True?  Maybe, but in general not so much. A good, knowledgeable realtor could be a good referral source in finding a good loan officer.  The key word is good. Check.

Having a “decent” salary and good credit is pretty relative.  And it’s relative to the other risk factors when a loan officer considers your ability to qualify for a loan: income, assets and reserves, credit score and history, appraisal, loan to value, etc. He is correct, though, that you will have to provide documentation to verify the various factors that will qualify you:  pay stubs, W-2s, tax returns (maybe), full, complete statements of your assets accounts, and maybe more. I cover all this in my book.

In the end, it’s not a big deal. For some, I know, who may not be as organized with their current statements and records, it may be a little frustrating.  Nevertheless, it’s all required.

The mortgage process is not a five paragraph process.  Take your time. Think about what’s important. And seek qualified help.

When a loan officer reviews a borrower’s history, the first, and most important, factor is credit. I recently read an article that focused on this question. Even if a borrower had no credit cards, no automobile payment history, and/or other history regarding credit that would appear on a credit report, there are loans still available.

Basically, the loan officer would build a credit history, with items like rental history, utilities, cell phone, etc, and would send the documents to a credit report company that would confirm the positive payment history. Then, the credit report company would complete a report, without credit scores, and send it back to the loan officer to review.

Several lenders, per Fannie Mae and Freddie Mac guidelines, and including FHA guidelines, still allow a manual review of credit history.

So those who are afraid of not being able to obtain a loan because of a lack of credit history should simply collect documentation,  for the monthly payments that they do make,  and set an appointment with a qualified loan officer. You may be qualified.

Remember that Fannie and Freddie increased conforming loan limits–in certain geographic areas–so that borrowers with larger loans could benefit from lower, conforming interest rates and, to some extent, conforming loan underwriting qualifications.

However when these jumbos came out the interest rates weren’t so favorable.  Lower than most “true” jumbo loans, but still relatively higher than conforming loans.

The key is to make sure that your property is located in an area where these jumbo conforming loans are allowed.

First, to make an offer to purchase a property, the listing agent (or homeowner if it’s a FSBO) will likely want a pre-approval letter. In order for the loan officer to write the letter, he or she must have all of the borrower’s information.  And believe it or not, the information needs to be correct. What?

So really the first step is for the borrower to give the loan officer all of the relevant personal information (name, address, employment, income, credit history, etc.) and then for the loan officer to verify this information by reviewing the actual documents (paystubs, W-2s, asset statements, etc.).  Then, and most importantly, the borrower and loan officer should review all of this information as it now appears on the application.

The industry has moved away from personal consultations and reviews.  And this has caused borrowers to unintentionally misrepresent information that is critical for loan program availability and which could, down the road, cause an issue for underwriting. The information has to be correct before a loan officer can confirm mortgage program availability, and the program availability will determine the kind of preapproval that the loan officer can write.

 In the end:  without accurate application and credit information, that preapproval really doesn’t mean that much now, does it?

He seems to be upset because banks/lenders are using systems to offer higher rates to current, valued clients. Hmmm….. At first glance I would agree and be upset. Yes, you want to give your best customers your best products and rates.

He then goes on to suggest that people who are going to need a mortgage should assume that the lender is trying to “screw” them and shop “hard.”

I am not clear what he means by shopping hard, but I think I have a sense.  Talk to as many people as you can, use one lender’s rate against the others, and have them negotiate. Hmmm….

I have always felt that it is perfectly fine to talk with a few lenders. Only if you feel completely comfortable and confident that they are professional, ethical loan officers. If the answer is yes, then you should be getting the “best offer” upfront.  And let’s remember how tight the mortgage programs have become, and interest rate is really one of the last items to worry about.

Here in Chicago we hit 60 degrees this weekend. I noticed everyone out and about, walking dogs, walking kids, wearing shorts, etc.  So I guess spring is here.

Then I noticed the trees.  Still all bare.  Not any sign of buds yet.  It was as if the buds were still afraid to pop out for fear that we’d get another blustery snowstorm. I don’t blame them.  I am nervous about that too.

But that got me thinking about my industry.  Though it seems that more people are out looking at properties, my sense is everyone is still nervous. From talking to new clients as well as real estate agents, most people have heard about the mortgage industry situation, and even after having been fully pre-approved, they still don’t feel anxiety-free.  They know about the month-to-month (or, even more accurate, day-to-day) program changes, and so they have to be wondering, “I am fully pre-approved today.  But what about in 30 days when I find a property?”  Good question.

My suggestions:

1. Be sure to work with a reputable and knowledgeable loan officer.
2. If you call a loan officer, and he/she doesn’t call back, you can be sure that you won’t get a call back when programs change.
3. Be proactive and ask your loan officer a lot of questions. Like: “How will I know if the program for which you are preapproving me will be around?” and see how they respond.
4. Does your loan officer explain the state of the industry or just say everything is great, please sign here?

