Posts Tagged ‘subprime’

A New Service Takes Aim at the Real Estate and Mortgage Industry

Some of the best lenders for purchasing commercial property with good credit

Subprime mortgages, almost nonexistent 10 years ago, accounted for more than 10 percent of all new home mortgages in 2004 and kept growing over the next 2 years until the mortgage meltdown; Lewin said of company Mortgage Loan Inspection, LLC. Measures in the mortgage industry had become increasingly dated as banks and other mortgage lenders developed a array of high-cost subprime mortgages for people who would have simply been rejected outright in the past on the basis of poor credit or inadequate income”.
In addition to paying much higher interest rates than ”prime” borrowers did with strong credit, subprime customers were often locked into their high interest mortgages for three to five years and forced to pay an enormous pre-payment penalties if they try to refinance into a more suitable mortgage based on their credit and financial situation.
Lewin said “that part of the gap could be explained by differences in the kinds of mortgages that people used and by differences among mortgage lenders and the commissions paid based on selling consumers higher interest rates”. Loan officers from every lending institution were rewarded directly by the lenders to sell exotic loan programs and higher interest rates to consumers which translated into enormous commissions for loan officers and huge profits for the banks. The plan went well until one day the house of cards came crashing down. It was bound to happen, the hand writing had already been written on the wall and everyone in the industry saw it coming, except for the public.
Corporate greed had taken over the mortgage industry where once stood good common sense underwriting guidelines that were now bring disregarded all in the name of profit. Fast forward to 2011, the government after watching the financial and mortgage meltdown finally stepped in and created an agency whose sole responsibility it is in overseeing the lending industry. They began their quest by completing a major overhaul of the mortgage industry first starting with the documents currently being used. They wanted more transparency with the ability for consumers to be able understand what they are signing before they do. They attempted to create a new set of mortgage disclosures that would be easier and far less confusing to consumers which has now back fired. What was once a form providing a line-by-line description of all the lender fees and closing costs in a mortgage had now become a nightmare for consumers to understand, even the loan officers, and some real estate attorneys. According to HUD, on page 2 box 1 on the newly designed Good Faith Estimate (GFE), all the lender fees were combined together into a single fee and cannot be itemized separately. Consumers today can no longer look over their (GFE) or Truth-and-Lending (TIL) statement and even answer one basic question – how much is the lender charging me in fees? Here is a list of just some of the fees that are grouped together and no longer provided in a line-by-line disclosure to consumers – the origination and broker fee, processing fee, credit report, underwriting fee, lender’s inspection fee, rate-lock fee, tax service fee, flood certification fee, administration fee, express postage fee, etc.. I reviewed the new 3 page GFE and noticed a disturbing detail missing; signature lines, where does a consumer and lender sign on this legal document? The previous GFE version at least had a line on the bottom of page where you could sign.
Mr. Lewin also pointed out to me that HUD’s new attempt making it easier for consumers to understand the fees and costs being charged by their lender has become a guessing game”. He also showed me the new mortgage shopping cart on the bottom of page 3 of the GFE which is supposed to be used by consumers to compare different GFE’s side-by-side with at least 3 different lenders, it’s designed to help consumers when they go out shopping different lenders.
HUD’s concept of taking a copy of the GFE form provided to them by the first lender and using it when comparing offers other lenders seems like sound advice, except for one minor detail. Only one problem, unless you actually apply for a mortgage, the lender does not have to provide you with a copy of a GFE for comparison. I did some calling to both a few local and national banks and found most banks are charging from $50.00 to as much as a $400.00 in a non-refundable upfront fee to get a copy of the GFE. Well that just puts off about 99% of potential borrowers out there without a GFE for shopping comparisons. What are they willing provide you with? A loan scenario worksheet, which really is not worth anything since it doesn’t represent any real guarantee of the costs or fees they are promising or any real value when you decide to compare lenders side-by-side.
The only way I was able to compare offers from 4 different lenders was when I thought I would put Mortgage Loan Inspection to the test. They even surprised me, I wasn’t even interested in getting a mortgage but I wanted to see how their program worked. They answered my questions, told me what I would need to get a mortgage, prepared me for meeting different lenders and even shared a few insider secrets about how the industry operates. They even went as far as performing an in-depth budget analysis showing me how much of a payment I could really afford and still live comfortably. They are the first of their kind company in the nation and hope to spread across the country before mid-April. They opened their doors in Mequon, Wisconsin in late 2007, since then, they have expanded their current operations into 12 States.
The backbone of the company is made up of former Senior Bank Executives with over 30 years in the mortgage industry, Underwriters, and Wholesale Account Representatives. Lewin said, “It doesn’t matter what your educational back ground is, when it comes to getting a mortgage loan, unless you are working in the industry everyday there is no way you would be able to fully understand the information and changes daily that his company provides to consumers. He says they even show consumers how to negotiate with lenders for the lowest interest rate and best terms available, saving their clients hundreds if not thousands of dollars in lender fees, finance charges and closing costs. They charge a low flat fee that is 100% refundable if their client is not able to get financing on their home, this way he said, “There is absolutely no reason or no risk to stop a consumer from using their services.
Lewin said, “The easiest way to describe their service is – “We are like a Home Inspection, but for a Mortgage”.

