Before you call and ask for a rate quote on your next mortgage loan – please consider all of the qualifying factors.  Not all interest rates are created equal.  There are MANY factors that go into an interest rate calculation and can be very confusing for most people.  Loan originators can no longer barter with their commissions to get you a better rate or to pay some of your closing costs,
thanks to a new rule imposed in April of 2011.
Therefore, the interest rate you get is dependent on all of the following:

1.       Day of the lock

Interest rates change on a daily basis and often multiple times in a single day.
Knowing the best day to lock in a rate is the job of the mortgage professional.

2.       Length of the lock period

Interest rates can be locked for time periods of 15 to 60 days (and sometimes even longer).  The longer the guarantee period – the higher the interest rate price.  Most lenders will not allow a short 15 day lock unless a loan has completed the underwriting
phase and is ready to close.  The shorter lock term is typically what the media quotes and is unavailable if you are just
starting a transaction.

3.       Type of Loan

Interest rates are different for FHA, VA and Conventional Loans. They differ between fixed and adjustable
loans.  They differ between all of the various loan programs.

4.       Term of the Loan

The longer the term of the loan – the higher the price.  A 15 year loan is lower in rate than a 30 year loan.

5.       Size of the Loan Amount

Loans over $417,000 are subject to higher rates, however, loans under $100,000 can be priced higher also.

6.       Type of Property

Rates are higher for a condo than for a single family home.  The type of property and land use are factors in loan pricing.
7.       Credit Scores

There are additions to pricing for various credit score variations.

8.       Use of Loan Proceeds

Rates are generally better for a purchase loan than for a refinance.  There is a usually a penalty to pricing if
you elect to take cash back from a refinance as opposed to just refinancing the balance.

9.       Where the property is located

Highest eligible loan amounts for particular programs are determined by counties.
You can borrow more in LA and Orange Counties on a conforming basis than
you can in San Diego County.  Riverside is impacted even more.  Therefore you
will pay more for a $600,000 loan in San Diego than you would in Los Angeles.

10.   Value of your property compared to your
loan amount (LTV – Loan to Value)

This is perhaps the most significant pricing factor for interest rate calculation and cannot be determined until
after an appraisal has been completed.  The less equity you have can add up fast in your interest rate
determination.  Diminishing equity has been a real problem in recent years.

11.   Use of the Property

Whether you occupy the property as a primary residence, secondary home or purchasing for investment affects the
interest rate.

12.   Closings costs paid in cash, financed or
paid by the lender

Sometimes it is advisable to refinance a loan with no closing costs (a free loan) but be aware – the interest rate will
be higher.   A matrix of pricing options is available depending on how much cost you are willing to pay (or not pay).

13.   Paying Points

Interest rates can be bought down by paying points.

14.   Impounds or no impounds

Usually the pricing of a loan is a smidge lower if you allow the lender to impound for taxes and insurance.

15.   Fannie and Freddie  Loan Level Pricing Adjustments (LLPA)

Ever since the two Government Sponsored Enterprises (GSE’s) went into conservatorship of the US government there has
been significant pricing adjustments based on a matrix.  These additions to pricing must be calculated to see what your final interest rate will be.  One example of these pricing adjustments affects everyone in California and is called Adverse Delivery Charge and is imposed on all loans because of declining property values.  If you want to see for yourself how your loan will be impacted then you can follow this link:

https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf

With all of these things influencing an interest rate, is it
any wonder that we can’t pull a rate off the tops of our heads anymore.   Next time you think you got a better quote
from one lender compared to another, make sure that all of the pricing factors
have been disclosed.

I take pricing of loans very seriously – you should too.

I thank you for trusting me with your home financing and I’m
always available to take your calls, answer your questions – and yes – quote
you a rate that you can bank on.

Educators beware.  The next time you buy supplies to help out your school and then take the 2106 expense deduction on your tax return, it could cost you approval of your home loan.

A teacher was declined this week because the lender lowered their salary by the amount of employee related expenses they showed on their most recent tax return.  This teacher was merely trying to refinance their existing home loan into a lower rate that would reduce their payments.  Perfect credit history, good equity in their property, and adequate cash reserves were not enough as the bank slashed their monthly qualified income.

Lenders are sending verification forms to the IRS and getting a read out of everything that you report, including all of your itemized deductions.

For years teachers have been voluntarily supplying their schools and classrooms with ink, toner, paper, craft supplies and items needed to do their jobs effectively.  Under IRS rules, these expenses when not reimbursed by the employer can be included on the schedule A form of the tax return provided they itemize their deductions.