It’s important to feel safe and secure.  Though no one can guarantee every loan, the conventional programs should be solid.  If you are going to do any out-of-the-box loan, be careful.  It could be very very cold out there still.

Zillow.com has a new mortgage page. The information is, for the most part, pretty informative and practical. A good place to educate yourself about both the mortgage and real estate process.

However…their “find a lender” (or, I guess, the lender finds you) search is not unlike many of the internet-based companies that are trying to lure people into believing that finding a lender is like buying a bottle of ketchup:  all are the same and you just want the cheapest (and we all know that all ketchup is not the same.)

I could go on and on about the many dangers of using this site for finding a lender, but instead I would go to Lenderama’s site and read this post. It’s great and explains the objections in a sensible and thoughtful manner.

We were discussing the hot topic of the day, month, and year:  the state of the mortgage industry. We eventually got around to the various ways to fix the problems. We all know that the government would get involved, for better or worse. Here in Illinois, for example, the state government passed Public Act 095-0691, and the federal government has passed the Stimulus bill which includes sections about mortgage reform as well as mortgage “fixes.”

The Illinois law would effectively either slow the mortgage process (for someone buying a home) or even possibly stop loans.  Those (in the government) who would be reviewing a loan application would not be consciously or intentionally stop the loan, but the review and time to get the review done might (and this is the key word:  might) cause 1. sellers to find another buyer, or 2. discourage good buyers from moving forward. And thus everyone loses: buyer and seller, seller and buyer realtors, attorneys, loan officers, the city, the state…..

So…what is the point of these laws?  There are many, and it’s complicated. So the realtor and I came to this point and he said, “Well, isn’t it (the law) for us to pause?”

Hmm…let me take a second to think about this………..

The one positive outcome of all the reforms, bills, and laws, for now and just before the borrower signs the application documents, is to take a moment, pause, and think. Is this the right loan program? Will this leave me financially stable and in a position to pay my bills? If something happens for the worse, am I ok?

Hmm…some things to think about?  Thanks Zeke.

The good news is that the limits for lending have increased for many areas. As outlined in the Allregs guide:

“The Act provides that the mortgage limit for any given area shall be set at 125% of the median house price in that area, as determined by the Department of Housing and Urban Development, except that the FHA mortgage limit in any given area cannot exceed 175% of the 2008 Freddie Mac conforming loan limit of $417,000, nor be lower than 65% of the same 2008 Freddie Mac conforming loan limit for a residence of applicable size.

Thus, in areas where 125% of the median house price is less than 65% of the Freddie Mac limit, the FHA limits are set at the 65% limit, i.e., the “floor,” as follows:

          1 Unit:  $271,050

          2 Units: $347,000

          3 Units: $419,400

          4 Units: $521,250

In areas where 125% of the median house price exceeds the 175% limit of $729,750 for a 1-unit property, the mortgage limits are set at the 175% amount, i.e., the “ceiling,” as follows:

          1 Unit:  $729,750

          2 Units: $934,200

          3 Units: $1,129,250

          4 Units: $1,403,400

For all other areas, i.e., those where 125% of the median home price for the area is in between the floor and the ceiling, the limit shall be at 125% of the median home price.”

So the news, for a change, is good for everyone. Buyers who need a more liberal mortgage program (i.e. have little down payment, not spectacular credit scores/history, little money in reserves, etc.), FHA is a great way to go. Sellers will have more opportunity to sell their homes, as there may be more buyers available, particularly for higher priced homes.

Here’s my thought though: I looked up the word “limit,” and the definitions point to the idea of boundary or restraint. I think we should keep this in mind.

Yes, the new FHA limits allow more people to buy “more home.” Sound familiar? Remember all those programs, in the last four years, that were able to “buy more home” buy offering high LTV (low down payment), interest only, and negative amortization programs? No income or assets required? No job, no problem? Remember those programs and remind ourselves of all the heartbreak that has spread not only throughout the country but also throughout the world.

Let’s make sure we do the right thing. Budget. Limit ourselves. Just because the limit is $729,750, doesn’t mean that we have to take a loan for that much.

Still, this is great news for the beginning of the spring season.

Regarding the mortgage industry, one item stands out.  If the President signs the bill, there is a good possiblity that the conforming loan limits will increase.

It is estimated that conforming loan limits for 1 unit properties will go from the current $417,000 to (an estimated) $729,000! For many people who are going to be buying properties and would be stuck with jumbo loans (i.e. much higher interest rates), this is big news.  And many people will be able to refinance from two loans, often with higher-interest second mortgages, into one loan with better interest rates.

Look for updates.