Ask Anything About Mortgages
 

Public service announcement... most Brokers are crooks... most loans that sound to good to be true... ARE

Re: Ask Anything About Mortgages
 

What are your credentials to start this thread?

If you are qualified to answer, how does the mortgage broker make money in a "no cost refinance"?

Re: Ask Anything About Mortgages
 

JCoool,

When you're late on payments, interest?

Re: Ask Anything About Mortgages
 

I own a mortgage company

Re: Ask Anything About Mortgages
 

[ QUOTE ]
What are your credentials to start this thread?

If you are qualified to answer, how does the mortgage broker make money in a "no cost refinance"?

[/ QUOTE ]

7 years top producing loan consultant.

A bunch of worthless financial licenses (realestate license, series 7, CFP)

Mortgage brokers make money on "no-cost" loans by bumping your interest rate (on fixed mortgages) or your margin (on adjustable rate mortgages) to cover costs and pad their pockets.

NOTE: Brokers that work through wholesale departments with major lenders (B of A, Wells, WAMU)... do get some type of rebate from the lender directly... but 99% of files submitted have a pretty deep "pad" that is the cost of the total loan being passed onto the borrower.

Re: Ask Anything About Mortgages
 

What sucks most about selling mortgages?

Re: Ask Anything About Mortgages
 

[ QUOTE ]
What sucks most about selling mortgages?

[/ QUOTE ]

The innane humdrum coupled with invoking of ennui the job seems to set forth.

I was a broker for sometime.

Re: Ask Anything About Mortgages
 

[ QUOTE ]
I own a mortgage company

[/ QUOTE ]\

I'm guessing Montreal (canada?) has much greater consumer protection clauses for mortgage borrowers up there...

for some reason, it's harder to certify a new toothpaste in America than it is to get a Broker license and deal with peoples financial well being.

Re: Ask Anything About Mortgages
 

Can you explain a balloon Mortgage to me? My broker lied to us (BIG SURPRISE0 and said we weren't in one until the closing attorney brought it up. Too late for is, as we had sold our house the previous day. Wht is the best way out of one? Thanks

Re: Ask Anything About Mortgages
 

[ QUOTE ]
What sucks most about selling mortgages?

[/ QUOTE ]

The competition... i'm all about free markets and capitalism... but it's gotten to easy (at least in CA) to become a loan broker. We are talking about people with NO financial backgrounds selling million dollar loan packages.

The CA market (especially SoCal) is flooded with upstart brokers that are doing anything and everything to stay afloat. Including shaddy business practices.

I'm a very honest loan officer and I'm straight up with my customers... that leads to several lost/cancelled deals. Most of these customers come back to me a month or two later after they finally realize that they were sold on a loan or cost structure that was just plain false.

I can't tell you how many customers I've sat with that blindly sign the paperwork because they feel ignorant, and they just trusted the broker. Meanwhile, when you actually read over the paper-work, they are paying a higher rate and cost structure than what I was originally offering.

People fall for it all the time... they think the grass is always greener on the other side... and they think somehow, someway, they found the deal of the century.

It's really bad right now with everyone offering 1% start rates.

Re: Ask Anything About Mortgages
 

People who are on the edge financially and get Adjustable Rate Mortgages are idiots aren't they?

People who refinance so they can get more money to spend on other things are idiots aren't they?

If I were to inherit enough money to pay off my mortgage and have total piece-of-mind, should I do that or invest elsewhere?

Why does it take 100+ signatures to close on a house? My hand hurt after that ordeal.

BB

Re: Ask Anything About Mortgages
 

How far into a loan life should I look to refinance? I just bought a house with an 80/20, and would like to refi to get rid of the 20% loan (which of course is at a higher rate). Do I need to wait 5 years, or is it something that could be done in 2 years or so?

Re: Ask Anything About Mortgages
 

- Small loan (~$135K)
- High rate (7.75, don't ask)
- The plan is to sell the house next year, but no earlier than the spring, as we will be making some repairs/upgrades

Recommendations for refinancing in the meantime? Grin and bear it?

