Thursday, November 29, 2007

Mortgage Topic Dominates Local News Coverage

The Detroit News has been filled with bad news after bad news for metro homeowners.

Lax oversight spurs foreclosures - Michigan employs only 12 examiners to monitor 2,800 mortgage companies (six until this year) compared to 42 bank examiners Michigan employs to keep an eye on 136 banks (yet, brokers have complained that HR 3915 puts undue regulations and scrutiny on them). There are an estimated 30,000 loan officers in Michigan, with absolutely no requirement for training, licensing or monitoring. And Michigan is one of 12 states that requires no background check whatsoever. With no licensing of loan officers, the state has little means to monitor mortgage originators, and those who defraud borrowers or lenders are rarely caught.

Mortgage fraud gets attention too late - Laure Berman of the Detroit News talks about the mortgage boom, where everybody was happy, and politicians and law enforcers closed their eyes. As she states, "words like 'regulation' and 'licensing' had become as fashionable as 'taxes' in Michigan, and in that vacuum, opportunities for cons abounded." But now that southeastern Michigan is a haven for foreclosures, fraud, and mortgage irregularities, everybody is looking now (yes, everyone IS looking).

Michigan sixth in October foreclosures - one filing for every 334 households, behind only Nevada, California, Florida, Ohio and Georgia. And in Wayne County, that number is one for every 131 households. Yikes.

Foreclosure forum to be held in Detroit - Michigan Attorney General Mike Cox has set up a forum, to be held Dec. 13 at Cobo Center, that will bring 18 lenders together to field questions and talk about strategies to avoid foreclosure. 30,000 homeowners were chosen (all are at least one to three months behind in their mortgage payments) and will be invited to the forum.

Tuesday, November 27, 2007

Adding A Map Function To Outlook

Live Search Maps for Outlook allows you to view and print maps directly from Outlook. If you use Outlook for your daily scheduling, this add on is incredible convenient and can save you time. After you've added an appointment on your Outlook calendar, click on the location tab (the address carries over from the location bar). In the "start location" box, enter your home address and save it (you won't have to enter it in the future). Select "get directions," and Outlook pulls up directions, a map, and estimated drive time. You can print directly from Outlook (it's an abbreviated map and sometimes a little difficult to read) or choose "Explore this location in Live Search Maps." This immediately jumps you to Live Search Maps, with all the information already added and mapped out. A history of prior addresses is saved in Outlook, so if your route changes or you need to map from one appointment to the next, just use the drop down button to pull up prior entries.

Friday, November 23, 2007

When Bad News Is Good News

PMI insurers have been worried for years as lenders were forgoing PMI insurance by writing 80/20 loans. PMI insurance is typically required by lenders when writing a loan that's within 20% of the appraised value of the home. The insurance protects the lender in case a borrower were to default on the loan. However, over the last few years, more borrowers were taking out a second loan to cover the 20%, thus forgoing the PMI insurance. But with record foreclosures, PMI insurers appear to have caught a huge break. With about 20% of new loans in 2005 & 2006 written as 80/20s, the potential for extensive payouts would have been great. Despite the silver lining, many PMI companies are still reporting year-to-date losses of over 70%. Now that we're back to seeing very few 80/20 loans, PMI companies may be seeing additional revenue. With that, of course, comes additional risks. Can an increase in PMI costs be far behind?

You can read more at Mortgage News Daily.

Tuesday, November 20, 2007

Monday, November 19, 2007

HR 3915 Passes House - Minus YSP Restriction

HR 3915 (input 3915 into search box), a proposal to modify the Truth in Lending Act, was easily passed by the U.S. House of Representatives. Among other things, HR 3915 would require:

Licensing or registration of mortgage originators.

Originators to give consumers a range of products that the consumer can qualify for based on their circumstances.

Originators to make full and timely disclosure to each consumer of costs and benefits of each product.

Originators to disclose the nature of their relationship with the consumer.

A reasonable and good faith determination that the consumer has the ability to repay the loan, taking into account any other loans on the property (In the case of adjustable rate mortgages, future adjustments must be taken into account as well).

Subpime loans to provide a net tangible benefit to the consumer (They must have either a fixed rate for the first 7 years or have a margin less than 3 percent over its index).

No subprime prepayment penalties and three year limits on conventional loans (or 3 months before reset on an adjustable rate loan).

However, one key component of HR 3915, the elimination of the YSP (yield spread), was dropped from the proposal. Eliminating the yield spread, a payment made to brokers for selling an interest rate ABOVE the the rate the consumer actually qualifies for, was a major concern for brokers who made much of their fee from selling loans at a higher rate. Although the National Association of Mortgage Brokers supported the bills passage after the YSP provision was dropped, is this really what's best for consumers? Some brokers insist that YSP has benefits to the consumer, such as using it to help pay closing costs. But does the average consumer understand the yield spread? Do they understand that they qualified for a lower rate than what they're actually getting?

