How Did We Get Here?

Thanks to Rebecca Fair for posting this on Notary Rotary - The Washington Times reviews the circumstances behind this year's housing bust and talks about how lenders have responded.

What Ever Happened To The Vantage Credit Score?

Last year, credit companies were touting a new credit scoring system that was in the works. The VantageScore was supposed to simplify credit scores. The system was based on an easier to understand scoring model.

901-990 = A
801-900 = B
701-800 = C
601-700 = D
501-600 = F

So, what happened? I've yet to see these scores on any credit report and I've heard nothing about the VantageScore this year. Is it still in the works? Or was it more hype than the Y2K panic? Fair Isaac has introduced a new scoring model for 2008, but the scoring system will still range from 300 - 850.

Does The Detroit Free Press Read The Detroit Notary Blog?

Two weeks ago I introduced a new feature on my site called Driving Metro Detroit, a picture diary of the best and worst of the Metro Detroit area. Yesterday, the front page of the Detroit Free Press revealed an exciting new 5-part series entitled.......drum roll please........Driving Detroit (subtitled: It's worse than you think - but better, too). The series will feature the best and worst of Detroit. Hey, great idea! Doesn't somebody owe me some royalties or something? A free subscription? A tour of the facilities? Anything?

Random Conversations From This Week

Yield Spread - This week, I overheard a loan officer talking to a borrower about yield spread. He explained to the borrower that if he qualified for a 6.5% interest rate, he could get him a rate an eighth of a percent higher, it would make his payments $5 to $10 more, but he could use the difference to cover the closing costs. Wow. That's the first time I've ever heard an originator take the time to explain a YSP to a borrower and use it for the benefit of the borrower and not as a way to increase their commission on a loan. Maybe there's hope for our industry yet.

Identifying a borrower - Did I say there may be hope for us? Twice this month, I called borrowers to confirm an appointment and make sure they had proper i.d. only to have them tell me that their i.d.s expired several months, even years ago. And both borrowers refused to go to the Secretary of State before the scheduled appointment to get it renewed. Interestingly, this particular mortgage company requires their originators to obtain a copy of the i.d. and social security card up front. So both appointments had to be postponed. Now, how did it even get to this? Someone does their job properly at the start, this never happens. But the mortgage brokers aren't upset with themselves for not following or ignoring their own required procedure. Nope, it's the notary that takes the hit. Have we really learned nothing this past year? It's probably just a slow week for the title company that handles this lender, but I can't help but sort of wonder how a company that usually sends me five or six signings a week sent me none last week. Is it because they'd rather deal with someone who doesn't bother with the little things like making sure the proper person is signing? I hope not. It's too bad that we as signing agents still have to worry that doing things right, protecting the lender, the title company, and preventing fraud, can possibly cost us a regular client.

Backdating - I guess I'm not the only one. A signing agent colleague was recently asked to backdate a document from a company that he works with regularly. Of course he refused, but his immediate thought was, "there goes that business." Thankfully it did not cost him his relationship with this client, but the fact that we still worry about it shows the industry has a long way to go. Integrity sometimes comes with a cost.

Mortgage Crisis Takes Its Toll On Families

For all the talk of the mortgage crisis and the financial burden that have hit so many families, here's one thing I haven't heard mentioned until now: The toll it has taken on family relationships. In addition to an increase in homeless families, divorces and reports of abuse are increasing as the pressure takes its toll.

See the MSN article

Lions & Tigers & Spiders?

I love pets. Some signing agents hate being disturbed by pets at an appointment, but I think they add life to a home. I love hearing the sound of a dog bark when I ring the doorbell. Oh boy, a friend to play with! I keep hand sanitizer and a hair roller in my car, so I don't mind the mess. During signings I've had dogs on my lap, cats on the table sitting on the loan docs, and birds on my shoulder. But yesterday was a first. One of my borrower's had a lizard and a tarantula. And both came out to play (one at a time, since the tarantula would have made a meal out of the lizard). The lizard was amusing; he could leap all the way up my arm in one or two hops. And he changed colors as he got warmer. But the tarantula, that was really a unique experience. It's hard to describe the feeling of this thing creeping around my hand and up my arm. And who knew tarantulas were affectionate? He found a warm spot on my hand and curled up in my palm like he was going to take a nap.

