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Welcome

2011-08-17T20:18:53Z

Welcome to Go To Loan Guy, the blog for home loan financing. Located in the heart of Oregon's wine country - licensed in Oregon, Washington and the Nationwide Mortgage Licensing System. Thanks for visiting, please check back again soon for new entries.

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Does the Downgrade really matter to Mortgage Rate?

2011-08-17T20:18:05Z

When Standard & Poor's notified the US Treasury that it was about to downgrade the U.S. government's "AAA" sovereign credit rating which impacts the $9.3 trillion in US government debt. S&P cut its top-notch long-term credit rating for the U.S. Treasury's debt to AA+ with a negative outlook. But it wasn’t without warning: in July S&P warned that if the U.S. government didn't approve a credible medium-term plan to shrink its fiscal shortfall, it would downgrade the rating even if Congress approved a debt deal that raised the Treasury's borrowing limit. As we know, Congress did, but not enough to S&P’s liking, and also increased the debt limit, which some liken to “raising the maximum blood alcohol level so that you’re not really considered drunk.”

Fitch Ratings and Moody's Investors Service both affirmed their top-notch ratings of the U.S. during the week, although Moody's assigned a negative outlook to its "Aaa" rating. The S&P news was pretty much anticipated by the market. The downgrade by S&P generated anxiety in the global equity financial markets, but others point to the fact that investors don’t really have anywhere else to put their money, even with the yield on our 10-yr T-note down to 2.34%! Now only four major countries have the AAA rating: Canada, Germany, France, and the United Kingdom. Is US debt now the best of the worst?

Some investors may be forced to sell Treasury securities as they are required to hold only AAA-rated assets. But what, exactly, does a rating agency’s opinion matter? They’d like investors to believe that the source of their power is the accuracy of their opinions, but what seems to matter to a greater degree is the extent to which their ratings have been embedded in various rules and regulations across the financial world. In 1975 the SEC began to use such ratings to calculate how much capital broker-dealers should be required to hold, and designated a few firms as "nationally recognized statistical rating organizations," or NRSROs. Now NRSRO ratings are embedded in thousands of regulations and private contracts, if not more, determining what securities money-market funds would be permitted to own, how much collateral counterparties would have to put up in trades, among countless other matters.

Rating agencies have been viewed by many in the mortgage banking world as miss-rating hundreds and thousands of mortgage-backed securities, therefore contributing to the credit crisis in which we find ourselves. The “whip” has come down on brokers, lenders, servicers, banks, and to some extent investment banks, but rating agency’s business models have not changed much. And given how often their ratings appear in rules and regulations of banks, federal agencies, money managers, etc., it may not be feasible or practical to eliminate ratings. But there is an inherent conflict of interest when a security issuer pays the rating agency to rate one of its securities.

The detrimental role of credit rating agencies Moody’s, S&P, and Fitch was noted in the U.S. Financial Crisis Inquiry Commission’s report said “the three credit rating agencies were key enablers of the financial meltdown." A European Parliament report highlighted three key problems in the industry: lack of competition, over-reliance on external ratings in the regulatory framework, and no liability for ratings by the agencies. Further, ratings changes are lagging indicators: downgrades or upgrades mostly reflect information already analyzed and digested by financial markets. In response, regulators and legislators on both sides of the Atlantic drafted new rules to reduce the intrusion of rating agencies in the regulatory framework. New entries into the business such as Kroll or Rapid Ratings, are trying to address that issue.

If the changed rating leads to hundreds of billions of additional borrowing costs, it will become a self-fulfilling prophecy for the US government (instead of spending on improving our economy, it will spend more on interest payments to debt-holders) and the consumer (who will pay more in taxes to cover the increased expense – some believe that the government merely takes money from one group and gives it to another, and the average consumer will bear the brunt).

At this point, S&P’s reasoning about the inability of politicians to address the real issue of fiscal sustainability is generally viewed as correct, and most traders think that the short-term effect on Treasury yields of S&P’s decision will be small. But is it really the role of the rating agencies to influence or determine political strategy? Perhaps - there is no inducement for politicians to be fiscally responsible, and it seems that fiscal responsibility is not a path to reelection.

excerpted from Rob Chrisman's blog

THAT Time of Year Again!

2011-04-27T19:48:00Z

My history of allergies goes back about 25 years – longer if you count possible genetic disposition (both my Dad and Brother have asthma). After my tree pollen allergy symptoms became enough of a nuisance to require it, I sought out the best Anchorage had to offer in both AMA and Natural medicine specialists. There was the 1.5 years of immune-therapy plus prescriptions for every eye-drop, nasal mist and pill that they had to offer. None of these were very effective. A few years ago I discovered the Chinese herb concoction called Xanthium-12 and it worked OK the first year about half as good the next and not at all the third. A daily dose of local honey has also been tried which I like but had no allergy benefits for me.

