Sunday, January 31, 2010
Here are some facts to review:
What is Foreclosure?
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:
The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace period is also known as pre-foreclosure.
The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
A third party buys the property at a public auction at the end of the pre-foreclosure period.
The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender).
RESPA Changes / The New Good Faith EstimateThe new Good Faith Estimate (GFE) became effective on January 1 and is the centerpiece of the RESPA changes. The form is now standardized and the same from lender to lender and this consistency is a good thing. However, the form has gone from 1 to 3 pages and is now flat out too long. Here is everything you need to know about page 1 of the new form:
The form begins innocently enough with "Borrower / Lender info” and “Purpose” sections at the top. However, the next “Shopping for your loan” section encourages the borrower right off the bat to do a lot of shopping with the insinuation that it is all about price and not service. In fact, this is one of the main themes of the new form. With this said, the realtor’s job will be more important than ever to emphasize that it really is about service first, and then price.
The next section is entitled “Important dates” and there are four dates or timeframes listed. This is a very cumbersome section and just too much info. The most important thing shown in this section is that the GFE must be valid for at least 10 business days. If the GFE is not accepted within 10 days, then the Loan Officer is no longer bound by the GFE. Once the borrower accepts the GFE, however, the fees become binding and are subject to increase only if the borrower requests a change or there is a “change in circumstance.” If there is a valid change in circumstance (such as a change in the contract), then a new GFE has to be disclosed within 3 days of the change and at least 1 day prior to closing. Thus, it will be critical that the realtor notify the Loan Officer immediately if there are any changes that will cause fees to increase (Sales price, Seller paid costs, Closing date, etc.). Decreases are OK and do not necessitate a new GFE.
Also, it is important to be aware that lenders can no longer collect fees up-front from the borrower until the GFE has been accepted. The only exception to this rule is that a small fee can be collected for the Credit Report. A fee for the appraisal can’t be collected until after the GFE has not only been generated and given to the borrower, but also officially "accepted" by them. I understand that a lot of people have been taken advantage of in the past and that there is a lot of good in this rule; however, this is not good news for the Loan Officer who is trying to meet a contract deadline, collect the appraisal fee, and get the appraisal ordered. Because of this new system, it is going to take longer to get appraisals and approvals done, thus, the realtor needs to leave longer time frames for the appraisal and approval contingencies to be completed. I am suggesting 2 weeks for the Appraisal Contingency and 3 weeks for the Approval Contingency. It is also critical that the realtor get the final contract to the Loan Officer asap.
The next “Summary of your loan” section is good basic loan info that has not been on the form before. There are five "Yes / No" answers to key questions such as if the rate or payment can rise, if the loan has negative amortization, and if there is a prepayment penalty or balloon. This section is a good addition but the payment listed is very confusing. Note that it is the sum of the P&I and PMI. No one looks at the sum of P&I + PMI! The payment listed should be just the P&I or the total PITI.
The “Escrow account information” section indicates whether escrows are required. This is good to know but, again, only two inches down the form the P&I + PMI payment is listed a second time. What is the purpose of showing this sum a second time? Why would the total PITI not be shown here or, for that matter, anywhere on the form? Yes, believe it or not, the total PITI payment is not shown anywhere on the new GFE.
The last section is the “Summary of your settlement charges" and is a tally of just that. These exact same figures are tallied again on page 2, so I am not sure the reason for the redundancy. This calculation is completely out of place at the bottom of page 1. The biggest shortcoming of the new GFE is that it does not show the down payment, the earnest money deposit, the total funds to close, or the PITI anywhere on the form. How can you call it a GFE without these things? How is the borrower supposed to know how much money he needs to bring to the closing? Obviously, no one with any direct lending experience was consulted in the creation of this form!
Next week, we'll continue to look at the rest of the new GFE form.
