also adding $10,000 onto the home price. If you find yourself in a builder squeeze involving mortgage, title or other affiliates, HUD has some practical advice for you: · Compare interest rates, loan terms and closing costs of several independent lenders before agreeing to use the builder’s affiliate or wholly owned subsidiary. Determine whether the affiliate’s rates and total charges are higher than the going market rate and offset any discounts, incentives and upgrades. · If you intend to use a builder’s affiliated mortgage company to take advantage of incentives and then refinance the loan to get a lower rate, be sure that the mortgage note does not contain a hefty prepayment penalty designed to discourage early refinancing. · Be suspicious of large discounts or additions that are contingent upon using the builder’s loan affiliate. Knowing what comparable homes in the area are selling for may help you determine whether the builder is offering a true discount or is simply raising the price of the home before offering the discount. If you have a complaint involving high-pressure tactics designed to coerce you into using a builder’s affiliate, you can call the RESPA enforcement staff at 202-708-0502. Alternatively, you can e-mail hsg-respa@hud.gov. For background on RESPA, visit http://www.hud.gov/. Kenneth R. Harney’s e-mail address isKenHarney@earthlink.net

Over the past couple months I’ve had borrowers ask for certain documentation types later to find out that’s not really what they are seeking after all, the most common variation I’ve seen is people looking for no doc loans when they should be looking for some variation of stated income or no ratio loan.

To help clarify the different documentation types on a mortgage, arranged from usually what gets the best pricing & terms to the worst:

Full doc - if you are self-employed this most likely means 2 years of federal tax returns (all schedules). If you are a wage-earner it most likely means 2 years of W-2’s and a paycheck with YTD earnings information. If income is hard to determine based on the paycheck & W-2 then a verification of employment (VOE) form can accompany it. Also requires assets, usually the rule of the thumb is you need 2 times your monthly mortgage payment in reserves + any funds to close. Sub-prime lenders usually don’t have the asset verification part. Employment is verified.

Lite doc - usually when 3, 6, 12, or 24 months of bank statements are used to document income in lieu of paycheck stubs, W-2’s, & 1040’s. Assets are still required in addition, sub-prime’s asset requirement is usually the same as full doc. Employment is verified. This is a common document type for sub-prime financing, while not many non sub-prime lenders & programs find this acceptable.

**Stated income (also known as stated income/verified assets - SIVA) - income is stated on the loan application, employment is verified, assets are verified (asset verification becomes more common on stated income sub-prime loans than full doc sub-prime).

**Stated income/stated assets (SISA) - income & assets are stated on the application but not verified, employment is verified. Most sub-prime stated income loan programs are of this type.

No ratio - employment & assets are verified, income is either on the application but debt ratios do not apply or income is left completely off the application.

No income/no asset (NINA) - income nor assets are listed on the application, employment is still verified.

No doc - zip, zilch, nunca (thanks David Spade), no assets, no income, no employment. Most sub-prime lenders “no doc” program is really a NINA but they call it “no doc”. About 1 out of 3 or 4 of sub-prime lenders offer this documentation type.

I’ve met several loan officers who have been in the industry for over 3 years who still have a tough time figuring out which document type is most beneficial to the borrower, just be sure that you and your loan borrowers are both on the same page.

** I wanted to say something about the Stated Income loans. I am aware that good people will have a second job that pays cash or cannot document their income in some way. The stated income program was designed for them. It WASN’T, however, designed so that one borrower can include spouse income, or inflate income to get a bigger house. Unfortunately, this is all too common. It is fraud to state your income higher than it really is…. and you will be asked to to sign a 4506-T form which allows the lender to get copies of your tax return from the IRS in order to audit the file. They usually do not audit the file…. but you better believe they will if it defaults.

Since you Realtors already know this fact….. let’s cut to the chase.

I recently got a lady pre-approved for a loan that I didn’t know about 2 yrs ago.

My borrower was pre-approved by another lender. She was quoted almost 8% on 20% down loan(with a 3yr prepay penalty). Why? Well, she had a $17,000 medical collection. And 2 yrs ago…. I probably would have priced her the same loan.

Well, it seems that she makes less than 80% of the median income for her county. And I found a loan program that would ignore the collection and give her a loan in the mid - high 6’s….. This is called a “Community Commitment” loan. There are similar loans, but this one is powerful. Banks have a vested interest in lending money to people who earn less than the median incomes in their area. Why? The community Reinvestment Act!! Thats why!!! Because they can get heavy fines if they cherry pick certain parts of town to put their money.

Why didn’t the other lender do this? Why didnt the Realtor say….. Whoaaaaaa?

There are programs out there that a lot of brokers/lenders are not aware of these days. Don’t let YOUR buyer get stuck in a sub-prime loan because the loan officer is lazy or doesn’t have this knowledge.

Hook up with a lender that can talk to you honestly about loans. Ask why one guy is subprime and another lady is prime when they have relatively the same credit score.

Why would a Realtor want to arm themselves with this information? They aren’t lenders. That is not their job. But it IS the job of their lender partner…. who is an extension of Realtor themselves.