Why I’m Mad at the New York Times and their view of the Mortgage World…..

Here is an article where i disagree with the author. If you read the entire post, you will see that the New York Times wrote an article detailing just how difficult it is to get a mortgage now days. The author of this post strongly disagrees with the times. But as a mortgage professional myself since 1999, I have to say that I think The Times is right on the money here.

You read and you decide.

Here is the post:

I read this article over the weekend and it was so full of inaccuracies and distortions that I had to share my perceptions on it.    My comments are in bold and italics…..  and I’ll have more at the bottom.

Tight Mortgage Rules Exclude Even Good Risks – NYTimes.com

Inna Komarovskaya was ready to do her part to revive the economy: She found a “really cute” condo to buy.
Despite a good credit score, a six-figure income and an ample down payment, Dr. Komarovskaya, a recent dental school graduate, could not get a loan. Her mortgage broker told her she ran afoul of new rules requiring two years of sufficient tax returns from some home buyers, instead of only one……

Tom here – the way they say it makes it sound like they are randomly saying, “we need two years tax returns rather than one.”   Let me tell you the details that I “know” they aren’t putting in the story:  Dr. K recently graduated from dental school and then, rather than going to work for a practice with a guaranteed salary, either started her own practice or bought into a practice where she has an ownership stake in the practice.   Because of her ownership interest, the mortgage market is going back to what they have required for years which is a 2 year history to verify income.    Is that a new and restrictive guideline?   Nope, it’s going back to the way things have worked for a very long time.

The recession is the major reason sales are dragging, of course, but it is not the only one. As Dr. Komarovskaya found, buyers once viewed as perfectly qualified are being denied mortgages……

The credit pendulum is stuck at ‘stupid,’” said Lou S. Barnes, an owner of Boulder West Financial Services, a Colorado mortgage bank. “I am turning down loans every day that my grandfather in his Ponca City, Okla., savings and loan in 1935 would have been happy to make. And he was tough.”………
Tom here – I’d like to talk to this Lou Barnes and find out what his customer baser is like.   Am I talking to customers on a daily basis who can’t do what they want to do?  Yeah, I am.   But why?  Not because the guidelines are too tight, but because the bubble burst and property values have fallen.   It’s not stupid lending to refuse to do a “secured” mortgage at 130% of the value of the property.

The denials are occurring for a wide array of reasons: the buyers’ incomes are adequate but irregular; they are self-employed and take many deductions, reducing the taxable income on which lenders focus; their credit scores are below the cut-off point, which has been raised drastically; their down payments are less than 20 percent……
Okay, I think I can disagree with a lot of things in this sentence:

• Adequate but irregular – Gee, hasn’t the mortgage world always (as in like since I was in 1st grade?) taken a 2 year average to deal with irregular income?   So what’s the problem now?   The problem now is that too many people are used to dealing with mortgage rules that allowed virtually anyone to get a mortgage.   Those days are over.
• Self employed and take many deductions, reducing taxable income:  This one has bothered me for a long time.    For many many years, well educated lenders have known that true non-cash writeoffs that self employed people take on their tax returns can be added back to their income.    The cash expenses – well, guess what “cash expenses” means?   It means that you actually paid them.   Now some of you are probably saying, “But I write off the payments on my car loan, so why should that penalize me?”   A couple of things about that:    1) If you are writing off  your car loan and doing it appropriately, you should have absolutely no issues providing enough documentation to your lender so that while you can’t count it as income, at least you don’t have to have it counted as a liability.   2) If you structure things in such a way that you can use “pre-tax” income to pay for personal expenses, then you end up not having the same amount of income to qualify for a long, but employees don’t have that option.
• Their credit scores are below the cut-off point, which has been raised drastically;  Yeah, the cut off points have been raised drastically for credit scores.   Why?   Because the people with lower credit scores are a large amount of the people who are delinquent on their mortgages.   But guess what?   Through FHA, we’re still doing doing mortgages for people with credit scores down in the lower 600’s.   So, if someone has a credit score that’s too low for an FHA mortgage, then yes, they areally shouldn’t be getting a mortgage.
• Their downpayments are less than 20%.   Have the PMI companies instituted what are called “restricted markets?”   Yes.   What does that mean?  It means that if you are located in a restricted market, you have to come up with an extra 5% down.   Take the state of Michigan for example.   We are, according to some PMI companies, a restricted market, so rather than being able to do a 5% down conventional mortgage, we’re limited to a 10% down mortgage.    Oh, and how about FHA and VA?   According to what I’ve read, FHA and VA are in excess of 30% of the entire market.   So, there are a lot of options without 20% down.