Low Inflation and Strong Auctions Influence Rates Downward
After climbing .5% in December, mortgage rates have eased back down .25% during the first two weeks of January. This drop can primarily be attributed to low inflation and strong demand at recent Treasury auctions.
Although inflation continues to be a huge long-term concern due to the enormous level of government spending, it has not been a factor in the short-term as virtually all of the data in recent months has shown it to be low and not an issue. Last week, the Consumer Price Index (CPI), the most widely watched inflation indicator, showed that core inflation rose only 1.8% from one year ago. This is square in the Fed's 1 - 2% comfort zone and the Fed is forecasting continued low core inflation throughout 2010.
Another long-term concern for mortgage investors is that the vast increase in the supply of government debt will exceed the demand. However, this has not been an issue yet in 2010 as both foreign and domestic demand has remained strong for long-term US Treasuries. The risk that important buyers (like China) will exit still exists, but so far so good!
Learning to Repeat Key Disciplines
To be a successful sales person, one of the most important concepts you can learn is that of repeating a few key disciplines each day. Prospecting, database management, and good communication with clients in your current pipeline are all examples of key disciplines. To be successful in this area, the following three things must be in place:
1. Attitude. You must first have a proper mindset. If you are negative all of the time, then expect negative things to happen to you. If you hang around with naysayers all of the time, then expect that to rub off on you. A positive, optimistic, "can do anything" attitude is critical to long-term success.
2. Plan. Research and think through exactly what needs to get done to be successful in your job. Ask others who are successful in your field what they do. Do some soul searching and ask lots of questions. Then write down your plan of action and keep it somewhere where you will see it regularly.
3. Execute. Take action and follow the plan. Ask someone you know and trust to hold you accountable.
Here's a great question to ask yourself today: What is one new discipline that I need to do every day to increase my volume? Think it through and then make it happen!
How to Permanently Change an Incorrect Credit Score
The credit reporting industry continues to be a fairly sloppy business. It is very common for someone to have inaccuracies on their credit report. Sometimes the mistakes are so severe that it prevents them from obtaining a mortgage. What should someone do to permanently correct inaccuracies that show up on their credit report? The answer is that they need to make sure that they fix the mistake at the bureau level. A little more insight is needed to explain exactly what this means.
Mortgage lenders use credit reporting agencies to pull credit reports. These agencies are middle-man companies that organize the credit data into easy to read reports, and have customer service departments to help lenders ensure their client's credit in satisfactory for the purpose of obtaining a mortgage. These credit reporting agencies should not be confused with the three national credit bureaus where all of the consumer data is stored. The bureaus are like warehouses that store the data and the credit reporting agencies are like trucking companies that come and get the data and then deliver it to consumers via lenders.
When a consumer finds that they have incorrect information on their credit report, it is critical that they get this fixed at the bureau level. If they provide something to their lender that clears an item up for a particular loan, they most likely have cleared the item up at the credit reporting agency only. This is a one-time fix. The key to a permanent credit score change is to submit the correction to all three of the credit bureaus which can be contacted as follows:
• Equifax: (800) 685-1111 / www.equifax.com• Experian: (888) 397-3742 / www.experian.com• TransUnion: (800) 916-8800 / www.transunion.com
Rate Update Rates have had a good January and are about .25% lower than the beginning of the year.
Monday, January 11, 2010
Unemployment Static at 10%Today's Employment Report indicated that the economy lost -85K jobs in December (significantly more than the -5K forecasted) and that the Unemployment Rate remained at 10.0%. A small revision to the November data showed a gain of 4K jobs, the first monthly increase since December 2007. The details of the report suggest that small businesses may be creating jobs more slowly than larger companies and that the manufacturing and constructions sectors continued to perform poorly.
