You could be participating in a violation of Regulation Z – and harming your buyers.

You probably have a favorite mortgage loan provider – someone who communicates well with both you and your clients, solves problems, only makes promises they can keep, and gets the loans closed on time.

I know those are some of the reasons why so many real estate professionals refer their buyers to me. I appreciate their loyalty and support and work hard to live up to their expectations – and to maintain both their reputation and my own by following the terms of Regulation Z.

Regulation Z: Loan Origination compensation and Steering 12 CRF 226 is the Safe Harbors law that requires loan officers to give your clients the best interest rate they qualify for.

Unfortunately, far too many loan providers are still violating this law every day. If your favorite lender is one of them, you could lose your reputation (and future referrals) when your customers learn that they could have gotten lower rates if you had not referred them to an unethical lender. You could also be pulled into a nasty lawsuit.

You’d like to believe that your favorite lender is far too ethical to engage in illegal practices. We all want to trust and believe in the people we like. But are you sure?

If you have a long standing relationship with a lender, and if you advise your buyers to use that lender without checking with any others, it could lead to trouble. When a lender knows that clients you send are not going to be comparing his or her offering with those from any other lender, the temptation to cheat can be powerful.

Here’s how lenders violate the law:

Your good credit buyer qualifies for a rate of 3.87% from “Bank A”, but the mortgage lender puts them in a loan from a “Bank B,” whose best offering is at 4.25%. Why? Because Bank B just happens to offer a higher compensation to mortgage loan officers.

By simply offering the borrower a specific loan product and failing to mention a cheaper alternative, the lender makes more money. This IS against the law, but lenders are continuing to follow the practice, feeling that they won’t get caught.

After all, borrowers and real estate agents don’t have access to the long list of loan products available. How would they know that there’s something better unless they shop with more than one mortgage lender?

This practice goes on every day, and it appears to be especially prevalent within the new home building community.

Have you ever wondered why builders offer extra incentives to buyers – incentives that are ONLY available if the buyers use their onsite mortgage company? The truth is, the buyers who use those onsite companies are often paying dearly for those appliances and upgrades by paying too much for their home loans.

Keep your buyers safe and your reputation intact – tell them about your favorite lender and why you appreciate that lender. But encourage them to shop a little and compare rates before making a decision.

Mike Clover

www.mikeclover.com

Buying a home for the first time can be one of life’s most stressful experiences. There are a multitude of decisions that need to be made and there will almost always be a nagging feeling that something will go wrong. Most of the fear and stress is due to a lack of knowledge and understanding of the process. Knowing what to expect can make the purchase go more smoothly.

Credit

A buyer’s credit rating will go a long way to deciding what mortgage rate they are eligible to receive and after the housing market mess of a few years ago, qualifications have become more stringent. Before applying, make sure to get bank statements, W-2s and tax returns ready.

*Reports – Individuals should review their credit reports to understand where their rating stands and get a good idea on what lenders will be seeing.

*Debt ratio – Lenders will look at the amount of debt a person has compared to their income to decide whether they can afford to add the expense of a home. Ideally, the debt ratio should be no more than 28-30 percent of overall income.

*Adjust – If the credit rating is not ideal or the debt ratio is too high changes should be initiated before going to see a lender.

The search

Finding the right house at the right price is not easy and likely won’t happen on the first try. Be patient and don’t rush into anything.

*Compare – Look at the prices of comparable houses in the area to make sure any house being considered is not overpriced. On the other hand, if a house seems underpriced, that could be a signal that something is wrong.

*Make plans – Look for a house that fits the current situation but also any plans for the future. If children are desired make sure there will be enough room later. Pets may need a large yard in which to play. Also consider nearby amenities, such as shopping, health services and proximity to work.

*Price – Use an online mortgage calculator to determine what price range should be considered. Keep in mind the price of a home is more than just the monthly payment on the mortgage. There will also be insurance costs, which can vary by region, and maintenance expenses that can be unpredictable.

