First, to make an offer to purchase a property, the listing agent (or homeowner if it’s a FSBO) will likely want a pre-approval letter. In order for the loan officer to write the letter, he or she must have all of the borrower’s information.  And believe it or not, the information needs to be correct. What?

So really the first step is for the borrower to give the loan officer all of the relevant personal information (name, address, employment, income, credit history, etc.) and then for the loan officer to verify this information by reviewing the actual documents (paystubs, W-2s, asset statements, etc.).  Then, and most importantly, the borrower and loan officer should review all of this information as it now appears on the application.

The industry has moved away from personal consultations and reviews.  And this has caused borrowers to unintentionally misrepresent information that is critical for loan program availability and which could, down the road, cause an issue for underwriting. The information has to be correct before a loan officer can confirm mortgage program availability, and the program availability will determine the kind of preapproval that the loan officer can write.

 In the end:  without accurate application and credit information, that preapproval really doesn’t mean that much now, does it?

He seems to be upset because banks/lenders are using systems to offer higher rates to current, valued clients. Hmmm….. At first glance I would agree and be upset. Yes, you want to give your best customers your best products and rates.

He then goes on to suggest that people who are going to need a mortgage should assume that the lender is trying to “screw” them and shop “hard.”

I am not clear what he means by shopping hard, but I think I have a sense.  Talk to as many people as you can, use one lender’s rate against the others, and have them negotiate. Hmmm….

I have always felt that it is perfectly fine to talk with a few lenders. Only if you feel completely comfortable and confident that they are professional, ethical loan officers. If the answer is yes, then you should be getting the “best offer” upfront.  And let’s remember how tight the mortgage programs have become, and interest rate is really one of the last items to worry about.

Here in Chicago we hit 60 degrees this weekend. I noticed everyone out and about, walking dogs, walking kids, wearing shorts, etc.  So I guess spring is here.

Then I noticed the trees.  Still all bare.  Not any sign of buds yet.  It was as if the buds were still afraid to pop out for fear that we’d get another blustery snowstorm. I don’t blame them.  I am nervous about that too.

But that got me thinking about my industry.  Though it seems that more people are out looking at properties, my sense is everyone is still nervous. From talking to new clients as well as real estate agents, most people have heard about the mortgage industry situation, and even after having been fully pre-approved, they still don’t feel anxiety-free.  They know about the month-to-month (or, even more accurate, day-to-day) program changes, and so they have to be wondering, “I am fully pre-approved today.  But what about in 30 days when I find a property?”  Good question.

My suggestions:

1. Be sure to work with a reputable and knowledgeable loan officer.
2. If you call a loan officer, and he/she doesn’t call back, you can be sure that you won’t get a call back when programs change.
3. Be proactive and ask your loan officer a lot of questions. Like: “How will I know if the program for which you are preapproving me will be around?” and see how they respond.
4. Does your loan officer explain the state of the industry or just say everything is great, please sign here?

It’s important to feel safe and secure.  Though no one can guarantee every loan, the conventional programs should be solid.  If you are going to do any out-of-the-box loan, be careful.  It could be very very cold out there still.

We were discussing the hot topic of the day, month, and year:  the state of the mortgage industry. We eventually got around to the various ways to fix the problems. We all know that the government would get involved, for better or worse. Here in Illinois, for example, the state government passed Public Act 095-0691, and the federal government has passed the Stimulus bill which includes sections about mortgage reform as well as mortgage “fixes.”

The Illinois law would effectively either slow the mortgage process (for someone buying a home) or even possibly stop loans.  Those (in the government) who would be reviewing a loan application would not be consciously or intentionally stop the loan, but the review and time to get the review done might (and this is the key word:  might) cause 1. sellers to find another buyer, or 2. discourage good buyers from moving forward. And thus everyone loses: buyer and seller, seller and buyer realtors, attorneys, loan officers, the city, the state…..

So…what is the point of these laws?  There are many, and it’s complicated. So the realtor and I came to this point and he said, “Well, isn’t it (the law) for us to pause?”

Hmm…let me take a second to think about this………..