In the housing sector, November Pending Home Sales fell 16% from October, but the decline followed nine straight months of increases and November Pending Home Sales were 15% higher than one year ago. Pending home sales are a leading indicator of future housing market activity. Recent data has been heavily influenced by the timing of the home buyer tax credit, which was originally set to expire at the end of November. A surge of buyers attempting to purchase before the original deadline pulled demand forward. When the home buyer tax credit was expanded and extended to April 30, 2010, the time pressure was removed. Hopefully, we will have a surge in purchase business between now and the end of April which will generate some momentum that will carry us through the end of the year!
Mortgage Rate Update:
Mortgage Rates on the RiseIn case you checked out for the holidays and are just now checking back in, the final few weeks of December were not kind at all to mortgage rates. Heading into December, mortgage rates were close to record low levels, but a combination of the following factors has caused rates to push about .5% higher from early Dec to the present:
An improving economic outlook: aside from today's Employment and Pending Home Sales reports, most of the recent economic news has been good. Although this is good news for the economy, stronger than expected economic data and a stock market rally are negative for mortgage markets because it generally leads to higher inflation.
Government spending: the government already will need to issue an enormous amount of debt to pay for its spending, and it now looks more than likely that additional expenditures are on the way for job creation and health care bills. Higher yields are required to attract investors to purchase the extra debt, pushing up yields for competing investments such as mortgage-backed securities (MBS).
Fed uncertainty: the Fed is winding down its $1.25 trillion MBS purchase program which is causing great uncertainty as to the future demand for mortgage investments.
Rates spent much of 2009 below 5%. My crystal ball indicates that it is more realistic that rates will stay in the 5-6% range throughout most of 2010.
Identify Your Key Result Areas:
A key result area is something that is under your control that you must achieve to succeed at your job. It is a healthy exercise to identify your key result areas. Prospecting, closing a sale, and effective transaction management are good examples. Your weakest key result area sets the height at which you can use all your other skills and abilities. You can be exceptional in 6 of 7 key result areas, but your poor performance in the 7th area will hold you back and determine how much you achieve with all your other skills. This weakness will act as a drag on your effectiveness and be a constant source of friction and frustration.
It is common to avoid jobs and activities in the areas where you have performed poorly in the past. Instead of setting a goal and making a plan to improve in a particular area, most simply avoid that area altogether, which just makes the situation worse. Likewise, the better you become in a particular area, the more motivated you will be to perform that function, the less you will procrastinate, and the more determined you will be to get the job finished.
We all have weaknesses. The key is to identify what yours are, and then set a goal and make a plan to improve in your weak areas. It is reassuring to know that all business skills are learnable. As you get started in 2010, resolve to master all of your key result areas and then, truly, nothing can hold you back!
Excerpts from "Eat That Frog!" by Brian Tracy
New Technology that Tells You How to Increase Your Credit Score
So, your latest and greatest client, Joe Buyer, has just had his credit report pulled and his credit score is a 605 and 15 points below the 620 minimum score needed. In the past, it would have been complete guesswork to determine what Joe would need to do to bump up his score by 15+ points. However, a tool now exists that analyzes Joe's credit report and lets him know how much his credit score will increase if specific actions are taken. The process is as simple as the Loan Officer running Joe's credit report through some special software. Then, amazingly, the report indicates specific actions that can be taken to improve his score such as:
• a 15 point increase for moving a credit card balance from one credit card to another• a 20 point increase for simply paying a credit card balance down by $2000• a 25 point increase for paying off and closing a particular account
The coolest part of this technology is the "What-If Simulator" which allows the Loan Officer to run countless "what-if" scenarios through the software to see how much the score will change if specific actions are taken. Talk about invaluable information that can help you get a buyer to closing! It is important that you are aware of this technology and that you can recommend it when needed. It is also important that you work with a Loan Officer who understands this technology and knows how to use it. At Fairfield Mortgage, we understand and use this technology regularly. Let us know when we can help your client figure out what they need to do to increase their credit score and qualify for a mortgage.
Rates have been flat over the last few weeks but are up .5% over the last month.
Thank you to James Williamson with Fairfield Mortgage for providing these updates each month!