*The offer – Once the perfect home has been found it is time to make an offer. If accepted by the owner, the prospective buyer will then have a period of time to secure the proper financing. During this time an appraisal of the property will be held to make sure the home is structurally sound and not deficient. If changes need to be made, the lender and real estate agent will be guides.

Buying a home for the first time is the realization of a dream for many people but it doesn’t come cheap. By being prepared and knowing what to expect the purchase will be less stressful and more enjoyable.

This post has been contributed by Christina Lloyd, who writes for an education tuition grants website that has advice on sources of financial aid for college students, such as federal student grants. Christina thinks first time home buyers can take some of the stress out of the process by doing proper research and being prepared.

When the housing market crashed, our government began looking wildly around to see who to blame. Rather than examine the government policies that led to the crisis, they focused on all the other people involved in a real estate transaction.

One such group of people was appraisers. The claim was that it was “their fault” because they reported artificially high values in order to please the mortgage lenders and real estate agents who sent them business. Of course that was nonsense, because appraisers use the actual sales prices of comparable homes that have sold recently. If their adjustments were unreasonable, the underwriters would have rejected the appraisals.

But never mind the truth.

The result of this part of the blame game was the Home Valuation Code of Conduct (HVCC). It went into effect on May 1, 2009 and affects any mortgage that will be sold to Fannie Mae or Freddie Mac.

To prevent conflict of interest, mortgage brokers and real estate agents are no longer allowed to choose appraisers – or even talk with the chosen appraiser. A third party chooses the appraiser, and of course, takes a share of the fee.

In their zeal to make sure there were no conflicts of interest, someone decided that the best course of action was to bring in appraisers who didn’t know anyone – and that meant they were unfamiliar with the neighborhoods in which they were appraising.

They had never seen the homes they were using for comps. They didn’t know the neighborhood values or whether a neighborhood was improving or declining. If they had to use different neighborhoods, they didn’t know which were fair comparisons.

In other words, they didn’t know what they were doing. Worse, they were now sharing their fee with the 3^rd party, so they had no desire to take extra time for research.

One result was that appraisers used bank owned homes in their appraisals of non-distressed homes. Since bank owned homes almost always sell below market value (due to condition and other factors) this served to lower the values of all homes in the community.

Just as rising prices and the resultant appraisals drove the market upward, below market bank owned homes have driven the market downward.

The perhaps “Unintended” consequence of this move is that buyers who make market value offers on non-distressed homes are seeing their loans denied because the appraisals came in too far below the agreed upon price.

The second consequence is that sellers who “should” have some equity are now being forced to seek short sales – which delay the selling process even longer.

I’m fond of the phrase “It’s all good.” But in this case, it’s all not good.  But it gets worse.

Now the government is adding yet another layer of bureaucracy with the implementation of the new “UAD” requirements for all Fannie and Freddie loans.

Under these new requirements, appraisers will be required to determine whether a sale was an “arms length transaction” (between 2 unrelated / uninvolved parties) and if it was a short sale, bank-owned, court ordered, estate sale, relocation, or a listing.

Appraisers will have a “uniform” form to fill out and submit prior to submission for loan approval. This will, of course, add some delay and expense to the loan process.

The idea may be good, but the implementation is apt to be yet another disaster for buyers, sellers, real estate agents, mortgage lenders, and – of course – appraisers.

Unless all appraisers are diligent in determining the status of the sale, statistics could become badly skewed. How many underpaid appraisers will take the time to call the agents associated with each of the comps and learn the sales status of those homes? How many will simply guess?

How about we take all the 3^rd parties out of the process and simply require the appraisers to use comps with a similar status – or adjust appropriately? As a safety check, their standard appraisal form could have a space in which to note the name and number of the person who verified the selling status.

How about we let the mortgage underwriters take responsibility for reading the appraisal reports to see that the comps make sense – just like the used to?

Then we could go back to allowing lenders to choose appraisers who are familiar with their cities, and go back to paying the appraisers their full fee.