Fannie Mae, the government-controlled company that buys mortgages, is so dominant in the lending market that its rules set the standard. It recently toughened its policies, saying it would count only 70 percent of the value of stocks and mutual funds when calculating a buyer’s assets. Previously, that figure was 100 percent…….

Mortgage brokers say those who are being rejected for loans are often entrepreneurs who are used to taking risks. “They are chomping at the bit to get into this market, but are forced to the sidelines,” said Stuart Fraass of Guaranteed Rate Inc. “If you’re self-employed, you have virtually no chance of getting a mortgage now.”……..
If you are self employed, don’t claim all of your income, write off a lot of personal expenses as business expenses, haven’t been in the business for at least 2 calendar (tax return) years, yes, you’re going to find it challenging to get a mortgage now.   But if you are self employed, are showing a profit and are reasonable about what you want to borrow, you should be good to go.   If that applies to you and you are having troubles getting financed, call me.

Mr. Fraass was unable to help Raghbir Singh, a real estate investor who owns a gas station in Dover, N.H. Mr. Singh tried to buy a $301,000 house for himself and his family with 10 percent down and excellent credit, but was rejected. “It was unfair,” Mr. Singh said. “I’m a good risk, but I’m forced to rent.”

A couple of things about this story that don’t “line up.”   Let me explain:   1) Mr. Singh is a real estate investor who claims that he’s “forced to rent.”   What’s up with that?   2) I’d be willing to venture that Mr. Singh’s tax returns don’t show quite the same income amounts that he’d like to “tell you” he makes.  3) “I’m a good risk?”   Didn’t we get away from the borrower underwriting (stated income loans) because they performed so horrendously?

Members of Congress are proposing to extend and enlarge an $8,000 credit for first-time buyers, which is due to expire in December. One bill would extend the credit to all buyers through next June. Another would extend it to all buyers through 2010. A third bill would expand it to $15,000 for all buyers.

Some economists, noting that tax incentives helped stoke the boom, say these proposals should be shunned. “When do you decide enough is enough?” said the housing consultant Ivy Zelman. “I don’t want to feed the drug addict with more drugs.”

Okay, a couple of additional thoughts to wrap things up:

• In case  you can’t tell, this sort of “half story” journalism really bothers me.    Is the mortgage world a lot harder than it was 3 years ago?   Absolutely.    But don’t tell lies and fabrications and half truths that make it seem worse than it is.
• Can people still get a mortgage?   Absolutely!   If you have a downpayment (as little as 3.5%), verifiable and stable income, are looking at buying a house that is reasonable for your income and debt levels and have decent credit, you’re good to go.
• This is exactly why I wrote my book, “Straight Talk About Mortgages – How to Survive and Thrive in Today’s New Mortgage World.”
  
• The world already believes the mortgage industry is dead.   It’s not and we don’t need irresponsible stories and half truths making it worse.

Balloon Mortgages Are Alive And Well

During the crazy years in the mortgage business, one fairly popular product was the balloon mortgage.  A recent article in the Washington Post discusses how lenders are still offering this rather unconventional loan program. Simply stated, a balloon mortgage is a loan that has payments that are based as if the loan was being paid off over 30 years. The catch though is that on the 5th, 10th or 15th anniversary (whatever the term of the balloon) the entire loan must be paid off. So you you either have to pay the balance off, refinance or sell your home when the balloon payment is due.

So why do this? In a word, rates.The interest rate on a balloon mortgage are usually considerably less than on a conventional full term loan. And most people are well aware that they they never actually keep a 30 year loan for 30 years anyway. So why not? Really, there is no reason no to consider a balloon note, especially if you have always had a good credit history. It may make sense and save you considerable money over the life of the loan.

Click here to check out Lending Tree’s great rates on all mortgages including balloons

Mortgage Lenders Are Crazy!!!