The one positive outcome of all the reforms, bills, and laws, for now and just before the borrower signs the application documents, is to take a moment, pause, and think. Is this the right loan program? Will this leave me financially stable and in a position to pay my bills? If something happens for the worse, am I ok?

Hmm…some things to think about?  Thanks Zeke.

Today I was having a conversation with a colleague in my industry and we were talking about the personal choices that people make. Specifically, we were talking about running a mortgage bank, why some banks fail and some thrive, especially in the current environment. He explained his perspective that some people make (what he calls) intelligent decisions which are more what’s-in-it-for-me-now and may be great for the short-term but doomed to fail concerning long-term relationships and the growth and stability of the company. On the other hand, there are those who make wise decisions that not only try to accomplish the goals for the present but also (and more important) look toward the future for long-term relationship-building, trust, and mutual benefits.

I like this. Intelligence versus wisdom. And I thought about everyone who is thinking about buying a home and starting the mortgage process and my colleague’s ideas work well.  Those buyers who are only focusing on rate, trying to get the best “deal” right now (intelligence) are always at risk for issues not only down the road but even only just a little piece down the road–as in a few days before closing.

Choose a loan officer wisely.  A loan officer will certainly help with your loan for right now, but a great one will take into account and assist with your long-term goals and dreams and stability.

What do you think? Intelligent or wise?

Thanks Jim.

Not too long ago our mortgage world as we knew it also changed. Everyone thought that anyone could get a loan.  No reason to meet with a loan officer.  “I can get a loan.  No problem,” was the attitude. And for the most part people were right.  Then the epidemic hit and the world changed.

Many lending institutions have gone out of business and many are barely hanging on.  Many borrowers have lost their homes.  Some are hanging on. Currently, the real estate market is tough, and many programs that once existed have either been eliminated or have been revised considerably. Real estate agents do not know who to trust. Are the pre-approval letters worth the paper that they are written on?  Developers are eager, if not, in some cases, desperate to move units.  Many loan officers have had to look for jobs, and some just do not have the kinds of programs that they need for many of the same kinds of client loans that they had in the past.

And so, to end my little series, here are my thoughts:

1. Be very, very careful and deliberate in deciding whom you will work with: realtor, loan officer, attorney, etc.
2. Do some research and ask a lot of questions.
3. Use common sense about the programs that are offered.
4. Make sure you understand everything.
5. Before signing any documents, have everything in writing.

We are all responsible.  This epidemic may get worse.  But it will get better.  Still, you, a homebuyer who controls your own destiny, can still get caught up in a bad situation.

Control your destiny. Don’t be controlled by others.

The room, as I call it, is the place where you, the borrower of a loan, and the loan officer, the person who is assisting you in getting the loan, meet. By place I should almost say space, but really, it is how you meet the loan officer. It could be via email, via phone, or in person. It is this place/space where the loan process begins, and this is the area that no one–none of the so-called experts–really can tell how things are going. Except for the loan officer and the borrower(s).

In continuing my series on our current foreclosure epidemic that started with my Introduction, I think this is probably the most important step in staying out of foreclosure.

Tony Gallegos has a recent post (quoted from another source) that explains how Abe Lincoln would know his opponent’s arguments and case so well that he himself would, in effect, take all the wind out of the opponent’s sails and win. Because he knew their case better than they knew their case. In an odd way, this is relevant to my point. As borrower’s ‘meeting’ with a loan officer, in many cases a stranger, you should think about the loan officer’s agenda. Yes, the loan officer has to make a living, yet the best loan officers never convey the sense that they are meeting you only to make a profit. Hopefully, though, when you walk into that strange space (internet, phone, or actual room), you will get a very strong sense that the loan officer wants to help you, make you feel comfortable, and assist you in making the best decisions. Though you are nervous and excited and probably feeling eight to ten other emotions, I think it is important to pay attention to the loan officer.  What is he saying? How is she saying it? Are there options? Why? Why not?

So here is my main point–and it is going to sound really crazy: don’t just think of yourself. By this I mean pay attention.