Re: Ask Anything About Mortgages
 

[ QUOTE ]
Can you explain a balloon Mortgage to me? My broker lied to us (BIG SURPRISE0 and said we weren't in one until the closing attorney brought it up. Too late for is, as we had sold our house the previous day. Wht is the best way out of one? Thanks

[/ QUOTE ]


Basically, a balloon mortgage is a mortgage where you are paying either interest only or sometimes LESS than the monthly interest due.

All this means is that at some point (1 year, 5 years, or even 30 years)... you are going to have to "catch-up".

Now, some loans consider "catching-up" just a matter of paying all the interest due... or, in some extreme cases, paying off the whole loan.

2 examples I can think of...

Scenario 1: (more common)

You have a negative ammortization loan (meaning your monthly payment of lets say $1,200 doesn't even cover your total monthly interest due of $1,400)...

That means that every month you are tacking on $200 to your mortgage balance. The loan will have a provision where-as you either have to payoff that deferred interest all at once (usually yearly or every 5 years) -OR- at the 5 year mark your payments will start to increase dramatically ... the bank basically gave you 5 years of low payments but now they want you to start paying down that deferred interest AND pricinipal.

Scenario 2: (a true Balloon payment)

You paid either a negative payment, interest only, or principal an interest (per loan terms)... and at the end of a particular time (5 years, 10 yrs, or 30 years)... you owe the WHOLE balance of you loan. Usually, unless you have several hundred grand laying around, this means you need to refinance.


I'm guessing since you are selling the house, you probably just found out about deferred interest that you owe... i.e the balance of your mortgage is more than the day you got it... does this sound about right?

Re: Ask Anything About Mortgages
 

BB,

Are you still handing out no doc stated income ARMs like candy or have your loan buyers started cracking down on that sort of thing?

J

Re: Ask Anything About Mortgages
 

[ QUOTE ]
- Small loan (~$135K)
- High rate (7.75, don't ask)
- The plan is to sell the house next year, but no earlier than the spring, as we will be making some repairs/upgrades

Recommendations for refinancing in the meantime? Grin and bear it?

[/ QUOTE ]

Grin and bear it... one thing people don't factor in enough is closing costs.

The lowest you are going to find is $1500 - $2500 in costs (or the equivalent added to your rate)...

You will not make these costs up in one years time.

The normal break even point for closing cost / paying points for a lower rate is about 30 months.

Re: Ask Anything About Mortgages
 

[ QUOTE ]
BB,

Are you still handing out no doc stated income ARMs like candy or have your loan buyers started cracking down on that sort of thing?

J

[/ QUOTE ]

Guidelines have tightened a bit... luckily I work for a pretty conservative lender that didn't go to crazy. However, the OTS and SEC are starting to get involved.

Countrywide... per the WSJ and my own info... is the one that is going to be hurting the most.

Their portfolio section of loans are a little shaky and have a national leading average of 4% lates / defaults. That's HUGE. They have already closed down / investigated several of the top producing offices in SoCAL.

I'll answer all questions when I get back from lunch... keep posting.. I'll be back in an hour.

Re: Ask Anything About Mortgages
 

Hey,

Could you go through some of these questions?

(1) What strategy would you take to find the best deal on a mortgage possible?

(2) What specific b.s. fees should we look for to avoid?

Basically, if you needed a mortgage to buy a first-time home, where would you go that would cost you the least money overall, or what would you do to accomplish this?

Re: Ask Anything About Mortgages
 

[ QUOTE ]
[ QUOTE ]
Can you explain a balloon Mortgage to me? My broker lied to us (BIG SURPRISE0 and said we weren't in one until the closing attorney brought it up. Too late for is, as we had sold our house the previous day. Wht is the best way out of one? Thanks

[/ QUOTE ]


Basically, a balloon mortgage is a mortgage where you are paying either interest only or sometimes LESS than the monthly interest due.

All this means is that at some point (1 year, 5 years, or even 30 years)... you are going to have to "catch-up".

Now, some loans consider "catching-up" just a matter of paying all the interest due... or, in some extreme cases, paying off the whole loan.

2 examples I can think of...

Scenario 1: (more common)

You have a negative ammortization loan (meaning your monthly payment of lets say $1,200 doesn't even cover your total monthly interest due of $1,400)...