Sometimes one workday can just blend into the next. But yesterday was one of those days I'll remember.

Feds Cut Fund Rate - Again

For the third time in three months, the Federal Reserve cut the federal funds rate. The rate was cut by a quarter point to 4.25%. The Feds also reduced its discount rate by a quarter-point as well to 4.75 percent. The discount rate is the interest the Feds charge to make direct loans to banks.

White House To Reveal Mortgage Plan

Under the plan led by Treasury Secretary Henry Paulson, interest rates would be frozen for five years on certain subprime loans. Only borrowers who are up to date with their payments can qualify. The plan allows borrowers and lenders more time to refinance or modify their loans.

New Blog Features

As I've crisscross my way through the Metro Detroit area for my daily loan signings, I've always found the contrast to be fascinating. I've seen some beautiful areas and neighborhoods like Milford, Northville, Ann Arbor, Bloomfield Hills, Royal Oak, my own hometown of Plymouth (one of the top 50 places in the U.S. to live), and yes, Detroit (especially downtown). I've also seen the worst of what Metro Detroit has to offer. Dilapidated homes, industrial areas, neighborhoods that look like ghost towns, etc. With my digital camera in hand, I've decided to share all of that with you. Pretty or not so pretty. So at the top of the sidebar I've added a photo diary. Sorry, pictures of my borrowers not allowed.

At the bottom of the sidebar, I've added links to mortgage and real estate industry related blogs that I think are relevant and interesting reads. Some like Source of Title, Radical Talk, and Title-Opoly you may already be reading or familiar with. The Truth About Mortgage is not only an interesting read, but it might be the most visually pleasant mortgage blog there is, using vivid pictures to help illustrate points. Also, their left sidebar contains a wealth of information and tips. Two others I've added, Lenderama and Bloodhound Blog, are unique in that they have numerous contributors from across the industry. You really get a perspective from several points of view.

Enjoy.

Fitch Ratings Forecast

I finally got the opportunity to read over the recent Fitch Ratings report on the U.S. Title Industry. Fitch Ratings is an agency that provides independent reports and credit opinions regarding the world's credit markets.

Here's the bad news: The title and mortgage industry are both expected to see further declines in 2008. The MBAA (Mortgage Bankers Association of America) expects to see mortgage originations fall by about 20% in 2008, with housing starts estimated to decline by 15%. Home values are predicted to continue their decline as well.

Here's the good news: Fitch continues to give the title insurance industry a stable rating. Taking into account the cyclical nature of the industry, Fitch believes the industry is well positioned to weather current market conditions. The one exception? First American Corporation and its subsidiaries, downgraded to negative from stable due to poor relative performance.

The full report can be download here.


ADD ON TO POST 12/04/07: Fitch has also released a special report entitled:
The Impact of Poor Underwriting Practices and Fraud in Subprime RMBS Performance.

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.

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.

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.

Have Fun Reading

Top 100 Real Estate Blogs spanning the industry (with a nod to Diane Cipa who posted this on her site yesterday).

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?

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).

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.

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 myfico.com.

You can get a free credit report once a year at annualcreditreport.com.

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.

Feds Lower Short Term Rate

Press Release
Release Date: October 31, 2007
For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/2 percent. Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time. Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; LeBron James, Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Jared Goldapper, Eric S. Rosengren; and Kevin M. Warsh. Voting against was Thomas M. Hoenig, who preferred no change in the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 5 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Richmond, Atlanta, Chicago, St. Louis, and San Francisco.

MSN Money Article