The road to foreclosure starts right now. We, the people who are trying to understand and explain and help others not go down this path, forget that we really don’t know what happens in these rooms. Does the loan officer explain an ARM and how it works and how it could hurt you? Does the loan officer give options? Does the loan officer review the Good Faith Estimate, and, if the borrower signs it, does the loan officer sign as well? Does the loan officer review the credit report, the essential documents for underwriting, and/or the different types of documentation (verify income and assets and employment…or not)?

Most important, when you walk in the room, do you feel like you are being treated as a human being or manipulated like a robot?  And this is what no expert can measure in explaining how the foreclosure mess started.

I am not Abe Lincoln (for sure), but I do like to understand my clients, and most good, reputable loan officers will do the same. Prepare yourself before you step into the room.

This post follows the Introduction and Part 1 about our foreclosure problems.

It’s no secret that, today, more than ever, Americans want things.  Big things. Lots and lots of things.  Expensive things.  Nothing wrong with that. The one ‘thing’ that we all want, that is not always stated out loud yet is clearly the loudest voice inside us, is our desire to be happy.  And this is where the dream can become nightmare.

We are told that the American dream is to own a home. Home:  a word that has many connotations. Here’s the Wikipedia definition:  A home is a place where a person or family lives, perhaps spends much of their time, or where a person is comfortable being. The cloud of foreclosure oven moves in when people follow their dreams, often unrealistic, instead of pursuing the process with a practical, planned, and informed approach.

Where a person is comfortable being. I find this phrase so appropriate.  Do we buy a home because that is what we are supposed to do (like everyone else)? And buy a home a touch bigger than our best friend, just for bragging rights? Or do we in fact buy the appropriate home where we can live comfortably and without stress to make that monthly payment? 

This is a great question to ask yourself when starting to think about buying a home: Am I buying a home because I want a place for me (and my family) to be happy and live a comfortable life, or am I buying a home because everyone tells me I can and everyone on television and in the movies has these fabulous, huge houses and I want to be like them and live a life like them (even though I may not be able to afford it)?

My wife often humorously complains that she can never remember her dreams (after waking up in the morning).  “I know I had this dream, and I remember laughing in the dream,” she might say, “but I can’t remember anything else.” Unfortunately, as we have been seeing, many people followed their dream and will only remember the loss and pain that comes with a foreclosed property.  As I always suggest: budget and meet with a caring loan officer.  A great start to fulfilling your homebuying dream that will end up being a comfortable and happy part of your life.

The Sopranos final episode had no ‘da dum’.  At least not the way most people wanted. No clean tied-up ends, no resolutions, but a lot of wondering.  Many people want that feeling of coming home, having resolution, knowing how things are going to turn out and be ok.

For homebuyers it’s the same way. And it’s real life. (Of course that is part of the point with The Sopranos’ ending:  just like real life.) And I think getting a mortgage can be scarier than anything from The Sopranos.  We do things thinking and hoping that everything will be just fine. And when we think and hope, as we are finding out more and more, we head down the foreclosure road.

Here are a few critical stages where hoping that things will turn out ok and financing can go bad:

1. Budgeting:  not writing a realistic budget and thinking that something close (a number close to the maximum that you want to spend) will do just fine.  Decide on a budget, the most you want to spend on your total mortgage payment, and stay with it.

2. Application:  the loan officer verbally gives you numbers and says, “Don’t worry about it.” Get everything in writing. Make sure you understand everything. 

3. Programs:  programs that seem risky, for you, probably are risky.  If you don’t feel comfortable with programs that are being presented, do not do them.  Be assured with your decisions.

I actually loved the ending of The Sopranos.  Of course, that’s TV (sorry, HBO…..).

This article demonstrates how ridiculous the fingerpointing has become regarding the subprime and foreclosure chaos.

There is plenty of blame to go around: banks (lenders) who offer crazy, high-risk programs and are then surprised that borrowers cannot make their mortgage payments, loan officers who do not advise their clients properly regarding the best program options, and borrowers who do not consider the longer-term ramifications of the program selection regarding their monthly budget.

I am finding how important flexibility is in golf. Turning a finger at oneself requires flexibility as well as a great deal of honesty.