That means that every month you are tacking on $200 to your mortgage balance. The loan will have a provision where-as you either have to payoff that deferred interest all at once (usually yearly or every 5 years) -OR- at the 5 year mark your payments will start to increase dramatically ... the bank basically gave you 5 years of low payments but now they want you to start paying down that deferred interest AND pricinipal.

Scenario 2: (a true Balloon payment)

You paid either a negative payment, interest only, or principal an interest (per loan terms)... and at the end of a particular time (5 years, 10 yrs, or 30 years)... you owe the WHOLE balance of you loan. Usually, unless you have several hundred grand laying around, this means you need to refinance.


I'm guessing since you are selling the house, you probably just found out about deferred interest that you owe... i.e the balance of your mortgage is more than the day you got it... does this sound about right?

[/ QUOTE ]


No, we sold a townhouse. Nothing wrong on that. Its when we bought our new home. We have an 80/20 loan. The balllon is on the "20" loan, and we were told that it was a fixed rate loan. Well, at closing the attorney said that the "20" loan was a balloon.

Re: Ask Anything About Mortgages
 

WAP,

You should:

1. Immediately refinance, rolling all costs into the new loan amount.
2. Have it appraised at a higher value than what you paid and take the difference in cost.
3. Ask the broker about 3 year ARMs and interest only options cause you can just refi again when it goes up in value.

Holla,

J

Re: Ask Anything About Mortgages
 

I'm 23, make about $100k (real job - not poker). I bought a property a year ago for $89,000 and have it just about paid off. It's worth around $140k now. When I have it paid off, will the bank pretty much give me whatever I want?

Re: Ask Anything About Mortgages
 

Is it true brokers just give out as many loans as possible and then resell them to FM to cover the risk? Isn't this just free money for brokers?

Also in my experience & from knowing some brokers CountryWide seems incredibly shady. Are they actually financially at risk when people start defaulting, or is all their risk already passed on? (eg. if I think the housing market is going to tank, can I short CountryWide?)

Re: Ask Anything About Mortgages
 

[ QUOTE ]
Is it true brokers just give out as many loans as possible and then resell them to FM to cover the risk? Isn't this just free money for brokers?

Also in my experience & from knowing some brokers CountryWide seems incredibly shady. Are they actually financially at risk when people start defaulting, or is all their risk already passed on? (eg. if I think the housing market is going to tank, can I short CountryWide?)

[/ QUOTE ]

Countrywide is one of the biggest players in mortgage securitizations. I don't what percent of their originated mortages they keep on balance sheet to term, but I would guess not very many. The guys in Calabasas who run their ABS business are all ex-Lehman and ex-Bear Stears and very sharp.

Re: Ask Anything About Mortgages
 

BB,

This is potentially a great thread. What are some common sleazy, borderline illegal sales tactics used by brokers? What are your commission structures?

Re: Ask Anything About Mortgages
 

[ QUOTE ]
Hey,

Could you go through some of these questions?

(1) What strategy would you take to find the best deal on a mortgage possible?

(2) What specific b.s. fees should we look for to avoid?

Basically, if you needed a mortgage to buy a first-time home, where would you go that would cost you the least money overall, or what would you do to accomplish this?

[/ QUOTE ]


Mortgages... even the more advanced interest only ones... are so generic now... any of the 4 big lenders (B of A, Wells, WAMU, and Countrywide) are going to give you similar terms.

However, my experience is that the fees that B of A and Citicorp charge are a little high; and Countrywide carries a 3 year pre-payment penalty on almost all loans that is substantial (I tell customers to avoid prepayment penalties over 1 year at all costs).

The BS fees I would look to avoid are "points" in general. Points are sometimes referred to as rebate fees, broker fees, points, or buy-downs. Basically, all you are doing is padding the brokers pocket or paying the bank for the right to have a lower interest rate... neither of these are usually a good option.

For first time home buyers, especially those with limited to no money down. Wells Fargo has the best programs.

Re: Ask Anything About Mortgages
 

[ QUOTE ]



No, we sold a townhouse. Nothing wrong on that. Its when we bought our new home. We have an 80/20 loan. The balllon is on the "20" loan, and we were told that it was a fixed rate loan. Well, at closing the attorney said that the "20" loan was a balloon.