Mortgage brokers are becoming a vanishing breed

HYPERLINK “http://www.usatoday.com/money/economy/housing/2010-08-28-mortgage-brokers_N.htm” \t “_blank”

By Jeff Swiatek, The Indianapolis Star

2010-08-29 INDIANAPOLIS — Most of the mortgage brokers that seemed to populate every office building and commercial street in cities nationwide just five years ago have vanished.
Ken Blaudow, owner of Indy Mortgage had 85 employees originating home loans in 2003. Now he has three and is about to give up his leased office in Castleton, Ind., and move his company into two bedrooms of his house.
“It’s drastically down,” he said of his industry. “And there are a lot of funky new rules.”
Much of the decline has come from the implosion of the housing sector since 2007. Prices and sales plunged during the recession. Foreclosures hit record highs almost everywhere.
HOUSING CRISIS:  HYPERLINK “http://www.usatoday.com/money/economy/housing/2010-08-26-mortgages-foreclosure_N.htm” One in 10 with a mortgage face foreclosure
MODIFICATIONS:  HYPERLINK “http://www.usatoday.com/money/economy/housing/2010-08-24-foreclosure-prevention_N.htm” Defaults on modified mortgage loans falling
As government rushed in to respond to the crisis, caused in part by overselling of risky mortgages by brokers who got rich on exorbitant fees, regulations on the industry multiplied.
States in the past two years began requiring brokers to pass licensing exams and undergo background checks. A criminal record, even a past bankruptcy, can now prevent someone from writing a mortgage. If states don’t already do it, a federal law coming in January will require licensing exams and criminal background checks nationally.
Brokers and loan originators find lenders for people seeking a mortgage on a new home purchase and charge a fee for that service.
Many of the sometimes-exotic products that independent brokers used to push — jumbo loans, subprime mortgages — also have been restricted or banned.
The new industry that’s emerging is much more conservative, regulated and, some would say, less consumer-friendly.
“I don’t think (the changes) will be better for the industry. It costs more to do business. And the consumer has fewer choices. But those are the cards we have been dealt,” said Al Thorup, executive director of the Indiana Mortgage Bankers Association.
A study by Bankrate, a financial information supplier, found that mortgage fees are on the rise, jumping 23% in the past year alone. Nationally, the average fees that a homeowner paid for a $200,000 loan are $3,741, compared with $2,739 last year. This does not include fees for real estate agents typically paid by the seller.

Bankrate says the jump in mortgage fees is due in large part to the increased scrutiny lenders must give every loan, under tougher guidelines from federal regulators and two quasi-government companies that guarantee loans,  HYPERLINK “http://content.usatoday.com/topics/topic/Organizations/Companies/Banking,+Financial,+Insurance,+Law/Freddie+Mac” \o “More news, photos about Freddie Mac” Freddie Mac and  HYPERLINK “http://content.usatoday.com/topics/topic/Organizations/Companies/Banking,+Financial,+Insurance,+Law/Fannie+Mae” \o “More news, photos about Fannie Mae” Fannie Mae.
“It takes five to six times the work to get a loan to close than it did two years ago,” Blaudow said.
Credit histories must be dutifully compiled for all borrowers. And any number of new criteria can lead to a refusal to lend. One new practice closes the door on loans to anyone who’s done a short sale — a way of selling a house when the sale proceeds fall below the balance on the mortgage — in the past three years.
Banks have actually fared well in the restructuring of the mortgage industry.
That’s because many banks didn’t engage in the riskier lending practices, such as granting adjustable loans at subprime rates to people with less-than-stellar credit, that some independent brokers and their companies did.
Banks also will be better able to bear a coming federal regulation that will require any company handling federal  HYPERLINK “http://content.usatoday.com/topics/topic/Federal+Housing+Administration” \o “More news, photos about FHA” FHA or VA loans to have $2.5 million in assets.
Ron McGuire, president of F.C. Tucker Mortgage in Indianapolis, said the changes in the mortgage industry mean “we’re back to the way underwriting was 20 years ago when you had to have a down payment, you had to have a job. And that’s a good thing.”
But McGuire said he worries that the decline of independent brokers now gives a handful of large national banks more of a chance to dominate the mortgage industry.
Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.