Federal Reserve MBS buyback program ends today - may be time to lock

Just wanted to give all the readers a heads up - the Federal Reserve's mortgage-backed securities purchase program ends today.  This means that there will be less liquidity in this market leading to lower bond prices and higher yields.  Many analysts foresee interest rates trending upward from here.  If you are in a position to lock a loan, it may be a good day to lock it, at least relative to where rates may be going.  No one has a crystal ball, but I would err on the "better safe than sorry" side.

Make it a great day.

There's a fine line...

If you watch someone who is really good at what they do - a great pianist or guitarist, a fantastic athlete, or a surgeon (I know, you usually don't get to watch surgeons) - they usually make it look very easy. Sometimes these things look so easy, we think we can do the same kind of thing without much effort until we try it ourselves and see how difficult it really is. This is when you have a very healthy respect for the talent they have.

The same can be true in business. I'll be the first to tell you that doing mortgages today is much more difficult than it was pre-July 2007. However, I don't have very many problems with most mortgages that I do and when I do have a challenge I am usually able to find the solution, if there is one (some people just can't qualify without major credit repair, or a JOB). The problem is that there is a fine line between wanting your clients to understand that it's going to be tough to get their mortgage done (you want them to get the idea that they need YOU on the job for them because NO ONE else can get it done) and letting them think that it will be a smooth transaction - if they think their case is easy enough then they may think that they don't need an expert and they may be tempted to go somewhere else, perhaps to someone who is quoting ridiculously low rates that aren't real.

Conversely, if they perceive that their file has challenges that you may not be able to overcome, they may panic and start calling around to other loan officers who may, with minimal information, lure the business by saying that it should be no problem, thereby putting their mind at ease. Crystal clear communication is very important to help clients understand the true challenges that are unique to their case that must be overcome while instilling confidence that success will be the ultimate result.

Don't Assume: We all know what happens when we assume. I always tell my partner that "stupid" costs. I haven't come across a situation where someone's stupidity hasn't cost me money - usually it's not mine (thankfully). When assumptions are made about a potential client especially to the extent that the loan officer decides not to take an application, stupidity is reigning. I'll illustrate this with a true story. A Realtor that I work with called to refer a client to me that needs to close very quickly. A couple of large lenders dropped the ball and the listing agent had persuaded the buyer's agent to try his lender. She called and the that lender was very negative toward the buyer's agent because of an on the credit report for which she already had a letter correcting the error. The buyer's agent immediately called me and asked me if I would be willing to give it a try and the credit was O.K. (no need for the letter) and we got an approval. We have the file moved to the front of the line to try to close it on time and we won that business and hope to earn more of the listing agent's business.

The buyer's agent commented to me that she didn't think that the listing agent's lender cared much about him if he wasn't willing to step up and do everything he could do to help close that transaction. He is basically cherry picking the easy deals. We all like low hanging fruit, but we need to support our partners and do what we can for our potential clients. What do you think about all of this? I'd love to know your thoughts. Please post a comment.

Who you know or what you know, which is more important?

Those of us who are in sales need to develop relationships with our customers and / or our referral partners in order to earn business and develop loyalty. In situations when I have been the consumer, I have turned to people who were experts on the product I was buying and then rewarded that expert by buying from them. People who take the time to educate themselves on the products they sale can then offer a better buying experience to the consumer and I believe that should be rewarded.

My pet peeve are the sales people who get business simply because of who they know. Admittedly I am jealous of the business they get, but I also can't help but feel sorry for their clients who don't really get very good service. This wouldn't be such a big deal if we were just talking about toilet paper, but we are talking about buying and financing real estate and using the wrong people can ultimately cost thousands of dollars. Even if the consumer gets lucky and doesn't pay any more, I believe the consumer deserves a competent professional who can provide the expertise they deserve.

I know of three top producing loan officers who each close 15 transactions or more per month and I know either from first hand knowledge of because I know people who worked for them that these loan officers don't really know the business that well. In fact, I have heard that these loan officers don't fill out their loan applications and they don't understand the basics of a loan, let alone advanced mortgage planning strategies. The only reason they get so much business is because of their relationships. Good for them that they have developed them, but it seems like such a disservice to the client that a Realtor or builder would refer a client to a loan officer that doesn't really know the business and, therefore, can't offer the best service.

In my opinion, customers deserve to deal with professionals that can explain all aspects of the transaction to them and any choices they may have. Continuing education, formal or informal, should be the norm, not the exception. We should expect excellence and honesty from everyone in all of our dealings and when the occasion occurs that we fall short, we should accept the responsibility and make it right. Don't get me wrong, relationships are important and having a good relationship with a processor and underwriter can help get things done more quickly. However, we shouldn't rely solely on our relationships; it is a disservice to the customer. We need to provide excellence. What do you think? Please share your thoughts and comments for all to see.

