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A Bird in the Hand is Worth “No Points” in the Bush

Written by Michael A. Foote, CMB on . Posted in bad boys, direct lender, good faith estimate, high ltv, interest rates, Lending, Loan Processing, mortgage banker, mortgage broker, mortgage finance, mortgage regulations, refinance

I share real world stories with my clients always. They always help me and my clients make good informed decisions. I ran into a bad story that is good to share with all of you in regards to mortgage financing.

Too often we get stuck on getting the best deal, the easiest deal, or both. It’s a Californian’s drive to ‘grind’ people for better deals or better treatment. Sometimes it works, sometimes it doesn’t. Today’s example is of when it doesn’t.

-Paralysis by Analysis

A friend, who I’ve known for years, asks about a jumbo refinance in 2013… Yes, I said 2013. We spoke and talked about his current adjustable loan, which only interest was being paid on each month, and a recasting of this adjustable would take place in the next couple years. The new payment would be higher but the payment would be fixed and amortizing. He wasn’t willing to take the increased payment and his credit score needed to be a few points higher to obtain the slightly better pricing. The value needed to be a little higher maybe as well so we could include the HELOC that was maxed out and needing to be converted to fixed rate debt.

He moved on.

Over the next few years… rates changed very little, values shot up and in 2016, we talk about the mortgages again. Values are probably high enough to combine that pesky HELOC (which is basically a $100,000 credit card balance sitting out there…Albeit at a nice low compounding adjustable rate. The debt load was now lower so the DTI shouldn’t be an issue either. Comps are there.

We chatted, I quoted, He moved on.

Here is what the average rate and points for a conforming loan during this timeline:

2013 – 3.980% @ .70 points

2014 – 4.100% @ .60 points

2015 – 3.850% @ .50 points

2016 – 3.650% @ .50% points

2017 – 4.125%  @ .50% points

What I didn’t fully until this point was that my friend, and I still consider him a friend, was speaking with other lenders behind the scenes and had applied at a few. One lender, a super techy-awesome mortgage bro-company advertised on the TV and Radio that has a Hip Cool Name, took his application and as a crappy mortgage company does, proceeded to drag the application and underwriting process out for weeks… No matter the companies techy nature, bad service is bad service, and worse further is working with people who don’t understand the real world of underwriting and rely on the computer to make all their decisions and push their workload…and the client gets turned down. All the while talking with me about, “what I thought about what the lender was telling them”. Yes, still my friend…Yes, those are painful conversations for us Mortgage Professionals. You mean you trust me enough to tell you if the other guy is hosing you… But not trust me enough to do the deal with? <Me swallowing my pride> OK, Thanks. My kids

As a reminder, I had already done all the homework, pointed out the concerns I had to the client, who went elsewhere, because someone said, ‘It’. The two most dangerous words commonly spoken by the mortgage sales people that give ALL OF US a bad name,

“No Problem”.

There are no two more dangerous words you can hear from a Mortgage Originator…If you are a consumer, Realtor and hear these words…don’t walk, run to another Originator. Because, those two words mean its gonna be a problem! You can count on it.

So after that techy-awesome So-Phisticated FIn-Tech Lender declined my friend we spoke about where he was now. We looked at his credit report, at this point, the constant credit pulls and changes he was told to make with his debts and cards, had pushed his scores from 719 to 680-ish… Almost a death blow for a Jumbo loan.

But I still had options and presented a plan of attack.

We worked on the credit, got the scores back up. And when we were ready to get started he applied at yet another lender.  I graciously as possible accepted the call and notification that, yet again, he was going to work with someone else.

I don’t hard sell my closest friends or anyone for that matter. But I do regret not being more forceful and reminding him I’ve been doing this for almost 30 years, I’ve been right from Day 1, and oh yeah I’m your friend and trusted adviser? Maybe not? Still a friend though.

Sure enough the lender got the loan into underwriting… Which by the law is like suing someone, anyone can do it.. But getting an approval remains a difficult but precise process. Bad/Poorly Educated Salesmen = Low percentage of approvals.

My friends loan wallows in underwriting. Lot’s of “we are taking a look” or “I’m waiting to hear from the underwriter about the exception” or ” I’m gonna need another something”. All generally not good signs.

My friend was turned down again.