Wednesday, November 14, 2007

Thank You For Your Patronage

Do you say thank you to the people that send you business? With respect to those that think it's inappropriate, I believe that a small token of gratitude for past work (without absolutely any comment or insinuation of any future work) is proper and makes good business sense. Gift cards, as well as handmade or personal items are usually well received. Expensive gifts are improper, tacky, and can easily come off looking like a bribe for future work (can you say "illegal"). I make certain not to ever say anything about the future like "looking forward to working with you in the coming year," or "think of me if you need someone in my area," etc. Also, be aware that many companies have a strict policy about accepting gifts. Make absolutely certain there's no such policy or you'll likely send your favorite scheduler to the unemployment line (and that won't be good for either one of you).

Saturday, November 10, 2007

Could We Have Done It Differently?

I've spent a lot of time reflecting back on the adjustable rate subprime loans I've handled over the years. What responsibility, what role, did signing agents play that brought us to our current situation? Could we have handled our part differently? It's always a fine line that we walk. Show the terms, but don't explain them. Be neutral and independent, but don't bite the hand that pays you. Don't advise, don't convince someone to sign anything they don't want to, but understand that if the borrower doesn't sign or if they rescind, you might not get paid or you might only get a trip fee.

So, if borrowers felt that they were misinformed or didn't understand what they were signing, how could the signing agent have prevented this (and how can we prevent it in the future)? Even though we can't EXPLAIN loan documents, everything a borrower needs to know is right there in three key documents; the settlement statement, the truth in lending form, and the note. In my opinion (and I know that the point and sign notary will disagree), it's not beyond our scope, it's not UPL, to SHOW the borrower their key information. On the note, they should see their interest rate, the first payment due date, when and if the loan becomes adjustable, the index, the margin, the cap, the payment grace period. On the settlement statement, they should be able to see where the mortgage fees are, the title fees, if there's an initial escrow being set up, if there's anything else being paid off, and any money they owe or are getting at closing. On the TIL, you should be able to show them what the monthly payment is without escrow, what estimated payments will be after the initial fixed period expires if applicable, and whether or not the loan may have a prepayment penalty. Also, it helps to understand the difference between an interest rate and an APR. Many loan packages have an additional sheet that explains the A through D boxes on the TIL, including the APR. I always keep a generic one on me if the borrower requires a clarification.

If a borrower SEES everything above, then they've got a solid knowledge of their loan terms. They can walk away feeling comfortable that they understand their loan, and a signing agent can walk away knowing they did their job without explaining, advising, or UPL.

Thursday, November 8, 2007

How To Raise Your Credit Score...Ethically

Yesterday I posted about the piggyback credit scheme, an unethical (but apparently not illegal) way to artificially inflate credit scores. So what are the steps to raising credit scores in a more traditional way? Credit companies are more secretive about their exact scoring formulas than KFC is about their seven herbs and spices. But there are basic steps to improving credit. Fair Issac, who created the FICO score used by lenders, offers these tips:

Pay your bills on time.

Keep balances low on credit cards and other “revolving credit”.

Pay off debt rather than moving it around (pay down revolving credit instead of closing out accounts. Owing the same amount but having fewer open accounts may lower your score).

Don't close unused credit cards as a short-term strategy to raise your score.

Don't open a number of new credit cards that you don't need, just to increase your available credit.

If you have been managing credit for a short time, don't open a lot of new accounts too rapidly. (new accounts will lower your average account age which can adverse affect credit scores).

You can find addition tips on at

You can get a free credit report once a year at

Wednesday, November 7, 2007

Piggyback Credit Schemes

If it's legal, is it still cheating? Lenders continue to be misled by borrowers who use piggyback credit schemes to inflate their credit score. The scam goes like this: Piggyback credit companies pay credit card holders with superior payment histories to open up their account to authorized users. The user has no actual access to the credit card account, but as a listed user, the positive payment history ends up on the users credit history. Piggyback companies claim that this can raise credit scores by 100 to 200 points within 30 to 90 days. What does this mean to lenders? It means that high risk, poor credit consumers receive better rates and loan terms, and lenders are underwriting higher risks then they know. How prevalent is this? It's hard to say. But if it is being widely used by borrowers, it certainly doesn't help an industry already reeling from defaults, foreclosures, and fraud.

The FTC has made no ruling on the legality of these plans, so as of now, there doesn't seem to be an end to the deception. Fair Isaac, the developers of the FICO score most commonly used for mortgage underwriting, has been working on a new scoring model to combat the schemes. However, the new model has yet to be released.