borrower heads up part 2

Lender panels re-cap, Part 2. Part one is further down the page.

Denise Dedrick of M & I Bank, 928.203.4484
Jim Hostler of Lender’s Direct, 928.225.7418
Mark Miskiel of The Lending Company, 928.634.7987
Shelly White-Collier of Northern Arizona Mortgage, 928.634.4251
Shelley Williams of People’s Mortgage, 928.821.0782 (Cell)

Let’s talk about credit, shall we? Our panels sure talked about it a lot, so we will, too.

“Credit is King.” That statement was repeated, well, repeatedly. Our panel members agreed that all of the other components of a loan don’t much matter if the borrowers have a remedial credit score. If it’s under 620 they’re going to have a problem.

Here are some of the very important points that were made about credit:

· It doesn’t matter how golden the Buyers are, it doesn’t matter if they have a credit score of over 800, it doesn’t matter that they have a big down payment, it doesn’t matter that their income to debt ratio is better then perfect – everybody gets put through the wringer. Everybody.
After they’re approved and gotten through the wringer DO NOT LET ANYTHING CHANGE! Advise your clients to wait until after close of escrow to buy the new furniture and washer/dryer. They should absolutely not spend any of the funds that were considered during the process, and they sure shouldn’t run up the credit cards. Bank balances could be checked at the last minute, a final credit check might be pulled. People have been denied because they got all excited and ran out and bought the materials for the new deck and now they’re denied.
Here’s a good one: There have been instances where that final last-minute credit check lowered the buyer’s credit score by the few points that it took to make them suddenly unable to qualify for the loan that they just got approved for. Doh! We can remind the lender to “refresh” the credit report as opposed to re-pulling it – a refresh doesn’t count as a hit.
The Buyer will be required to sign a 4506-T form, which authorizes the lender to get copies of their taxes straight from the IRS. The days are over when a Buyer could present the lender with “copies” of taxes that say exactly what the lender wants to see. After close, taxes may be pulled and re-pulled from the IRS and scrutinized and re-scrutinized. Why? So that the lender can see if maybe the borrower has amended the pack of lies that was actually filed with Uncle Sam in order to qualify for the loan. This happens a lot in the case of a default – the lender is looking for fraud so that they can make the originator buy back the loan.
If the Buyers want to shop around for a loan officer, that’s great. As they talk to Loan people, they should never authorize that their credit be run until they’ve settled on somebody. A bunch of inquiries hitting their credit could be enough to tip them out of an acceptable credit score and “Go buy a house!” into “Forget about it, Bub!”
If a disputed debt comes up on a buyer’s credit report it must be cleared up. “But it isn’t mine! That’s some other guy!” doesn’t cut it. The underwriter will insist that a dispute be cleaned up or removed because they want to know for sure that the Buyer won’t have to pay it, which would change the income-to-debt ratios.
Request that your lender pull a “soft” credit inquiry as opposed to a “hard” inquiry. Soft inquiries don’t impact credit – hard ones do. What’s the difference? I don’t know. That’s what they said – ask the lenders.
The initial credit check can be an alert to a borrower’s creditors, since they do keep track of inquiries. If they see a credit check from a mortgage company they sometime hurry up quick and report or re-report a bad debt that they might have actually given up on a long time ago. They figure that the debt has a good chance of getting paid off if somebody wants to buy a house.

We live in the information age. Encourage your Buyer to be absolutely up front and honest with their lender. If the lender knows about issues in the beginning they can figure out how to structure the deal and how to best advise everybody involved.

Believe that glitches and blips and cover-ups will be discovered. I trust our panel when they tell us that if there is fraud on the loan application or letters of explanation it will be caught, the loan denied and the Buyer possibly prosecuted. It’s just not worth it.

Some good questions came up at both of the meetings.

Q: Will the banks have to adjust their standards in the future to take into account what has happened to so many people lately, credit-wise?
A: They’re going to have to if they want to lend money. This is just common sense, but no concrete plans have been announced.

Q: Have Arizona’s non-recourse laws affected the number of foreclosures?
A: Non-recourse means that on the first mortgage on primary residences, the lender can take back the property in the case of default, but that’s about it – they can’t go after the borrower for any deficiency. Of course non-recourse has affected the thought processes of homeowners who are in trouble or upside-down. They’ve also put a big red flag on Arizona loan files.

