2017 Non-Prime Lending, A Primer; The Basics of Non-Prime Lending today

Written by Michael A. Foote, CMB on . Posted in bad boys, direct lender, high ltv, interest rates, mortgage banker, mortgage broker, mortgage finance, Mortgage Processing, mortgage regulations, NMLS Approved Processing, non-prime, refinance, Uncategorized

elephantNon-Prime Lending today is fundamentally the same product I grew up with in the late 80’s and early 90’s and that was primarily offered by Finance Companies and Savings and Loans prior to that. These loans formally called Subprime, B&C Lending, Hard Money, and now mostly referred to as Non-Prime or Non-Dodd-Frank lending, Non-QM, Or even Alt-QM. The high fees usually associated with these products has been greatly reduced due to regulations, but there are still profits in the higher than market rates and still on average higher fees and costs than traditional FNMA or FHLMC Financing. “Back in the day” the typical double-digit start rate would also include 10%+ in points and over $2000 in junk fees and a very pricey prepayment penalty. Non-prime lending today more typically is priced from 1.5% to 4.00% higher than conforming mortgage rates and priced between 1-5% points with about the same in junk charges.

These loans are typically 30 years fixed or adjustable with 3-10 year fixed periods. Lenders sometimes offer Interest Only or 40 year amortization options. To determine a non-prime loans pricing, we need to determine the RISK. Below is a diagram of a lenders grid. You can easily see how the combination of Credit Score, Loan To Value, Mortgage History and Significant Credit Events and Transaction Type can affect your interest rate.

You can document your income with traditional pay-stubs, W-2’s or 1040’s or you can use Bank Statements. You can even use bank assets in a way that determines monthly income based on those those assets. Stated Income is an option once again, as is Stated Investor Income, where as residential investment property is qualified based on the Debt Service Coverage Ratio in an appraisal.

This loan was always primarily associated with equity lending. However prior to the great recession (depression for me) the product’s LTV’s started to elevate. With the introduction of Wall Street securitization, credit depth and makes sense lending went out the window.  And so after Gramma on fixed income could buy a dream home with stated income on an 80/20 loan combo with a foreclosure the week prior.  A true low in the lending industry. This time the product has re-emerged in its earlier more conservative form.

These loans can be used to do all of the following types of transactions. Purchase a home, Refinance a Home, Cash-Out your equity in a primary residence or an investment property. You can fix and flip a property. You can use these as home improvement loans. You can use these as swing loans as their are many times no prepayment penalties. You can use these loans to buy unique properties like non-warranted condos, or high rise condos. You can use these loans to borrower a down payment for another property. You can use these loans to close BK 13’s or cure a foreclosure. That’s a lot of uses and I am sure I’ve missed a couple.

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It makes sense that the higher leverage or Loan To Value (LTV) you need, the higher the rate should be, and as you add risk, you can see that the available LTV does drop even as the rates rise. So a 700+ credit score with 0x30 and LTV of 50% is a much LESS risky loan than the 550+ 1×90, previous BK on a cash-out refinance.

The key to these loans is to have a direct conduit. Some companies layer on many fees and added expenses. These loan fees can be negotiated in some cases. Don’t be afraid to ask for exceptions to make a deal fit. This isn’t the conventional lock desk. And make sure to work with a competent seasoned licensed Loan Originator

It’s important to be honest with yourself when pricing these loans. You MUST have a complete application and understand all the pitfalls of your borrower and the property. It’s a big difference lending on a Single Family Residence rather than a Mobile Home. In fact, its a decline versus an approval in many cases.

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Let’s take a look at pricing adjustments. Once you’ve determined your base rate and LTV. You need to check your adjustments. These are typically additional risk layers a lender is making adjustments for to maintain their own profitability on a loan. It makes sense, that if you want Interest Only that loan is inherently more risky as the balance of the loan doesn’t drop for years. And again, it makes sense that a property that is NOT your primary residence is a more risky loan and at greater risk for default if you have a life event. These adjustments typically are added to rate and sometimes rate and cost.

Non prime lending is filling needs for borrowers who have good cash flow but come tax time tend to show lower results due to deductions and a variety of reasons. Or for people who have had significant credit events. These financing options are great for people trying to get to the next level in their investments by risking a little more in interest rate to have easy to obtain financing. People trying to get out of BK and have equity in today’s environment. People trying to get current on their mortgages after years of modified mortgages and foreclosure fees. These are great options for those that finally were able to get rid of their homes but were ready to buy years ago, only to be stalled with that active zombie foreclosure.

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Debt to Income Ratios are higher, right around 50%, Income Doc requirements are fluid and there are many different ways to document your income. Again the less income documentation you can provide the higher the rate and cost. Stated Income being the most expensive, but available.

Loan Amounts vary greatly. You can get small loans under $100,000 to well over $5 million with some lenders.

This financing is heavily dependent on the property as collateral. This is after all equity lending in reality. The underlying protection in all these loans is that if you or your client defaults, the lender will take the property. And it won’t be some zombie foreclosure. These lenders will act.