Author: Mike Clover

www.mikeclover.com

The recent struggles in the housing market have added fire to the traditional debate on whether it is better to own a home or rent. Each have their own advantages and which is the best option for a person can depend on a variety of factors. In general, though, the benefits of owning a home tend to outweigh those of renting.

Renting

While the overall advantages do lean toward owning a home rather than renting, the latter might be preferable for some situations. It can be an especially attractive option for young, mobile people for a variety of reasons.

*Low maintenance costs – Someone else is responsible for making repairs, mowing the lawn if there is one and keeping the unit well maintained… you do not need to look for tips for choosing the right color for your roof in Austin and stuff like that, all settled and done for you already.

*Flexibility – If a new job opportunity comes up it is easier to move from a rental. A security deposit may be lost if the lease is broken, but the renter does not have to worry about finding someone else to live in the apartment before they can leave.

A major strike against renting is the fact the money is paid to someone else and no value is built up on the property for the renter. If someone lives in an apartment for many years, they essentially pay tens of thousands of dollars to someone else and receive very little benefit.

Owning

There are many advantages to owning a home, especially for someone who has a family and plans on living in the same area for an extended period of time.

*Equity – As payments are made on the home, it builds equity, which increases the wealth of the owner. Building equity allows some owners to retire more easily, pay for home improvements or even pay for a child’s college education.

*Stable payments – Though mortgage payments may fluctuate from time to time due to increases or decreases in property taxes, they will be mostly stable as long as the loan is based on a fixed rate. On the other hand, rent can be changed at the whim of the landlord with little or no say given to the renter.

*Tax breaks – Interest paid on mortgage and property taxes can be deducted from federal income taxes, providing some savings.

*Security – A home provides a place that is safe and secure for a family. In addition, any changes a homeowner wants to make they can do so without having to ask anybody else. This includes renovations, additions or landscaping.

*Sense of belonging – Many homeowners become more involved in their neighborhood or community than do renters. Having a sense of community often leads to people working together to improve schools and reduce crime.

Owning a home offers a variety of benefits over renting, some which can be measured and some that can’t. It can increase the owner’s wealth and give them a sense they are in charge of their life rather than someone else. While most people dream of owning their own home, few dream of renting their entire life.

Guest author Katherine Watkins writes for a website that provides tips on obtaining a home equity loan and offers an online house loan calculator to help homeowners calculate how much they could borrow against their property.

Getting a mortgage in 2011 or the upcoming 2012 year is not that difficult. I hear concerns all the time in regards to how difficult it is to get a loan in the current market. There are three changes that affect buyers currently. The changes are appraisals, down payment requirements and credit score requirements.

Appraisals

With the new Home Evaluation Code of Conduct (HVCC) laws, the appraisal process can be a challenge at times. This law requires all appraisers go through a centralized appraisal management company to get their orders without realtor or lender correspondence. The main issue we see with this ordeal is that these management companies send out an appraiser that is in a hurry and does not get value because he is in rush to get the next deal done. But in most cases we get value if the value is there.

Down Payment

The most popular loan is FHA which only requires 3.5% down payment of the sales price. 3.5% down is not that much money, if you save for it. FHA also allows you to get gift money from a blood relative for down payment. Conventional now requires 5% down payment. VA is still 100% financing and so is USDA loans. So in a nutshell there are only a few loans that are still 100% financing. The rest of the loan products out there require down payment.

Credit Score Requirements

The current market for mortgage loans is what dictates credit score requirements amongst banks. Even though FHA, VA, and some of the other government backed loans have lesser score requirement, there are always lender overlays. Currently you will find that most banks, brokers, credit unions, etc…. will require a minimum middle fico score of 640. There are banks that claim they will provide loans down to a 620, but keep in mind the underwriting requirements to get a credit score that low done typically disqualify most.

Conclusion……..getting a loan requires a minimum of a 640 middle credit score, 3.5% down and an appraisal to satisfy sales price of the home. If you think about this scenario, its really not much to ask to get a home mortgage.