Q: Are there really 3.75% 30-year fixed conventional loans available?
A: Yes, but to get that rate the borrower is going to have to pay some points. If they can live with 4% there are no points.

Q: Wow! Who is offering that?
A: We all have pretty much the same products available.
(Note from Carol Anne: I got emails from a lot of lenders who weren’t on the panel, saying that they do 203k rehab loans. Shelley Williams of People’s Mortgage does 203k rehabs, and Denise Dedrick of M&I says that they are getting set up to do them. This was cool because I thought that 203ks had gone the way of the dodo. Some lenders do FHA or Rural Housing or VA and others don’t. Jim Hostler does manufactured home loans and Mark Miskiel is all over USDA. It looks like what one guy won’t touch is the other one’s bread and butter. Ask your favorite lender – if they don’t deal with a program they know who does and they will be generous with that knowledge.)

Q: Are lenders bombarded with homeowners trying to take advantage of the low interest rates by refinancing?
A: No. You have to have equity to refinance and a lot of people don’t have the equity needed.

Q: What about these astonishing interest rates that I see advertised? Like, half a point?
A: That’s probably a “teaser” rate. It might go up after a certain amount of time, or costs are passed on to the borrower up front or it’s a bait-and-switch.

Q: I have an ARM (Adjustable Rate Mortgage) on my house that re-sets at the beginning of the year. When should I re-fi?
A: You might not want to. If it re-sets to 3.5% (which some of them are) your payment will go down.

Q: How hard is it to re-fi if I have enough equity?
A: The process is the same, whether for a new loan or a re-fi.

Q: What motivates you guys? It sounds like it’s as hard to be in the mortgage business as it is to be a REALTOR® right now.
A: We’re motivated by the same things that REALTORS® are - the satisfaction of doing a good job. We take these people personally, the same as REALTORS®. We care about the buyers and want to see them in a home. Denise Dedrick said, “The lenders do take it to heart when a deal falls apart. We work hard from pre-approval to processing to underwriting to closing to make it a smooth process for the REALTOR® and client. To say it stinks when a deal dies is an understatement.”

Q: Who is your favorite type of borrower? (I expected them all to say “Jumbos” but not one of them did.)
A: (in alphabetical order by last name)
· Denise Dedrick of M&I loves the challenge of a “different” loan.
· Jim Hostler of Lender’s Direct loves the self-employed and investors.
· Mark Miskiel of The Lending Company loves the coaching, helping people get ready to borrow.
· Shelly White-Collier of Northern Arizona Mortgage loves working with young couples.
· Shelley Williams of People’s Mortgage loves 1st time home buyers.

Q: What’s the secret? How do you guys get the loans approved after the internet lenders give up?
A: Online doesn’t have the human element. The guy dealing with borrowers that he’s never met just can’t care enough to be like a little terrier (That was Shelly White-Collier who said “We’re like little terriers.”) worrying at the details until it works. Our job is to make the buyers real to the underwriter. These borrowers have to be seen by the underwriter as Tom and Alice and their 2 kids and their dog, not file number such-and-such.

Q: How do you keep a borrower hanging in there while they jump through all of the hoops?
A: Keep reminding them that it will be worth it. Mark Miskiel said it well: “While loans are more difficult, we don’t want to scare off buyers. Prepare them for the increased paperwork and scrutiny but remind them that a buyer today is saving huge amounts of money both in the purchase price and historically low interest rates. Those savings are worth the extra work needed to purchase a home. If you broke it down to the amount of extra hours a buyer has to put into the transaction versus the savings that they’ll put in their pocket, it’s thousands of dollars an hour for the extra work. Not bad!”

Q: Is the market stabilizing?
A: Pretty much. There are still pockets where prices are going down, which forces the appraisers to label Arizona a “declining market.” This freaks out the Far Away lenders and underwriters.

Q: Are loan modifications working?
A: No. 60% of loan mods default, often because the so-called modification has a higher payment than the one that the borrowers couldn’t make in the first place. The result is that more home in the US are now owned by banks than by the public. Yikes!

And on that happy note, I wish y’all a good weekend. Holler if you have any questions!