Teachers often have a difficult time adequately performing their roles as our youth’s educators when they are not furnished with proper supplies to do their jobs effectively.   So these underpaid heroes are voluntarily taking their personal funds and buying the supplies their districts should be furnishing. This voluntary expense, a form of charitable contribution if you will, is now being used against them and will hurt them the next time they apply for a mortgage loan.

Congress has mandated that every person who gets a mortgage loan must qualify for the payments.  That makes sense – doesn’t it?  Or does it?  Under these new laws our mortgage parents, Fannie and Freddie, have become the income cops.  

Qualifying for a mortgage loan comes down to calculating the numbers.  Under standard underwriting practices ratios are used to determine the amount of mortgage debt that a person can reasonably afford to handle.  Housing expense which includes principal, interest, property taxes, insurance and any other direct expense like homeowner fees should not exceed a designated percentage of your income.  Likewise your total debts when added to your housing expense needs to stay in an acceptable range.   Ratios vary but generally an acceptable housing expense ratio is around 33% of your gross income and total debt should not exceed 41%.

Simple math – right?  Wrong. 

Calculating the housing payment is easy.   Figuring out what a person really makes for income may be more difficult.  

In addition to a teachers annual salary it is not uncommon for them to supplement their income with after school activities.   Coaching a sport, providing drivers education, music and the arts activities, summer school are but a few of the many ways that our teachers contribute to the betterment of our youth and their own financial needs.   Much of this income however can be disallowed unless it can be shown to be continuous and guaranteed.

Teachers are getting the short end of the stick when underwriters disallow portions of their income and then write down salaries by expenses paid on a voluntary basis.  

The housing crisis brought on by inadequate underwriting standards is being further fueled by the lack of common sense when it comes to calculating the numbers. Underwriters are shaking in their boots every time they approve a loan for fear of the wrath of the mortgage giants.  

The pendulum of approving everybody for a loan during the subprime era days has swung to the extreme of denying qualified homeowners a chance to better their financial situations.  Isn’t it logical to assume that if a homeowner has a history of faithfully making their mortgage payments they will not default with a lower one?

The new rules of mortgage lending are extreme and discriminating against all homeowners, including teachers who are trying to better their financial situations in a very rocky economic time when even their employers may be facing bankruptcy.

In a state that has been threatening to issue IOU’s to its educators, perhaps they need to start issuing charitable donation receipts to their teachers who continue to provide supplies. The mortgage gods don’t reduce income by your charitable donations – yet.

Mary Tootikian, author of Stunned In America, Sub-Crime Mortgage Crisis, is a 30 year veteran of the mortgage industry and owner of an independent mortgage loan processing company.  She is a respected authority on mortgage lending and serves as the voice of reason to restore credible underwriting standards to a very broken industry. Visit her website at: www.stunnedinamerica.com

Barney Frank’s committee is meeting today on the subject of: Keeping Score on Credit Scores: An Overview of Credit Scores, Credit Reports and their Impact on Consumers. His panel of witnesses includes the who’s who in the credit scoring agencies. Does anyone see this as a conflict of interest since these people participate financially from use of the credit scoring systems? You don’t think credit scoring is free – do you?
What is FICO anyway? When I joined the mortgage industry in 1980, there was no credit scoring and I, as an underwriter, was trained to analyze a person’s credit history. Stuff like: did they pay their bills on time, how much did they owe in comparison to what they made, and real fact-finding with all information available is what we used to determine credit worthiness.

In the 1990s, Fair Issac Co decided to market to Fannie Mae and Freddie Mac a computerized system of determining your worthiness by assigning a three digit number ranging from 300 to 850, to your credit history. Using a magical system of – lose 30 points for this and add 40 points for that – they developed a computer model that was originally intended only to be used as a guideline for lending purposes. The developers of this FICO scoring system recently announced a new scoring model that is available for purchase called FICO 8. This is the second revised scoring model in recent times. So why do they keep changing the scoring model? Is it because their scoring system doesn’t work, especially with banks current credit-crushing actions?

I can remember when mailboxes were overflowing with credit card offers, many of them with zero interest for 12 months – borrow now – pay later? Or when your bank would eagerly raise your credit limit to heights you couldn’t possibly pay off and tempt you to borrow more money by sending you blank checks. How about the phone calls from these same banks offering to put this low-cost money right into your checking accounts – even up to the full amount of your credit limits? Well those days are over and now those same banks are closing your unused credit cards, unmercifully cutting credit limits and raising your interest rates to usurious heights, even when you have faithfully held up your end of the contract. Despite never missing a payment or even being late, many of us are suffering severe consequences – our FICO score has fallen and can’t get up.