If you have any questions feel free to call me…… or e-mail me. I will be glad to answer any question you have about buying a home in Texas.

Mike Clover

Mortgage Banker

www.mikeclover.com

When getting a mortgage don’t be fooled that you will get a better deal with a big bank. The fees and rates typically are higher with a big banks. Also some of the big banks charge application fees. For example Chase Bank currently charges a $400 application fee to get the ball rolling. These application fees vary between some of the big bankers.

The service with big banks typically are below par. I hear currently with some of the big banks it could take 45 to 60 days to close a loan. With small local bankers you can typically get your loan closed within 30 days or less.

You may be asking why is this so? Well one of the main issues with the big banks is the turn over they have. The big banks don’t pay their loan officers big commissions and there is too much red tape to get a loan closed. You can go to a small banker and get the loan closed with less red tape and in most cases get a better deal. Another reason is the big banks put their loan officers on salary plus commission so they are not as motivated to get the deal closed. Most small bankers/brokers are 100% commission and they need to the deal to close smoothly so they can continue to get referrals to make a living.

I personally have seen friends leave the small broker/bankers shops to go to big banks only to return later because they had issues getting loans closed. In some cases the banks got some deals done that small banks could not get done, because that borrower had money with that bank. But in most cases the guidelines are the same for all bankers….

If you are getting ready to buy in the great state of Texas give us a call or apply at www.mikeclover.com

Author: Mike Clover

When you are looking for a mortgage its always a good practice to shop a couple lenders. Just like any other business banks are in business to make money. You would be surprised what some lenders will try to get away with in fees to make extra money. Typically the two fees that are really negotiable are the rates and the origination fee.

A loan officer can make anywhere between 1% to 5% on the loan amount. These fees will include origination and yield spread on the rate that is being offered. Yields spread is commission that is paid by the funder for the rate being sold to the consumer. Typically a good deal is paying no more than 1% on the rate to the banker.

Here are the typical lender fees….. Keep in mind the processing and admin fee are negotiable as well.

1. Admin or undwriting fee usually between $500 – $900

2. Processing free usually between $100 – $600

3. Credit Report fee $20

4. Appraisal free $400

5. Tax Cert $19.00

6. Flood Cert $19.00

After talking to a couple of lenders make sure  you get a initials fee worksheet that itemizes the fees and also get the(TIL) Truth-in-Lending statement. The TIL will disclose APR which will determine your true total cost of fees involved with the loan.

Another suggestion is to stay away from big banks. They typically have more red tape to get loans done, and high turnover……..

Good luck

Mike Clover

www.mikeclover.com

Currently rates are extremely low due the Fed moving part of their portfolio to long-term treasury securities. This move is also known as “The Twist” a tactic that was used by the feds in the 60’s to spur lower rates on money borrowed.  Rates were already extremely low, but this move caused rates last Thursday to drop to 3.75% on 30yr Conventional instant loans. The rates as of 9/28/11 increased back to 4.0% in spite of the move by the feds. With rates as low as they are makes affording a home very possible. This is especially the case when rental rates across the country are extremely high currently. The demand for rentals out weigh the supply currently which ultimately drives up rental costs and favors landlords.

I lived in a apartment and rental home when I was in my early 20’s. I am now 38 and cannot imagine having to pay some else s mortgage. I currently have 3 kids, mother-in-law, and my wife living in our home that we bought in 2005. My wife and I have been home owners since we were 26. Obviously most would agree that they would rather own than rent.

If you have at least a 640 credit score and 3.5% down payment, you can get a home in today’s market as long as you qualify. Its not as hard as the media portrays. The main difference now compared to a few years back is you need down payment unless you qualify for a USDA loan or a VA loan which both loans are 100% financing.

Nether less its a piece of mind owning your own home. Its the dream of all Americans. Don’t let the current negative media prevent you from taking advantage of these low rates and having your stake in the American Dream of home ownership.

If you are buying in Texas, apply with us @ www.mikeclover.com.