[/ QUOTE ]

Basically your 20% loan may have a "fixed" payment (but that doesn't mean it is fully amortorized). So, based on the monthly amount you are paying... you will never payoff the balance. Therefor, since the bank wants their money eventually; you will have a balloon payment at the end of 5,10, or 20 years where you either need to refinance the remaining balance or pay it off in cash.

Re: Ask Anything About Mortgages
 

[ QUOTE ]
I'm 23, make about $100k (real job - not poker). I bought a property a year ago for $89,000 and have it just about paid off. It's worth around $140k now. When I have it paid off, will the bank pretty much give me whatever I want?

[/ QUOTE ]

yeah... assuming the rest of your credit is good... buying and paying down/off a property will boost your credit rating substantially.

Sometimes lenders are hesitant to help out new borrowers, but since you have shown the ability to repay a mortgage... you should be able to finance anything you want.

Re: Ask Anything About Mortgages
 

[ QUOTE ]
Public service announcement... most Brokers are crooks... most loans that sound to good to be true... ARE

[/ QUOTE ]

Heh, I just took a job as a loan officer partly because I'm sick of just playing poker. My friend spends most of his day at the office playing poker, anyway. He does pretty well for himself but he seems to have an awful lot of free time at the office.

Re: Ask Anything About Mortgages
 

[ QUOTE ]
Is it true brokers just give out as many loans as possible and then resell them to FM to cover the risk? Isn't this just free money for brokers?

Also in my experience & from knowing some brokers CountryWide seems incredibly shady. Are they actually financially at risk when people start defaulting, or is all their risk already passed on? (eg. if I think the housing market is going to tank, can I short CountryWide?)

[/ QUOTE ]


Brokers are there to shot-gun out as many loans as possible.

Theoretically, brokers are suppose to be regulated by underwriters, and eventually the state, but very little of this regulation is actaully taking place.

Example:

Joe Blow broker takes a loan and packages it, orders an appraisal, opens escrow, and forwards the deal to Countrywide. The countrywide underwriter is the one that is suppose to do the due diligence and evaluate the risk of that loan for their company's stock holders (countrywide in this case).

Unfortunately, in the race to be MORE competitive in the mortgage industry, those underwriting guidelines and restrictions have been chopped in half and have become WAY to lax.

Countrywide was the leader in making their guidelines more open... On one-side of the coin it was great because it opened the market to a lot of honest hard working people who had a hard time getting into a property. So home ownership in America is much more easilier to come by.

However, the pendjulem has swung to far the other way and defaults are on the rise. Plus, with these lax guidelines... mortgage fraud is through the roof. Basically, credit has been extended to many borrowers that can't afford anything but the lowest start/teaser rates.

The problem is that Brokers are rarely held accountable. They have the perfect alibi due to the fact that all their files are reviewed by an independant underwriter who is suppose to have their company's best interest in mind.

On stated income files for example... how do you prove that the broker is the one who actually lied to get the file approved vs. the customer had just lied to the broker... it's a serious catch 22.

Re: Ask Anything About Mortgages
 

[ QUOTE ]

Countrywide is one of the biggest players in mortgage securitizations. I don't what percent of their originated mortages they keep on balance sheet to term, but I would guess not very many. The guys in Calabasas who run their ABS business are all ex-Lehman and ex-Bear Stears and very sharp.

[/ QUOTE ]

The problem with Countrywide is that they have not secruitized enough of their loans. In their attempt to be more competitive they have taken on a greater number of high risk portfolio loans.

Add an increase in mortgage fraud... and your portfolio of portfolio loans can wipe out a company's entire profit.

Re: Ask Anything About Mortgages
 

[ QUOTE ]
BB,

This is potentially a great thread. What are some common sleazy, borderline illegal sales tactics used by brokers? What are your commission structures?

[/ QUOTE ]

The biggest thing I see is the addition of prepayment penalties. For example, Countrywide, B of A, and WAMU used to have a 1 year prepayment penalty on their Option-ARM-negative-ammortization loans. This is still the standard if you go through the bank directly.

However, if you get the SAME exact loan through a broker (then he is going to turn around and sell it back to the bank)... 90% of these loans are coming in with 3 year perpayment penalties.

The broker gets paid substantially more from the bank if he can "sell" the customer on a longer prepayment. It does absolutely nothing for the customer. Now if the customer wants to refinance or sell... they have to pay thousands of dollars to get out of their loan.