Your credit score not only reflects your past and current payment history but it is also based on how much unused credit you have available, how high your current balances on revolving debt are to your overall credit limit, how many inquiries are on your report, and much more. So if you have responsibly paid all of your monthly obligations on time, why has your credit score fallen in recent months? MORALLY AND ETHICALLY, THE BANKS HAVE VIOLATED THE RULES! and … The scoring system is flawed and doesn’t work.

Credit scores assume that all individuals are financially equal and do not discriminate based on how much income a person earns or how much cash they have in the bank. This vital information is unknown to the credit reporting bureaus and the system that issues a score. So whether you are a minimum wage earner or a millionaire, $10,000 in credit card debt is judged equally. Does that make any sense? Also, credit scores change depending on when a report is run. Many people pay off their credit cards in full each month but if a report is run prior to payments being posted, then the score will not be the same as if it were run afterwards. How dependable is that score to your true credit worthiness? Most damaging to your credit score is the erroneous information that often appears and must be corrected before a new score can be assessed. If you are in a time-sensitive transaction, you may find yourself declined or penalized by thousands of dollars in increased charges due to a faulty credit score.

Credit scores are no longer just guidelines, but hard and fast numbers that are being used to determine not only your ability to get a loan, but also the interest rate that you will pay on mortgages, car loans, credit cards, and other debt. They are also being used for renting property, car insurance and frighteningly even employment opportunities. This is one person who thinks that the FICO scores are a very Flawed Interpretation of Credit Opinion and need to be abolished. Hey Barney, how about getting some unbiased panelists and give the American citizens a break!

The new world of mortgage lending, in the aftermath of the subprime debacle and subsequent evaporation of money sources, has brought with it many challenges.  Solutions, intended to help, are becoming quite problematic.  I’m not a stranger to upsets in the market as I’ve been helping people get home loans for over thirty years now.  I’ve worked through the double digit interest rates of the 80’s, the Savings and Loan collapse of the 90’s, the Subprime bonanza of the early 2000’s but today’s lending environment is making cursing fools out of all of us.

One solution, early to the rescue, was a desperately needed increase in lending limits in higher cost areas by the government controlled agencies of Fannie Mae, Freddie Mac, and FHA.  However, this solution also brought expensive pricing adjustments to interest rates called LLPA (loan level pricing adjustments).  Depending on your credit score (FICO) and the value of your home, the cost of your interest rate can be raised significantly.  Is this a secret tax?

John came to us in May as he needed one of these larger loans to refinance his mortgage.  He had good equity in his home, high credit scores, solid income and cash in the bank, what we would call a “slam dunk” loan.

Ever since mid 2009 it is necessary to select a lender prior to ordering an appraisal due to another solution – HVCC (Home Value Code of Conduct) – pronounced “HAVOC” by most of us.  The lender now chooses an Appraisal Management Company or AMC that will in turn select the appraiser.  The purpose of this solution was to avoid licensed professionals from being unduly influenced into over-inflating value.  Wouldn’t suspending the license of an offending appraiser be easier?  The reality is that homeowners must now plunk down cash for a report that may not provide the value needed, when previously a phone call to a trusted appraiser would have accomplished the same thing for free.  Banks like this new arrangement as the borrower is less likely to shop their competitors for the best rates and terms.  I mean – how many appraisals can you afford?

Understanding these new limitations and knowing that there were few sales in his area, we advised John to wait.  It took a few months but by September we had sufficient sales and low rates so we busied ourselves updating his paperwork and ordering a new credit report.

John’s mid credit score of 756 had suddenly plunged to 680 due to an incorrect reporting of a delinquent account.  The problem was – it didn’t belong to him.  A 680 credit score, respectable in the pre-crash era, is no longer even eligible for refinancing a larger loan at 80% of property value, as you must have a minimum score of 700.  The inflexibility of being judged by your credit score is destroying many innocent people’s opportunity to purchase or refinance homes, even when they have never missed a payment.  Unfortunately for John, rates started to climb as did his blood pressure.

Several weeks later, credit repair in place and rates that were good, we were ready to move forward once again.  Prior to ordering the appraisal, you must first choose your lender and then get your loan approved through an automated underwriting system.  This accomplished, John gave us his credit card and $400 later we had our appraisal.  The final documents were sent to the lender where they firmly declined John based on insufficient income.  Are you kidding me?  John has income coming in from every source imaginable.

During my 30 years in the mortgage industry, I have personally processed and underwritten thousands of loans so I challenged them on how they were computing his income.  Most underwriters today have minimal experience with full documentation loans as they were almost non-existent in the past decade.  They are not trained in how to extrapolate income on a sophisticated borrower and are often only comfortable with salaried-type employees.