At this point we are in 2017 and the borrower home has peaked in value and it is probably the best time in the last four years for him to consolidate the first and second mortgages and get everything on a fixed rate, after all this is the house he wants to stay in with the wife and kids.

I quoted him again… at this point… I acknowledge that he will probably be applying somewhere else. I told him, I would have more input with underwriting, since I understand the file better than most, and I would do my best on pricing. After all after four years, it matter more to get it done than not, right?

He finds a quote that is cheaper than mine, again. Always amazing to me when there is always a LOWER quote. People… it doesn’t make it real. If you take anything away from this article, please realize you can be lied to by a mortgage sales person still. Shocking? It really shouldn’t be. People lie in all industries to win business.

I call him to check in one last time on the mortgage last week…

…And he still applied at yet another bank…

And he lost his job as well… Big paying tech job. I worry for him and his family. I am sure he will land somewhere and all will be fine.

He did say he would apply with me IF I COULD MATCH THE RATE & PRICE. I told him knowing he had lost his job is a non-starter for me as I would have to disclose it, which is pretty much a guaranteed decline at this point.

Still a friend though. I hope he lands a job, and I wish I could have made him trust me more.

Michael A. Foote -Certified Mortgage Banker & Trusted Mortgage Professional for 30 years.



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The role of the mortgage broker in today’s mortgage market. “GFE” Good for Everything, or a good faith estimate.

Written by Michael A. Foote, CMB on . Posted in gfe, good faith estimate, mortgage banker, mortgage broker

With the launch of the 2010 Good Faith Estimate we read articles about the fall of the mortgage broker and that brokers will be unfairly disadvantaged when reporting rates and terms. I am here to call all that poppycock. The simple truth is a borrower can clearly determine how much is being charged or made by the broker and when dealing with a bank or direct lender a borrower does not see all the income being made on their loan. The “TIL” or Truth In Lending Statement still reports the same APR for a broker and lender assuming the same exact terms even if the broker is receiving lender compensation for the loan. Lender compensation or yield spread premium is how brokers offer no points loans and is no different than a bank selling your loan to Freddie Mac except a bank does not disclose this income they receive.

But let’s not forget the role of a mortgage broker. The broker should be presenting him or herself as an authority in the market place, and have multiple investors whereby to deliver their loans. The assumption being that the broker has delivered the best loan product for the client at the most competitive rate and terms to the best individual investor at the time. And every broker should be able to beat a big bank or big bank lender – if they want to. But therein lies the real issue – broker abuse.

Being a mortgage broker became the go to job in the 90’s 00’s for many getting into the industry – and licensing couldn’t have been easier. It just became too easy for mortgage brokers to hijack their clients and charge excessive fees all the while really only being regulated by the wholesale lenders themselves. Of course, those firms had insatiable desires for more paper, so that wasn’t really good oversight, and the states and federal government were apparently asleep for 10 years.

Having originated both as a broker and lender after the new GFE was put into place; I feel I am as capable as anyone to speak to the differences between dealing with a direct lender, bank, or mortgage broker. There aren’t really any differences.

Direct lenders will tell you mortgage brokers cannot be trusted to fund a loan, and mortgage brokers will tell you the banks take 90 days to close. The reality, they are both accurate. There are brokers who can just simply not operate in today’s lending environment and can therefore really train wreck a transaction. But equally frightening is that banks do often take months to close the most simple of refinance or purchase transactions. And often time tell clients late into the process they are not approved or the transaction cannot be completed. Many times due to their own lack of experience mortgage professionals.

Today more than ever it is important to know who you are working with – and be familiar with the actual experience level. Referrals are always great way to determine who to work with. This is not a part-time job. Mortgage professionals need to be licensed and educated in all aspects of residential lending in today’s market. Mortgage brokers generally need even more licensing and education than their bank peers. So your local mortgage broker may be the most knowledgeable mortgage professional available and the cheapest.

So before you go knocking the mortgage broker make sure you are comparing apples to apples and oranges to oranges, and most important, work with someone you trust.

With over twenty years experience in mortgage lending, a Certified Mortgage Banker Designate (CMB) from the Mortgage Bankers Association of America, and billions in funded loan experience, I can assist you and/or your clients with the most important financial decisions related to your residential and commercial real estate. Please call or email me today

Michael A. Foote, CMB
Certified Mortgage Banker