The problem is, this 3 year prepayment rider is usually one of the last of 60-70 pages of documentation a borrower has to sign at closing (it's neatly hidden behind the deed of trust notary page and a small footnote on the "truth-in-lending" statement).

Most customers don't even know they have this penalty until a year or two later when they want to refi for a lower rate or go to sell the house.

Re: Ask Anything About Mortgages
 

[ QUOTE ]
Basically, all you are doing is padding the brokers pocket or paying the bank for the right to have a lower interest rate... neither of these are usually a good option.


[/ QUOTE ]

Isn't there a breakeven point for paying points for a lower interest rate?

I payed some pointage for a lower interest rate and I'm pretty sure the breakeven was somewhere around 3-4 years. After that I'm savin' money.

Re: Ask Anything About Mortgages
 

[ QUOTE ]


Isn't there a breakeven point for paying points for a lower interest rate?

I payed some pointage for a lower interest rate and I'm pretty sure the breakeven was somewhere around 3-4 years. After that I'm savin' money.

[/ QUOTE ]

Yes, there is definately a break even point but there are a few things to consider.

Like you said, the break even point is normally between 3-4 years. New data shows the average american keeps their house between 7-10 years, and their mortgage between 5.5-7 years (check your local Board of realtors for local numbers)... so most american only benefit for a couple years at best.

Furthermore... I'll bet you $100 you didn't pay those points with cash out of your pocket. Chances are you did what the most of us do and used cash-out of the refinance to pay those points. Think about it... now you are paying interest on the money you borrowerd from the bank to pay the bank points to get a lower interest rate... it's the greatest scam ever.

-AND- if you are one of the smart ones who paid the closing cost and points out of you pockets... don't you think the money you paid on points could have netted you better rate of return as an investment??? Especially considering mortgage interest is one of the few things you can still write off.

Re: Ask Anything About Mortgages
 

I'll be looking into buying a condo in about 18 months. At present, I have 0 credit history except for a lot of student loans. I just had my dad put my name on one of his CCs, so that might help a little. In 18 months, I'll have a very well-paying job, and will be looking to buy a place for between 100k and 150k. Questions:
-How much of a down payment should I make? I might be able to put up as much as 40k or more, if it's advisable, but I would prefer to put as much of that as possible towards paying off my student loans.
-What interest rate am I likely to get and what will my ballpark monthly payment be?
-Is there anything I can do now to make any of these things better?

TIA.

Re: Ask Anything About Mortgages
 

I actually paid the points/closing costs with cash from sale of existing home.

This was about 16 months ago, and we overbought on our second home. Timing on that was crap for the housing market, but ok for the mortgage market.

Considering mortgage rates were are near-historical lows, Unless the bottom falls out I really don't see a refi in the near future. I'm happy with 5 3/8.

Had I not bought the point, I'd probably end up with 2 big screens instead of one :P

Re: Ask Anything About Mortgages
 

[ QUOTE ]
3. Ask the broker about 3 year ARMs and interest only options cause you can just refi again when it goes up in value.


[/ QUOTE ]

now is probably the worst time over the last several years to get into a 3/1 hybrid arm. because of the shape of the yield curve it is likely that you would get the same or even lower rate on a 5/1, and only barely higher on a 30yr fixed (probably lower on a 15yr fixed, though that would have a higher monthly payment because of faster amortization schedule). if rates are equivalent, it is always better to get a longer term on the fixed rate leg. because during the fixed leg you own an option to refinance. if you can get the same rate on a 5/1 as on a 3/1 you are getting 2yrs of option for free. easy choice.

Re: Ask Anything About Mortgages
 

[ QUOTE ]
I'll be looking into buying a condo in about 18 months. At present, I have 0 credit history except for a lot of student loans. I just had my dad put my name on one of his CCs, so that might help a little. In 18 months, I'll have a very well-paying job, and will be looking to buy a place for between 100k and 150k. Questions:
-How much of a down payment should I make? I might be able to put up as much as 40k or more, if it's advisable, but I would prefer to put as much of that as possible towards paying off my student loans.
-What interest rate am I likely to get and what will my ballpark monthly payment be?
-Is there anything I can do now to make any of these things better?