Across this time I tried various air cleaners, especially in the bedroom at night and of course I’ve used a neti pot. This year I’ve taken the “clean room” concept to a new level where the sleeping room is closed to outside air at night, the air cleaner is running and I’ve showered off the accumulation of stuff on my body before retiring. This has been the most helpful of anything I’ve tried. I retire with stuffy nose, itchy eyes, etc. and awaken with those symptoms pretty much gone. If this success continues over the next year or so I will declare a victory of sorts.

Why Regulate Mortgage Brokers?

2011-03-11T19:00:00Z

Brokers are independent originators who compete by shopping across many financing sources for consumers - they do not approve loans, they do not create loan programs, or have any more influence than originators at a bank. Brokers get paid because banks and lenders do not have to recruit, train, house, or pay benefits to additional staff, or spend any money on direct marketing for new loans. This allows banks and lenders to increase production with minimal expense, simply by soliciting brokers. This competition benefits consumers and keeps retail banks honest. The public chooses brokers because they consistently deliver better service plus lower rates and costs than the big retail lenders. Since brokers or originators in general, did not cause the housing boom or bust, why must we endure the upcoming April 2011 implementation of legislation fostered by conditions that occurred in 2005. It is simply wrong. Imagine the national debate we'd be seeing if we tried to create legislation to regulate commissions for the second largest purchase financed by consumers - cars.

FORECLOSURE Waiting Periods

2011-02-26T16:17:00Z

Questions frequently arise during or after foreclosures regarding the impact on future home purchases. Here's the official Fannie Mae guidelines. One must remember that lenders often implement stricter rules to protect their investors.

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1008.pdf

FHA Raises Loan Costs Again!

2011-02-25T16:46:00Z

For the second time in less than a year FHA has modified the mortgage insurance fees for the home loans they insure. Here’s a payment comparison for a $200,000 purchase under old and planned FHA mortgage insurance rules for a 30-year fixed rate loan at 4.75% with minimum required down payment. As you can see, effective this April there is another ±$40 increase in the monthly obligation. This difference is not massive by itself but when combined with the October 2010 increase, the FHA borrower is faced with over $80 more in monthly payments for the same mortgage.

Pre-October 4^th 2010 case numbers

2.25% up-front MIP = $4342.50

Financed amt = $197,342.50

PI payment = $1029.43

0.55% Monthly MIP = $90.45

TOTAL PI+MIP payment = $1119.88

Post-October 4^th 2010 case numbers

1.0% up-front MIP = $1930

Financed amt = $194,930

PI payment = $1016.85 – slightly smaller due to lower financed amount

0.9% Monthly MIP = $146.20 – larger

TOTAL PI+MIP payment = $1163.05

Post-April 17th 2011 case numbers

1.0% up-front MIP = $1930

Financed amt = $194,930

PI payment = $1016.85

1.15% Monthly MIP = $186.81 – larger again

TOTAL PI+MIP payment = $1203.66

THE PLAYING FIELD FINALLY GETS LEVELED!

2011-02-02T18:33:00Z

Agencies Announce Start of Initial Registration Period Under S.A.F.E. Act's Mortgage Loan Originator Provisions

Washington – The federal bank, thrift and credit union regulatory agencies, along with the Farm Credit Administration, announce that the Nationwide Mortgage Licensing System and Registry will begin accepting federal registrations today.

Under the Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act) and the agencies' final rules, residential mortgage loan originators employed by banks, savings associations, credit unions, or Farm Credit System institutions must register with the registry, obtain a unique identifier from the registry, and maintain their registrations.

Following expiration of the 180-day initial registration period on July 29, 2011, any employee of an agency-regulated institution who is subject to the registration requirements will be prohibited from originating residential mortgage loans without first meeting these requirements. The rules include an exception for mortgage loan originators that originated five or fewer mortgage loans during the previous 12 months and who have never been registered; they would not be required to complete the federal registration process.

The registry announcement is being made by the Board of Governors of the Federal Reserve System, Farm Credit Administration, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision. Further information regarding the registry and the registration process is available at the registry's website: http://mortgage.nationwidelicensingsystem.org/fedreg/Pages/default.aspx.

A notice about the initial registration period will be published soon in the Federal Register. The Federal Register notice is attached.