These loans are available in most states. Many state and federal limitations apply. These loans are risky and after the collapse in 2008, the market for this product has only recently begun to spike. Lenders are still gun shy from the risky lending days of the past. Although memories are very short.

And these loans are still risky. They should not be taken out without a good plan for repayment. These rates are higher and terms are more onerous than conventional conforming financing. You should ALWAYS make sure you don’t qualify for conforming financing before you consider these non-prime products.

This article was not an advertisement or an offer to lend.

Michael A. Foote, CMB – Certified Mortgage Banker | 30 years experience | Licensed Real Estate Broker #01149645 NMLS 1059372 235435

 

Want to know the secret to getting your Real Estate offer accepted? Lack of Inventory frustrates some potential buyers.

Written by Michael A. Foote, CMB on . Posted in direct lender, Lending, mortgage banker, mortgage broker, mortgage finance, purchase loan, Real Estate

home-value-photo-1I read all day long. Working, researching, learning, creating ideas and developing game plans from that reading.

I’ve come to a conclusion today.

The surest way to get your offer accepted, is to go to the listing agent and have them represent you too. Yes, I know that’s crazy. How can an agent be completely unbiased and neutral while still providing you the protection you need when he is representing the seller too?  The short answer they can.  And what protections are we talking about? Laws, Compliance, Disclosure. A Realtor most likely won’t try to pull the wool over your eyes anymore, as there are VERY punitive actions if they do. And if you read your disclosures and research your property you’ll be fine.

The market is totally digital now.  Aside from actually walking through a property, everything is mostly online.

Realtors spend the VAST majority of time looking for listings. They typically don’t look for Buyers and furthermore don’t prefer to work with Buyers as the time spent with a Buyer is usually substantially higher than working with a Seller. And in a tight market, it is much better to have a listing rather than buyers if your the Realtor. Although they like to have both of course.

So think about it. There are multiple offers on each property. The listing agent has to look at them all and determine which are real, which are well qualified, which are cash and/or financing, which are too low, and which are too high with financing… and more importantly is the offer from HIS/HER Buyer is the mix.  And remember the Listing agent in theory is not allowed to tell other prospective buyers what the other offers are at price and concessions wise.

All offers are required to be presented to the Seller. That is the truth. Are they? Who really knows. Let’s assume all offers are being presented to the seller. If you were the Listing Agent and you have to present all the offers including his/her own, whose offer do you think gets pushed and sold hardest? I mean we are talking almost double the commission in this scenario.

To add on to this further, if you are financing your property? You should try to use the Realtors Lender as well. The Listing Agent knows his/her Lender. They work together, they close deals together, and more importantly they KNOW and BELIEVE what their Loan Officer says about a Buyer. And TRUST that their Lender will make sure the loan closes. And ultimately, the Realtor wants to close the deal and get paid. Realtors and Lenders don’t get paid a hourly rate usually, they are paid 100% commission.

So if you LOVE a property and aren’t being represented by a Realtor already… I highly recommend you contact the listing agent, get pre-qualified by their Loan Officer and submit your offer as soon as possible. I think you’ll be happy you did.  

In my opinion this theory only works for markets that are highly desirable and active with low inventory where multiple offers are the norm.

Michael Foote, CMB

Certified Mortgage Banker

www.MichaelFoote.com

Licensed Real Estate Broker #01149645, NMLS 235435 & 1059372

For the recruiters…

Written by Michael A. Foote, CMB on . Posted in mortgage banker, mortgage broker, mortgage finance

Sooooo… I was asked a few times to comment about what I thought a good company would look like and how I would want to be approached by a recruiter. It’s been said that no one is an easier ‘sell’ than a salesperson. I think that may be true.

1. Be honest. Seems obvious, but if you are a start-up, we all know it. Don’t tell us how amazing it is… We know you have bumps in the road. And that’s OK. I personally LOVE start-ups and the vibe they can create. If you are a industry vet type of company and everyone is leaving because you have a maniac running Ops we know that too. I have UWM AE’s call us all the time… They STILL talk about how great they are now, and how they sucked two ago. Dude you got in the business last week.. I see your profile, you were selling water two months ago.. And NOW you are a wholesale mortgage expert?… Change your title to Wholesale Telemarketer… and let’s be real. Everyone sucked then… compliance was a nightmare, business was brisk, and we were all over our ski’s with trying to keep up.

2. “We have great Marketing” – This doesn’t mean you rent a marketing portal and can generate flyers. IF you have great marketing, real marketing, you’ll be driving leads to your LO’s. And that’s a whole ‘nother thing and at a greatly reduced comp no doubt. You are either CashCall/LoanDepot, or you are self generated. Yes, its nice to be able to create click ad pieces but please if that’s a top 3 selling item for your company, you are in trouble.

3. Know who you are going after. Most people looking to leave NEED the job. Those that you are trying to recruit DON’T. If an LO is crushing it, or even doing moderate business in today’s market. He/She wouldn’t want to leave after some vanilla pitch. Would you? “hey yea, I know its going awesome, but come over here where its exactly the same and you can start all-over and MAYBE recreate the same thing you ALREADY have. Cause transferring a pipeline and all your branding is so fun.

