Plain Vanilla Protection vs. Consumer Education

President Barack Obama recently proposed that all lenders offer “plain vanilla” mortgages so consumers could understand the loan terms and the risks associated with the mortgages.  The proposal includes creating a Consumer Financial Protection Agency that would be responsible for these and other laws that help consumers make better decisions.   This proposal met strong opposition by the lending industry for trying to impose too many rules and limiting the flexibility of lenders.

“Under Obama’s plan, a new government agency would be established to monitor the fine print on such products as mortgages and credit cards. The Consumer Financial Protection Agency would require that lenders be up front about the cost of their products and offer customers a standard low-risk alternative.“

On Zillow Mortgage Marketplace we focus on consumer advocacy in a slightly different way.   Instead of limiting what lenders can do, our goal is to educate borrowers on the risks and benefits of each loan program so they can make the right decision themselves.  We have created a number of tools to educate consumers on how to compare mortgage types, analyze the risk associated with different loan programs, and find a trustworthy mortgage lender.

Here are some of the tools we built and why we think they are important:
•    Monthly Payment Graphs – each quote has a graph showing what the monthly payments will be over the life of the loan.  For adjustable rate mortgages, we always show the worst case scenario so borrowers can clearly see any risks associated with the mortgage.
•    True Cost – this calculation shows the interest and fees costs of all loans over any time period.  This helps borrowers compare prices for quotes across all of the different loan programs.
•    Comparison Page – compare all loan details in an apples-to-apples fashion across multiple quotes in one place.  Quotes are completely accurate and show all ARM details including margins, caps, and index.
•    Cumulative Costs Graphs – these graphs show the total cost of the loan over time so you can see how much you will end up paying in interest, insurance, and fees.
•    Lender Ratings – every lender on Zillow Mortgage Marketplace is held accountable for their actions and customer service through borrower ratings.
•    Mortgage Calculators and Help Articles – we created a whole library for consumers so they can figure out how much they can afford and the best way to repair their credit.

Helping consumers make better choices is extremely important to us.  If you have ideas for other tools or features that you think would help educate consumers, please let us know.

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The Gift that Keeps on Giving (Hint: It’s not the Jelly of the Month Club)

When shopping for a home, buyers often require extra funds to help with the down payment and closing costs. And while FHA offers programs with as little as 3.5% down, a cash gift from family members can prove very useful.

There’s no limit to the amount of cash a borrower can receive in the form of a gift –but lenders do that require several guidelines are met. Here’s a breakdown of these guidelines, along with a few tips.

You’ll need a gift letter
The bank will need to obtain a gift letter detailing the donor’s name, the recipient’s name, their relationship, the amount of cash gifted, the property address, and the source of the funds.

Non-family members must verify a longstanding relationship
Gift certificates to iTunes are one thing, but a down payment for a home is a completely different ballgame. If the gift is made by any non-family member such as friend, employer, etc., then the borrower will need to provide documentation of a very close and long lasting relationship. High School Debate Team photos probably won’t count.

The donor must be an independent source
The lender will need to verify that funds were not made available from any person involved with the sale of the property (including the seller, broker, real estate agent, loan officer, etc.) and that the gift doesn’t have to be repaid.

Funds have to be “seasoned”
Keep in mind that gifts may need to be seasoned (i.e. funds will need to be held in the borrower’s account for several months). Consult with your mortgage advisor for details, because guidelines on this vary from lender to lender. Long story short: you can’t get a gift for a down payment on the morning you’re set to close.

How do gifts affect taxes?
According to our industry expert Marc Heller (Partner and Director of Technical Tax at Warady and Davis), gift recipients never have to pay tax on the gifts they receive. Gift donors can give up to $13K per calendar year to an unlimited number of recipients, without the need to file any sort of return. For instance, a parent with three children can give them each $13k, totaling $39k in one year and not have to file a return.

For more information, please listen to a recent edition of the PERL Mortgage Podcast.

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RateWatch – Recovery? Not So Fast!

Market: So the economy is roaring back, eh? Weeeeellllll…. Some are beginning to wonder.  Mortgage-backed securities (these are the bonds issued by FNMA, etc. that directly link to mortgage interest rates – also abbreviated “mbs” in this space) are not reacting the way one would expect if everything was rosy going forward.  As the economy heats up, money should be flowing into stocks (it is) and out of bonds (it isn’t).  The benchmark 4.5% FNMA bond today is up 25bps (bps are “basis points”; 100 basis points = 1%) because existing home sales data was worse than expected.  As bond rates rise, mortgage rates fall.  A move of 25bps on the bond translates to less than .125% move in mortgages, but it’s something.

Analysis: strong economic growth is supposed to mean bad things for bonds, because investors take money from fixed-return investments – bonds being chief among them – and put it in stocks.  As bond rates fall, mortgage rates rise, all else being equal.  There are other factors, of course, like inflation, but in the main, good economic news is generally considered bad for mortgage interest rates.  So with rates sitting in the low 5% range on fixed 30-year mortgages and in the low 4% range on 5/1 ARMs and the like, why is the end of the recession not causing a move higher?