Problems with the new GFE

In my previous post, I talked about some issues with the new GFE. I didn't tell you that I almost had to eat $100 for an appraisal shortage in addition the the $97.50 that I ate for the transfer tax. Initially we were trying to do this loan as a conventional loan since the LTV was (considerably) under 80%. However, on 12/12/2009, FNMA capped the DTI at 45% so this borrower could no longer qualify for conventional financing. When I changed the loan program in my loan origination software to an FHA loan along with changing the closing cost scenario, the new cost for the more expensive FHA appraisal was not changed, for some reason. So even though the actual cost of an FHA appraisal is $450 (at least in southern Nevada), I was going to have to pay the difference between the quote of a conventional appraisal ($350) and the $450 FHA appraisal except that we were within the 10% tolerance of that section of fees.

Painting the Picture:

In theory, the new GFE was supposed to make things simpler for the borrower. In actuality, we went from a single page GFE that disclosed costs as well as credits and gave a bottom-line figure that was accurate if the loan officer did his job properly to a three page GFE that doesn't account for credits thereby not providing the client with a bottom-line number. Additionally, the new GFE has no signature line which means the loan officer can gloss over this form in favor of the other forms that now go with the new GFE such as the old GFE, now called the "Initial Fees Worksheet" - also no signature line - and the "Itemization of Amount Financed" which does have a signature line but does not show any credits.

In all, the situation is far more confusing and because of the tolerance standards and the need to quote worst-case scenario, the borrower doesn't necessarily get a more accurate figure and since the credits (if the seller or lender is paying any of the costs) do not show on the new GFE, the borrower doesn't get a true picture of what they will need to bring in at the close of escrow.

My guess is that if our lawmakers did consult with people in the industry (I'm guessing they did), it was people who haven't been on the front lines working with the forms and borrowers for a while. I'm thinking about starting a petition to change the new GFE to something that actually serves the borrowers and our industry in a way that works for everyone. Let me know your thoughts and experiences with the new GFE by commenting below. Do you think it needs a change? We'd love to hear your thoughts.

The New 2010 GFE - Good intentions? Maybe. Good execution? No way.

How many people love the new Good Faith Estimate? Don't raise your hand, we can't see them. Comment below and share your thoughts and experiences regarding the new GFE; let us know who you are - Realtor, loan officer, borrower, concerned citizen, etc. As for me, I can't stand it and think that the implementation of it is a great argument for term limits for our lawmakers. Here are a few of my initial thoughts based on my 16 years of experience in the business as well as my first-hand experience with the new GFE. First of all, I have always known what my fees are and the only time they have changed is 1) if the rates changed and the borrower's rate wasn't locked, or 2) if the borrower wanted to changed the structure of the deal such as buying the rate down or minimizing closing costs. Hence, as far as my fees were concerned, they were never an "estimate." The fees that I didn't have control over were what I was estimating. I say this because the lawmakers on capitol hill had the wisdom to make a "No Tolerance" policy as to the variation of the lender's fees. The problem is that they couldn't even get that right. For instance, if my GFE shows a no point (higher rate) deal and the borrower decides that he would like to buy the rate down, I can not go back and charge a point to give him a lower rate. Stupid I know, but everyone I have spoken with concurs that this is how the law was written.

In essence, loan officers are forced to quote a worst-case (highest fee) scenario or risk curing (paying) the shortage out of their own pocket. Case in point: I just closed a loan for a lady who I have been working with since about May of 2009 (yep, about 10 months). The loan was $69,000 on a $128,000 purchase. Over the 10 months or so, I worked up a number of scenarios with different purchase prices. Unfortunately for me, I forgot to change the Transfer Tax to the appropriate amount for the final purchase price and underestimated it by $97.50. Even though it is customary in southern Nevada for the seller to pay the Transfer Tax and even though I get no commission or benefit from it, and even though it is a tax that would be paid regardless of what lender she used, I had to cure the shortage. THIS MAKES ABSOLUTELY NO SENSE TO ME.

The credit crisis and the subsequent housing market free-fall did not happen because of underquoted transfer taxes (as well as similar items). The debacle occurred because too many loan officers were selling the option ARM and didn't understand how it worked. It occurred because banks and lenders were offering 100% financing on investment property homes for people with 620 FICO scores on stated income loans or 100% financing on owner-occupied homes for people with 560 FICOs. Of course there was lots of loan fraud that exacerbated the problem.

Here's what I think: most of the loan officers that caused the problems are no longer in the business - they were in the business for the easy money which is GONE. We need a reasonable GFE that is SIMPLE and provides the borrower with a good approximation of his costs. See my next post for the more specific problems with the GFE. Don't forget to leave your comment.