HOME SALES PRICE COMPARISON

2010-09-27T21:50:00Z

Here's a great tool for comparing home prices in one city to another.

http://www.connect2agent.com/homecosts.aspx

A MORTGAGE BROKER'S POINT OF VIEW

2010-07-01T20:35:00Z

Since January 1, 2010 the compensation a mortgage broker derives from getting a loan for a borrower is disclosed in a manner to HELP the borrower decide which mortgage offer is best. Although well intentioned, this legislation has clouded and confused the very decision process it was intended to help. The compensation I make is is NOT a meaningful way for someone to determine their best offer. Only the borrower's rate, monthly payment and closing costs matter in making this determination. This disclosure process was supposed to improve 'transparency', a word no doubt selected to cast suspicion. The benefit to broker's clients is to find the least expensive source of funds for their loan/financial scenario. If brokers improve value to the consumer while getting paid for the effort they spend in creating the added value, they both win. When was the last time you were told the amount of gross income you paid for a can of peas, a gallon of gas, or a new car, and you were still able to determine the best price? The consumer does not need this and in fact without it, the process would be much less confusing and make it easier for the consumer to determine the best offer.

FICO

2010-04-14T19:33:00Z

FICO, founded in 1956 as Fair Isaac by engineer Bill Fair and mathematician Earl Isaac, provides consulting services and enterprise decision management systems. They developed the FICO scores, a measure of credit risk, which are the most used credit scores in the world. FICO scores are available in the United States from Equifax; Experian; TransUnion; and PRBC. FICO, like Band-Aid or Kleenex, has become a generic symbol of credit worthiness. Home loan scores can range from 300-850 and are a statistical calculation based upon payment history (35%), credit utilization (30%), length of history (15%), credit type (10%), and recent credit checks (10%). Items stick around for seven years; bankruptcy for ten. The score is intended to predict the liklihood the borrower will have a 90-day late in the next 2 years. Maxing out a card, a 30-day late payment, debt settlement, foreclosure (150 point ding) or bankruptcy (150-200 point hit) all negatively impact FICO. Sometimes folks wonder about whether or not a short sale hurts your credit score as much as a foreclosure (see other articles in this blog), it depends on whether the borrower stays current on their payments and how the lender reports the sale (try for "debt repaid in full"). My thanks to Rob Chrisman and Wikopedia for much of this content.

Mortgage Modification Effects on Credit Score

2010-04-01T16:57:00Z

These comments are from my credit reporting company that works daily with these opportunities.

Most loan modifications we've seen so far under the various Stimulus plans have been interest rate reduction as opposed to principal reduction so that is the experience on which the following comments are based.

What we are seeing with most interest rate loan modifications is that the borrower is instructed by the creditor not to make any payments until the modification process is complete. This can take up to nine months. Once the modification is complete, the delinquencies are removed. The drawback is that even though the delinquencies are removed, the "remarks" on credit reports will read "payment plan in place". This is similar to "consumer credit counseling". We are seeing scores effected similar to the effect of a recent collection account, somewhere around 60 and 100 points, depending on the borrowers overall credit picture. We have also reviewed files where the borrower was instructed to pay until the process was complete. While exactly opposite in structure, the result is the same, damaged credit due to the remark line "payment plan in place".

I am unsure as to how the banks are going to report the credit when the modification is a principle reduction. Currently, it is up to the creditor as to how they decide to report it. Until we see some actual history, we really can't speculate how they will report except to say that it is very likely to be an adverse mark on an individual's credit.

In any of these scenarios the borrower did not meet the obligations of the original contract and therefore their reported credit must reflect that reality so the next credit grantor is aware of the situation.

The best advice that can be given when working out the details of a loan modification with the bank, is to clarify how the loan will be reported by the credit agencies once the loan mod is complete. Again, if coded negatively and attached to a mortgage, it will likely create problems through automated underwriting even if scores remain within guidelines. It is essentially a mortgage that hasn't met the obligations of the original contract.

Mortgage Underwriting in Today's Environment

2010-03-04T21:55:00Z

An excerpt from the daily mortgage commentary of Rob Chrisman -

, here is what one very experienced and knowledgeable underwriter wrote to me: "It used to be that we could 'underwrite' a loan and use common sense to navigate individual circumstances and actually make a decision that a loan was a good credit risk. Then DU and LP (computerized underwriting systems) came along and gave us the laundry list that had to be followed. We were still able to manually underwrite loans for those transactions that did not fit the box. Then the bottom fell out of the business and everyone got scared and new rules came out. Investors and Wall Street were to blame for allowing individuals who were not telling the truth to buy homes. Today investors are pre-underwriting loans prior to purchase and we have to 'march to their tune' including getting pieces of paper that seem ridiculous, but since we need the investor to purchase the loan, we obtain them anyway. Only the most qualified borrowers with all their ducks in a row get loans these days. Manually underwritten loans are subject to scrutiny such as we have never seen before and frankly, we do not have the courage to paint outside of the lines because we cannot afford to have a loan purchase refused. Today, it takes two to three times as long to underwrite a loan and we have checklist upon checklist that help us make sure all of the i's are dotted and the t's are crossed. I have been doing this for over 30 years and frankly we are back to the rules of the early 80's or worse when it comes to documentation."