Stated income loans have been vilified as “liar loans” and banned by Congress.  The ability to “state” your income was a widely used and successful alternative for self-employed, complicated borrowers like John, who could prove through a good credit history, verified cash in the bank and stable equity in their home that they were credit-worthy.  I am NOT referring here to the fully stated, anything goes, no documentation loans of the subprime loan era.

Unfortunately, with regulators breathing down their backs, no underwriter in today’s lending environment is going to put their neck or paycheck on the chopping block for any borrower, qualified or not.  This “solution” is resulting in discrimination against many self-employed middle class Americans.

John was clearly panicked that he was going to miss the opportunity to refinance his adjustable loan into a fixed-rate.  Not wanting a repeat of the first lender, we requested a prior underwriting decision from the next bank.  After a complete review of John’s income, assets and credit history, they approved the loan subject to a new appraisal.  Yes, another appraisal was required.  Lenders are not allowing appraisals to be transferred even when they use the same AMC, another significant problem with the HVCC and an expensive cost to the borrower.  Did I mention that many of these AMC’s are owned by the banks?

Another bad solution is the MDIA or (Mortgage Disclosure Improvement Act).  This Act requires waiting periods both prior to ordering appraisals and final loan documents so that borrowers can be mailed disclosures of interest rates and fees.  So much for going green!  With the LLPA, we cannot accurately know what the pricing of a loan is until AFTER we have the appraisal and interest rates change on a daily basis.  Duh!  We already have a 3 day cancellation period after loan documents if a borrower is unhappy with their loan.  All of these extra “think” days are driving up the interest rate locking period and costing the borrower more in both interest rates and fees.  This solution is a high-priced improvement (?) to mortgage disclosure.

While we were waiting the appropriate number of days to order John’s new appraisal, our lender was closed by the FDIC.  They were one of 140 banks shut down in 2009.

Days turned into weeks but the newly organized bank upheld the loan approval and $400 later, we had our second appraisal.  Unfortunately, the time delay caused the computer system to kick out John’s loan, issuing a decline.  Regulatory compliance requires procedural steps to follow in the case of a decline – like starting over.  Unfortunately, for John, January 1st ushered in a whole new set of “solutions” or obstacles for us to overcome.

New regulations are imposing even more difficulties for an already overburdened system.  The solutions are truly creating nightmares.  John finally got his refinance but it took over nine months to complete.  Can you imagine how difficult it is for a homeowner to get a loan who is not a “slam dunk”?

……………..
Mary Tootikian, author of Stunned In America, Sub-Crime Mortgage Crisis, is a 30 year veteran of the mortgage industry and owner of an independent mortgage loan processing company.  She is a respected authority on mortgage lending and serves as the voice of reason to restore credible underwriting standards to a very broken industry. Visit her website at: www.stunnedinamerica.com

The world is breathing a collective sigh of relief today after narrowly escaping a tsunami that could have affected up to a fourth of the world’s coastlines.  A tsunami is a series of ocean waves generated by the sudden displacement of water, according to the National Oceanic and Atmospheric Administration.  I’m reminded of a financial tsunami just over a year ago that almost destroyed us.

Did you know that we were three hours from total collapse on September 15, 2008?  The sudden displacement of 550 billion dollars of money market funds (within one hour) threatened to collapse the United States banking system and, if not stopped, would have wiped out global markets and our political systems.  All of this could have happened in one 24 hour period of time. So who or what was behind this monumental money grab?

Just one week prior to this potential collapse of the US economy, Hank Paulsen, then Secretary of the Treasury and Ben Bernanke, the top Fed Dog, had seized governmental control of Fannie Mae and Freddie Mac, stating concerns over their solvency.

They would like us to believe that the tide of foreclosures and toxic assets are to blame for all of our economic woes.  According to the Federal Reserve the rate of delinquency in Q3of ’08 during this crisis, was only 5.16%, as compared to 10.8% in Q4 of 09.  This is the percentage of all residential mortgages that are in some stage of delinquency, including those that are only 30 days past due.  In other words, at that time over 94% of American homeowners were paying mortgages on time.

What kind of Ponzi scheme did the Barons of Wall Street pull off to generate this type of backlash? Who really tried to go for our gold?  What aren’t they telling us?

Mary Tootikian, author of Stunned In America, Sub-Crime Mortgage Crisis, is a 30 year veteran of the mortgage industry and owner of an independent mortgage loan processing company.  She is a respected authority on mortgage lending and serves as the voice of reason to restore credible underwriting standards to a very broken industry. Visit her website at: www.stunnedinamerica.com