4. Our comp is the highest…. OK you are telling me I can compete with Cash Call and have 250 bps comp… Well now I know you are full of crap…next.

5. We do everything. And we are awesome at it… No you are not, you added FHA last week, which means you just finished test cases and that means you have a FHA U/W that will crush hopes and dreams to keep compare rates in-line. Yes we look at your ratios. Tell me what you REALLY do well and we can talk, but if its 1% financing I am out… I’m in Orange County. And that buyer rarely gets the accepted offer. You see know your target and know your company. We all have bank statement programs now.. that isn’t even really that hot anymore.

6. Online reviews. We look at these. Check your indeed reviews if LO’s are leaving and commenting, we see it, we know why and it is an issue.

7. Culture. This is a big one that recruiters love to tout. And YES it matters. We all want to work with NICE companies who care about the well being of a company and its people. But isn’t that assumed??  And if it wasn’t you wouldn’t tell us, right? The problem for many of us is, we’ve worked in mortgage for years… LOL. So we know that culture can mean ANYTHING good or bad. Culture could mean a supportive proactive consumer approach to pipeline mgmt with lot’s of tech…. Or it could mean a delusional narcissistic CEO with a vision of world domination… Not a bad thing if you are into it… but I’ve had that one already.. no thanks.

In my opinion the Culture pitch should be replaced, We will help you fund more loans, we’ll help you find more of them, and close them smoother PERIOD.. and here is how. Now tell me how you are going to do that, and you have something.

Let’s be frank – we do a simple job and sell one product usually, Mortgages. Originate Loans – let’s not oversell ourselves as the second coming of the messiah.

michaelfoote com

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.

949-584-4600

mfoote@calpropre.com

Apply Today

 

Loan Limit Increase for 2017!

Written by Michael A. Foote, CMB on . Posted in FHA lending, fha mortgage, FHA purchase loan, hud, mortgage banker, mortgage broker, mortgage finance, Mortgage Processing, mortgage regulations

mbaaIn high-cost areas, the FHA national loan limit “ceiling” will increase to $636,150 from $625,500. FHA will also increase its “floor” to $275,665 from $271,050. Additionally, the maximum claim amount for FHA-insured Home Equity Conversion Mortgages (HECMs), or reverse mortgages, will increase to $636,150. This amount is 150 percent of the national conforming limit of $424,100.

Contract Processing Saves Money

Written by Michael A. Foote, CMB on . Posted in Loan Processing, mortgage broker, mortgage finance, Mortgage Processing, NMLS Approved Processing

In today’s tough lending climate, not only is business tough to get, it’s also tough to keep consistent. Some months are better than others and having salary, office space and support for operation employees isn’t always ideal. To handle increases in business and more so slow downs, it makes sense to use contract mortgage processing.

  • Eliminate payroll taxes,
  • Pay for what you close,
  • Eliminate Human Resource Issues
  • Still have access during work hours
  • Take time off when you need
  • Focus on Sales and Marketing
  • Work with Processors who have more experience

The benefits are countless. Check into outsourcing your mortgage processing today.

 

 

Top 5 Steps for a Smooth Mortgage Loan Submission to your Contract Loan Processor

Written by Michael A. Foote, CMB on . Posted in Loan Processing, mortgage banker, mortgage broker, mortgage finance, Mortgage Processing, NMLS Approved Processing, Uncategorized

Hey Everyone,

Here is a quick animated video tutorial that outlines the Top 5 steps to submitting the perfect loan to your processor. Even to your contract loan processor (like California Property Resources).

Please feel free to share and if you’d like to see more videos or have them created for your company, please visit eSimpleSolutions.com they do great digital marketing.

Click the link below to watch the video!
Contract Mortgage Loan Processing

A Little Interest Rate Perspective

Written by Michael A. Foote, CMB on . Posted in interest rates, mortgage finance

I get asked about where rates are going and I usually respond with, “if I knew that, I’d be retired on a beach somewhere”. The reality is no one really knows where rates are going. But one thing is for sure, when rates are near zero there is no place for them to go but up. Here is a link showing the history of the prime rate from 1947 to present. The all time high was 21.50%!! Holy Prime Rate Batman! Can you imagine what it was like to qualify for a mortgage then! http://www.wsjprimerate.us/wall_street_journal_prime_rate_history.htm

Let’s look at what a mortgage payment would be at 21.5% assuming a $300,000 loan amount….Yeah..that’s going to be $5,384.01 per month for 30 years….and of yeah that doesn’t include taxes, insurance, HOA, mortgage insurance.

Luckily we are no where near that today that same scenario at today’s 4.875% give us a payment of $1,587.62, much more manageable I think you’d agree.

But what if rates started to skyrocket? Rates historically can rise as much as 4% in a year, or more.

Are you still holding on to that adjustable? Don’t get caught holding the bag – convert EVERYTHING you have financed to long term fixed debt before it’s too late.