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.

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?

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.

So what does the Chicago City Counsil do? Increase the tax stamp, to the buyer, for buying a home!

What used to be $7.50 per $1,000 just increased to $10.50 per $1,000.

So a home that costs $300,000 currently carries a tax of $2,250, will have a cost of $3,150.  And this becomes effective for purchases, in the city of Chicago, after April 1.

Besides knowing about the additional costs, borrowers should pay attention to a few things:

1. Does the Good Faith Estimate disclose the costs?
2. When a loan officer meets with a borrower and analyzes the borrower’s qualifications for a loan, does the loan officer take into consideration the new costs?
3. Think about asking the seller to help pay for the costs.

Whether we like it or not, the increase is here.

Not too long ago our mortgage world as we knew it also changed. Everyone thought that anyone could get a loan.  No reason to meet with a loan officer.  “I can get a loan.  No problem,” was the attitude. And for the most part people were right.  Then the epidemic hit and the world changed.

Many lending institutions have gone out of business and many are barely hanging on.  Many borrowers have lost their homes.  Some are hanging on. Currently, the real estate market is tough, and many programs that once existed have either been eliminated or have been revised considerably. Real estate agents do not know who to trust. Are the pre-approval letters worth the paper that they are written on?  Developers are eager, if not, in some cases, desperate to move units.  Many loan officers have had to look for jobs, and some just do not have the kinds of programs that they need for many of the same kinds of client loans that they had in the past.

And so, to end my little series, here are my thoughts:

1. Be very, very careful and deliberate in deciding whom you will work with: realtor, loan officer, attorney, etc.
2. Do some research and ask a lot of questions.
3. Use common sense about the programs that are offered.
4. Make sure you understand everything.
5. Before signing any documents, have everything in writing.

We are all responsible.  This epidemic may get worse.  But it will get better.  Still, you, a homebuyer who controls your own destiny, can still get caught up in a bad situation.

Control your destiny. Don’t be controlled by others.

This post follows the Introduction and Part 1 about our foreclosure problems.

It’s no secret that, today, more than ever, Americans want things.  Big things. Lots and lots of things.  Expensive things.  Nothing wrong with that. The one ‘thing’ that we all want, that is not always stated out loud yet is clearly the loudest voice inside us, is our desire to be happy.  And this is where the dream can become nightmare.

We are told that the American dream is to own a home. Home:  a word that has many connotations. Here’s the Wikipedia definition:  A home is a place where a person or family lives, perhaps spends much of their time, or where a person is comfortable being. The cloud of foreclosure oven moves in when people follow their dreams, often unrealistic, instead of pursuing the process with a practical, planned, and informed approach.

Where a person is comfortable being. I find this phrase so appropriate.  Do we buy a home because that is what we are supposed to do (like everyone else)? And buy a home a touch bigger than our best friend, just for bragging rights? Or do we in fact buy the appropriate home where we can live comfortably and without stress to make that monthly payment? 

This is a great question to ask yourself when starting to think about buying a home: Am I buying a home because I want a place for me (and my family) to be happy and live a comfortable life, or am I buying a home because everyone tells me I can and everyone on television and in the movies has these fabulous, huge houses and I want to be like them and live a life like them (even though I may not be able to afford it)?

My wife often humorously complains that she can never remember her dreams (after waking up in the morning).  “I know I had this dream, and I remember laughing in the dream,” she might say, “but I can’t remember anything else.” Unfortunately, as we have been seeing, many people followed their dream and will only remember the loss and pain that comes with a foreclosed property.  As I always suggest: budget and meet with a caring loan officer.  A great start to fulfilling your homebuying dream that will end up being a comfortable and happy part of your life.

The Sopranos final episode had no ‘da dum’.  At least not the way most people wanted. No clean tied-up ends, no resolutions, but a lot of wondering.  Many people want that feeling of coming home, having resolution, knowing how things are going to turn out and be ok.

For homebuyers it’s the same way. And it’s real life. (Of course that is part of the point with The Sopranos’ ending:  just like real life.) And I think getting a mortgage can be scarier than anything from The Sopranos.  We do things thinking and hoping that everything will be just fine. And when we think and hope, as we are finding out more and more, we head down the foreclosure road.

Here are a few critical stages where hoping that things will turn out ok and financing can go bad:

1. Budgeting:  not writing a realistic budget and thinking that something close (a number close to the maximum that you want to spend) will do just fine.  Decide on a budget, the most you want to spend on your total mortgage payment, and stay with it.

2. Application:  the loan officer verbally gives you numbers and says, “Don’t worry about it.” Get everything in writing. Make sure you understand everything. 

3. Programs:  programs that seem risky, for you, probably are risky.  If you don’t feel comfortable with programs that are being presented, do not do them.  Be assured with your decisions.

I actually loved the ending of The Sopranos.  Of course, that’s TV (sorry, HBO…..).

Last week Becky Yerak, writing a front page article about the foreclosure problems in Chicago, titled her article with a chilling description:  

HOME LOSS EPIDEMIC SPREADING

Epidemic.

It’s spreading. It’s happening to more homeowners. More heartache. More pain. Spreading. Getting worse.

How could this happen?  A lot of finger pointing. Yet few people assuming responsibility. Many confusing and detailed reasons.

But an epidemic?  With all the questions, and all the excuses, and all the fear and turmoil, no one seems to have answers. 

The Tribune article has me thinking, and so I am going to write a series of posts about this epidemic that, I hope, will help illuminate some of the more unexplained and unexamined reasons. The series will use worst-case scenarios in which a perfect storm-like series of events has produced our situation. Most homeowners do not experience this situation, and this is something that I want to point out up front.

This is obviously an important topic. Please share your thoughts and responses.