TIA.

[/ QUOTE ]

3-immediate steps:

1) Check your credit report (equifax.com is the best). Pull a "merged" report (all 3 credit agencies) with the "score-power" option. Don't focus so much on the score (we will get to that) just ensure their are no lates. Keep an eye out for something stupid like that DirectTV bill you forgot to pay, a $20 gas card payment that got sent in late, or cell phone bill that some fraudulent bastard got in your name.

Dispute any late payment quickly and frequently.

2) You can do 100% financing through most banks (no money down)... but you will get the most advantagous rates if you put at least 10% down. In this case you will have an 80% first mortgage, and a 10% second mortgage to bridge the gap of not having 20% down.

3) Any money you are going to use for the down payment (10% of the purchase price), closing costs (about $3,000), and reserves required by the bank (about $6,000 in your case) you need to have in a bank account with your name on it for about 4 months prior to applying for the loan.

This should boost your credit score as much as possible. Another thing that will help (since you have 18 months) is to go to your local credit union and take out a personal loan for $1,000.00 and pay it back in 12 monthly payment. Even if you need a co-signer... let the credit union know you are doing this to build your credit and eventually go with them for your home purchase, they will definately help you out.

On a purchase price of $150K... that means you'll need about $24,000 to commit to the purchase.

The remainder of your $40K in saving should go as follows

1) Payoff every credit card your name is on 60 days prior to applying for the loan.

2) Payoff as much as you can afford on your student loans.

3) Put the rest in savings to help pay for your first couple year taxes and HOA fees.

Assuming a $150K purchase price you would be looking at at $120,000 1st mortgage and a $15,000 2nd mortgage.

If you wanted to pay interest only on each loan, you'd be looking at around 6.50% on the first and 8.50% on the second ($650 a month on the first, $110 a month on the 2nd). If you wanted to do a fixed rate mortgage... the rates would be about the same ($758.48 on the first $130.00 per month on the second)

Re: Ask Anything About Mortgages
 

[ QUOTE ]
I actually paid the points/closing costs with cash from sale of existing home.

[/ QUOTE ]

Smart move

[ QUOTE ]
Considering mortgage rates were are near-historical lows, Unless the bottom falls out I really don't see a refi in the near future. I'm happy with 5 3/8.



[/ QUOTE ]

You're definately not going to find anything better... as long as you're with this property for the long haul... it looks like you did very well to pay the points (a rare exception by the way [img]/images/graemlins/laugh.gif[/img]

Re: Ask Anything About Mortgages
 

[ QUOTE ]
People who are on the edge financially and get Adjustable Rate Mortgages are idiots aren't they?

People who refinance so they can get more money to spend on other things are idiots aren't they?

If I were to inherit enough money to pay off my mortgage and have total piece-of-mind, should I do that or invest elsewhere?

Why does it take 100+ signatures to close on a house? My hand hurt after that ordeal.

BB

[/ QUOTE ]


If you have the money... payoff the mortgage... i would for sure.

100 signatures = 1,000,000,000,000,000 lawsuites the bank has had to fend off.

Re: Ask Anything About Mortgages
 

[ QUOTE ]


2) You can do 100% financing through most banks (no money down)... but you will get the most advantagous rates if you put at least 10% down. In this case you will have an 80% first mortgage, and a 10% second mortgage to bridge the gap of not having 20% down.

The remainder of your $40K in saving should go as follows

1) Payoff every credit card your name is on 60 days prior to applying for the loan.

2) Payoff as much as you can afford on your student loans.

3) Put the rest in savings to help pay for your first couple year taxes and HOA fees.

Assuming a $150K purchase price you would be looking at at $120,000 1st mortgage and a $15,000 2nd mortgage.

If you wanted to pay interest only on each loan, you'd be looking at around 6.50% on the first and 8.50% on the second ($650 a month on the first, $110 a month on the 2nd). If you wanted to do a fixed rate mortgage... the rates would be about the same ($758.48 on the first $130.00 per month on the second)

[/ QUOTE ]

Why not put 20% down to avoid the extra financing cost of the bridge loan/or pmi and possibly get him a lower rate? If his student loans are <3% like mine why would he want to pay that off early?