Answer: we don’t know.  But the suspicion is that the recession’s end might be oversold just a tad.  Remember, in the last giant downturn, we had a fool’s rally in 1930 that almost got us back to the level before the 1929 crash.  Then the bottom fell out, and we didn’t see those highs again for 20 years.  Not saying here that history is repeating itself, by any means.  But the possibility that history will repeat itself is in the back of every trader’s mind, I assure you.  Caution is warranted.  Therefore I fairly confidently predict that the thing you should worry about, if you’re buying a house, is getting it done before the $8000 federal tax credit vanishes on December 1, rather than the interest rate you’ll get.

My recommendation is that you have your house under contract by Hallowe’en, if you want to have a chance to be closed by Thanksgiving.  And not every mortgage guy can get you done that fast.  Please understand and remember this.

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Renovation Financing: Not all loan officers are created equal!

I am working on a deal that was originally with another lender as a purchase 203K, the other lender ended up dropping the ball to the point the borrower switched lenders in the 11th hour to close the loan on time as a regular FHA loan.

The borrower purchased the home and has started the renovation on his own, mainly demolition (I don’t recommend doing this prior to closing on a renovation loan).  So few lenders are actually doing these renovation loans….. he ended up back with the original lender trying to do the 203K loan as a refinance. 

While going through the process he came across some of my posts and blog on Zillow.com (thanks for the referral Zillow) and reached out to me.  Because he was so far along in the process I answered a few questions and coached him a little as to how to deal with the current lender to try and expedite his loan closing.  Three weeks go by and he is no closer to closing than he was when I spoke with him originally.  So he decided to apply with me.

I was walking through the project with him when I noticed the house was going to need to be painted and also knew that the proposed budget only had about $250 in it for minor painting.  I knew by looking at it that it was going to cost more than that!  I have to admit that I don’t go out and see every house I write a renovation loan on, although I do need to have a complete understanding of the project so I can spot potential hiccups and delays and address them up front.

Having done these loans for years I have a ton of experience with them and my customers get the benefit of that experience.  It is really tough to explain all the benefits of experience.  Much of what we have learned through experience is 2nd nature and you just do things differently. 

I have a three year old daughter and I am amazed almost moment to moment as I watch her develop.  It is the things that we take for granted I find the most interesting, the way she eats, gets dressed, walks up and down the stairs, climbs over under and on whatever gets in her way, and a zillion other things.  At some point we learn what works best.  We learn that walking around the table, although it may take a little longer than going over or under (or not), may be the most efficient way to get to the other side.

When working with an experienced lender and or experienced renovation lender their experience will make your experience much less stress full!

Below are some of the things I try and walk around:

1.      Self Help – These are almost always a recipe for disaster and I really discourage anyone from attempting to do these projects as self help

2.      Streamline Renovation – 203K streamline although less expensive by about $800 in costs, I have seen too many issues arise as a result of half the funds being disbursed upfront and contractors disappearing or demanding additional payment upfront to finish. 

3.      Cutting corners – eliminating $5,000-$15,000 from a project because you are spending more than you want.  The difference in your payment is usually minimal, and to go through a renovation project and settle for less than what you want tends to do nothing but generate regrets.  If you are going to do it…do it right!

4.      Hud Consultant – Make sure you are working with a good 203K consultant.  I have been working with AM Consults in Malden MA for well over a decade and am extremely hesitant to work with any other consultant.

5.      The Loan Officer – Choose a loan officer that has the experience actually writing these loans rather than the loan officer that just has access to the program.  The loans are more expensive than a standard loan so expect to pay a slightly higher premium for the loan, but don’t get taken advantage off.  I have seen on more than one occasion an LO charge a ridiculous amount for these loans…The Mind set being if the customer is willing to pay that amount I’ll figure out how to write the loan…They may figure it out but you don’t want to over pay to be a guinea pig (sorry animal lovers).

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Low Rates Cause Surge in Refinance Loan Requests

Refinance requests on Zillow Mortgage Marketplace are up 20% so far this month versus August.  The chart below shows that lower mortgage rates appear to be driving this spike in demand.

In an effort to continute to prop up the financial markets, the Federal Reserve’s policy-setting panel just announced that it plans to continue purchasing mortgage-backed securities into next year.  This activity should help to keep mortgage rates at low levels.

So with rates this low, now is a great time to see if it makes sense to refinance.

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Do Lenders Still Do 80% Loans With Another 10% Loan if I Put 10% Down?

Good question posed by 1samtheman in Zillow Advice:

Do Lenders Still Do 80% Loans With Another 10% Loan if I Put 10% Down?

As we all know, times have changed in the mortgage world on the types of loans you can get. A couple of confirmed lenders from Zillow Mortgage Marketplace have chimed in, but we need to hear from more lenders on what is happening with 80/10/10 loans.

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Tustin, CA – Bank owned REO homes now for sale

Tustin, California – beautiful residential and business community located in central part of Orange County and south of Santa Ana.

See list of Tustin bank owned REO homes for sale after foreclosure (click here for free link).

We like to provide you with valuable Tustin and Orange County real estate information.  Please let us know whether this is helpful. Thanks.

Harrison K. Long
Realtor and broker, Explore group, Coldwell Banker Previews
949-854-7747
www.ExploreTheOC.com

ExploreProperties@gmail.com

www.BuyersExploreHomes.com

____________________ 

Contact us if you have questions about Orange County Real Estate. Thanks.  Harrison K. Long, Explore Group, Coldwell Banker Previews, Irvine, CA.

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