This is a simple word of caution to anyone seeking a home loan out there. If you think that banks and mortgage lenders are rational business people, think again. Just as they were insane before the housing crash by lending to anyone with a heartbeat and probably some without heartbeats, the are equally insane now with their over cautious lending practices.

I have  client who was supposed to close on their loan on June 30th and they are still waiting. The reason? The home they are buying is owned by a trust. I don’t want to get into what a trust is except to say that people set up trusts so that when someone dies they can avoid probate and the trust can sell or transfer the property to whomever.

It is not very complicated, the transaction is the same as any other. Except the lender is making it soooo difficult, requesting one stupid document after another, none of which really have anything to do with trust. The latest request is that the bank would now like a copy of the the sellers death certificate. First of all — the seller is the trust (They Know that), secondly, do they not believe that the person actually died????? Can you tell that I am a little P O’d?

I guess, my advice to you is that if you are in the process of buying a home, make sure all your ducks are in a row and your loan is cleared to close well ahead of the closing date. In this day and age you never know what kind of crazy conditions the lender will require before they actually lend you the money.

Avoid and complications and  Get Your Approval Completed Quickly At Lending Tree

More Good News — KB Homes Sales Are Up

The Associated Press is reporting this morning that KB Homes sales are up a healthy 59% over the first quarter of this year. The bad news is that KB suffered a 255.9 million dollar loss. So the news is definitely good and bad. The CEO of KB is cautiously optimistic about the future of the housing market. But no one is doing cartwheels just yet. You can read the complete story here.

Wow! Mortgage Applications Climb Out Of 7 Month Low

The Mortgage Bankers Association is reporting that mortgage applications have climed out of a 7 month low last week. Is this a sign that the housing collapse is starting to stabilize? Perhaps. Maybe it is that folks are realizing that the fantastic mortgage rates we have right now will not last forever. In any event, the fact the more and more people are applying for mortgages is a good thing. Let’s hope the trend continues next week. By the way, if you haven’t heard, mortgage interest rates are great today. If you are thinking about buying or refinancing your home, now is a great time to act.

Click here to get great rates and fantastic service from Lending Tree.

Big Raises For For The Employees Of TARP Banks

There is just no end to the greed of the bankers. Even after we have given them nearly a trillion dollars and taken an ownership stake in them, we learn today that companies like CITI Are giving raises of up to 50% to their employees. Their explanation is that they must competitively compensate the best employees or they will leave. My question to them would be — “Where will they go?” It’s not like there is a hiring spree down on Wall Street. It’s a bogus argument and we should not stand for it.

Read the whole story here

Local Mortgage Companies

What Mortgage Lenders Don’t Want You To Know Is That Everything In A Mortgage Transaction Is Negotiable.

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How To Talk To A Mortgage Broker

How To Talk To Mortgage Brokers And Loan Officers About FHA Loans

Before you even begin to talk to a mortgage broker or mortgage lender about an FHA loan you should have all your ducks in a row. Now more than ever, it is more difficult to get approved for a home loan or a mortgage refinance. Therefore, if you follow these steps, you will have an easier time with the mortgage process.

Things To Ask Your Mortgage Broker Or Loan Officer.

1. Discuss all the types of FHA or government loans that are available with your loan officer including types of loans, and types of documentation required. If you need a bad credit refinance, this is very important.
2. Tell your loan officer that you will only take a fixed rate FHA mortgage out. Right now, mortgage interest rates are at or near historic lows. Obtaining anything other than a fixed rate mortgage now would be contrary to rational thinking.
3. Ask your loan officer exactly what documentation will be needed for your FHA loan before you begin the application process. Having all your needed documents up front will avoid delays and speed up the process.

2. Ask your loan officer what exactly his or her fees are. Then ask if they are negotiable. Hint, they are almost always negotiable.
3. If your loan officer tries to sell you on a loan that seems to good to be true it most defiantly is so run the other way. FHA loans should be straight toward.
4. Ask how long the process will take. A loan should not have to take more than 30 or 45 days.

5. Tips

   • Don’t let your loan officer try to lend you more than you think you can comfortably pay back every month. You want to feel very confident that you can repay your loan easily without stress.
   • Get Several offers from different lenders. This will insure that your are getting the best deal.

   To Instantly get for different interest rate quotes from four different lenders, we recommend
   LendingTree Mortgage Loans . Their rates beat the national average.

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