Everything you ever wanted to know about the 2009/2010 TAX CREDIT

2010-02-24T08:09:00Z

TAX CREDIT for First-Time and Move-Up Homebuyers

                            Instructions

                            form 5405

                                FAQs

National Association of Realtor's HOUSELOGIC

2010-02-24T08:01:00Z

FINALLY, a website for you and I about homeownership
www.houselogic.com.

Then there are the new RESPA rules!

2010-02-05T19:33:00Z

ARE YOU HAVING TROUBLE EXPLAINING RESPA TO BORROWERS?

If RESPA changes are the final blow - swaying you to consider a simpler career path, say neurosurgery or something, you are not alone.

I have to vent for a minute, because I know you are with me on this one. Let’s see….

A new borrower comes to you because his Realtor told him that you are a fabulous loan officer and he needs to get pre-approved and get a Good Faith Estimate.

You look the new borrower square in the eye and have to say, “Wonderful! But I can’t give you a Good Faith Estimate because you haven’t identified a property. But I can give you this other “Non-Binding Settlement Estimate” form that my legal department has authorized, that has a 2-page disclaimer stating that you can’t hold me to any of these figures.”

So the new borrower, with a confused look on his face, takes your new form and goes back to his Realtor. The Realtor calls you trying to figure out what you said to the new borrower who now, doesn’t feel so confident about you or anything else in this transaction. You explain. The Realtor calms down.

The new borrower comes back with an identified property and says; “Now I want a Good Faith Estimate.” You prepare one, in perfect accordance with the new RESPA procedures and hand it to new borrower. He gasps. “This is $3,000 more than the previous estimate you gave!”

“Oh, don’t be alarmed,” you say in your most toddler-calming voice. “This isn’t what you are really going to be paying. This is just how I have to disclose it to you.”

The new borrower gives you a sideways suspicious glance, “But what about all the fees the seller is paying on my behalf? I can’t find a credit on this form for those.”

“Don’t worry…it will all work out at closing. This is how we protect you now. We give you inaccurate information all the way up until you actually close on the property. Isn’t that fun! Kind of like a surprise party!” you happily chime - beaming like an idiot while beads of sweat run down your torso.

The new borrower marches out to his car in tearful frustration and calls the next lender on his list.

Scalpel anyone?

It's Official, HUD has identified the cause of the "Foreclosure Crisis"

2010-02-05T19:28:00Z

In case you were wondering, you can find HUD's official pronouncement on the "root Causes" of the foreclosure crisis in their 60+ pages at:

http://www.huduser.org/portal/publications/hsgfin/foreclosure_09.html

You can click on this link for my summary of this situation as portrayed on this slide from a 2007 presentation: GREED

NATIONAL MORTGAGE ORIGINATOR LICENSING

2009-12-11T03:42:00Z

Today I took my second National Mortgage Licensing Exam, this one for my Oregon license continuation. The first National exam was in conjunction with my Washington State license. The SAFE (Secure and Fair Enforcement for Mortgage Lcensing) act now requires all states to license mortgage loan originators. I believe in this process and embrace the national system as it starts to level the playing field. First it forces consistency in all states for the qualifications that originators must have. Second, it forces loan originators working for banks to be tested and licensed in a similar manner.

Loan originators working for Banks have not been licensed by states in the past because banks are federally regulated. With the advent of the national license system, the bank originators will, for the first time, be required to meet the same requirements as independent mortgage brokers such as myself.

I have long held that those dealing with the largest investments most individuals make in their lives should be licensed. I have also believed that it is ridiculous to have each state license mortgage originators when most of the laws that apply to our business are federal. Perhaps someday we will achieve having a single national license but at this stage of our licensing evolution we have separate state licenses (Washington and Oregon in my case) that are granted after testing separately in each state even though most of the exams are based on federal law.

SHORT SALE versus FORECLOSURE

2009-10-05T00:36:00Z

To the extent you can control the final disposition of a property you must relinquish, it becomes important to know the impact to your credit scores and future purchasing choices. This table can give you some idea as to the outcomes.

Foreclosure versus Short-Sale

Property Taxes vs Values

2009-09-29T19:23:00Z

Click this link to see a recent Oregonian article on Property Taxes vs Values

PORTLAND Area on YouTube

2009-09-23T19:04:00Z

Please enjoy a few minute video of Portland area on YouTube.

http://www.youtube.com/watch?v=B1B2_r6Azvg