We were recently quoted in the Arizona Republic on the state of the real estate market in Arizona.  Click here to see that article.     

            The article provides that Scottsdale existing home sales jumped 36 percent in the fist half of 2010.  Likewise, we are beginning to see lenders offering more aggressive products.  For a conventional loan, the minimum down payment is now 5%.  Also, lenders will allow 20% down on loans up to $2 million.  These 2 products have come back into the market in the last year.  Hopefully, this means that lenders are starting to feel a little better about risk and are willing to lend.  In order to qualify for these loans, you would have to meet the elements of the ACID^sm test, written about in one of our previous blog articles. 

            We hope we are at the beginning of a period where lenders are offering more products to borrowers to meet their financing needs.  We stay on top of the various products offered in the market.  Contact us and we can see if you will be able to qualify for one of today’s products.  

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

WHY IS IT IMPORTANT? 

By John R. Rapasky

            In every residential loan transaction, the Truth-In-Lending disclosure form contains the Annual Percentage Rate (known as APR).  Often, this rate is different than the interest rate on the loan.  I often get asked why this is, and what is the real rate on my loan?  This blog article explains APR, and why it is important to you in evaluating a loan. 

            The APR discloses the cost of credit.  The APR is calculated by taking into consideration the finance costs of the loan, and disclosing those costs in terms of the interest rate.  The APR is usually different than the note rate on the loan. 

            Often, on a 30-year fixed mortgage, the APR is higher than the note rate.  This is due to the costs of the loan.  Typical costs that affect the APR are underwriting, processing, origination, discount, escrow, and prepaid interest.  Be careful, a simple comparison of APRs will not tell you what product has the lowest rate and costs.  There are other costs to the loan transaction that do not impact the APR, such as appraisal fee, credit report fee, title insurance, and recording fees.  Thus, a review of the APR by itself may not give you the lowest rate and costs on a loan. 

            On adjustable rate mortgages, the APR could be misleading.  For example, if the loan is a 5/1 ARM, the rate is fixed for 5 years, and is then adjustable for the remaining 25 years of the loan.  The rate during the 25-year adjustment period is based on an index, such as the one-year treasury index or the one-year LIBOR, plus a margin.  The index can vary from year to year, but the margin is the same for the remaining 25 years.  If the rate during the adjustment period is less than the note rate, the APR will likely be lower than the note rate.  Therefore, a review of the APR on adjustable rate mortgages may be misleading when determining the lowest rate and costs on a loan. 

            In sum, APR can be helpful when comparing the rate and costs of various loan programs.  However, it is only one factor to consider when evaluating a loan.  Feel free to contact us if you have any questions regarding APR and selecting your loan.   

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

By John R. Rapasky

            With all of the changes in the lending industry, I thought I would write a blog on why you would want to work with a Counsel Mortgage broker.  When I looked for a mortgage loan the first time I purchased a home, I did not know there were a variety of different options to get a mortgage loan.  I went to a mortgage broker, and since then have obtained all of my loans through a mortgage broker.  In this blog article, I will discuss the different options available to get a home loan, and why you would want to work with a Counsel Mortgage broker.  As you can see from our website, the professional experience of the loan originators at Counsel Mortgage is unmatched in the industry. 

MORTGAGE BROKERS

            Mortgage brokers provide consumers with a choice.  Brokers have relationships with many lenders and are aware of their rates and products.  The broker is able to obtain mortgage products and rates for you at wholesale, which typically result in lower rates and costs.  If not for mortgage brokers, you would be left with going to different banks yourself, selecting from typically higher retail rates and costs, and trying to determine on your own which bank’s rates, costs, and products are best for you.  A mortgage broker does this work for you. 

Further, beginning July 1, 2010, Arizona loan originators who work for mortgage brokers must be licensed in order to originate your mortgage loan.  The requirements for licensure can be found in our blog on loan originator licensing by clicking on this category in the right hand column. 

LOAN OFFICERS WITH A BANK

            Many people like to go to their bank for a loan and work with a loan officer.  However, the products and rates at a bank are limited to only those offered by that bank.  The rates are at retail, which are usually higher than wholesale.  Furthermore, loan officers who work at a bank do not have to be licensed.  Thus, by going directly to a bank, you have limited options and work with an unlicensed loan officer. 

MORTGAGE BANKERS

            Another option is to work with a mortgage banker.  Mortgage bankers typically have a relationship with a bank, and may also be able to broker loans.  They market themselves as offering the convenience of a bank with on-site underwriting and funding for a quick close, plus the ability to broker outside of the mortgage bank to another lender.  Nevertheless, in many instances, mortgage bankers work with their bank, rather than brokering the loan.  One of the main reasons why this occurs is because bankers do not have to disclose their commission if the loan is sent to their bank. 

Mortgage bankers sell their loans into the secondary market like every other entity.  Thus, they will likely need to meet similar documentation requirements that would be required by a mortgage broker or loan officer.  We, at Counsel Mortgage, actually have close relationships with lenders and underwriters and can underwrite or fund loans quickly, and in some instances more quickly, than a mortgage banker or bank.  Furthermore, we do not have any ties to a bank and therefore are not compelled to send loans to one bank.    

BROKERS MUST DISCLOSE COMMISSIONS, BANKERS DO NOT

The only loan originator that has to disclose their commission is the mortgage broker.  Loan officers at a bank and mortgage bankers do not have to disclose their commissions for non-brokered loans.  But, mortgage brokers, like every other entity in a real estate transaction, i.e. real estate agents, title companies, appraisers, etc., must disclose their commission.  In fact, many mortgage brokers have recently become mortgage banks for the simple fact that they do not have to disclose their commission.  You will know what the loan originators at Counsel Mortgage make on every transaction as we disclose our commissions. 

WORK WITH A COUNSEL MORTGAGE BROKER

            As described above, mortgage brokers provide choices for their customers to help them find those products that suit them.  They must broker the loan, and do not have the option of keeping it in house to avoid disclosure of their commission.  Further, they must search the market for the best product for their customers in order to be competitive.  Counsel Mortgage originators work hard at customer service and educate our customers about the process to keep them informed of the transaction.  You can see the experiences of some of our customers in the testimonials section of our website. 

            We look forward to the opportunity to work with you and to show you how we care about you and your loan.  Please contact us and we will be happy to help you. 

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

By John R. Rapasky

            All loans today require full documentation.  The most common question I am asked is what documents are needed to apply for a loan.  The following is a list of documents that are typically needed to apply for a residential loan.  Each scenario is different, and there are probably documents that would not apply to you in this list.  Alternatively, there may be items that do apply to you that are not in this list.  Contact us and we will be happy to make sure you have the correct documentation to get your loan approved!

           1.  Copy of front and back of drivers license

           2.  Copy of social security card

           3.  Last two years W-2s

           4.  Last two years tax returns, all pages

           5.  Last two paystubs

           6.  Last two months bank statements, all pages

           7. Last two months brokerage account statements, retirement and non-retirement, all pages

           8.  Copies of leases for rental properties

           9.  Copy of divorce decree, court order for child support

          10. Name and phone number of your homeowners insurance agent

          11. Copy of front and back of canceled earnest money check and bank statement showing the check cleared

          12. Name and phone number of the property manager for the HOA for condominiums

          13. Executed Power of Attorney, specific to the address and limited in time, in the event you cannot sign and someone will sign on your behalf

          14.  Gift letter and copy of bank statement from where the gift will come

          15.  Social security award letter

          16.  Pension award letter

          17.  Copy of HUD closing statement for the sale of your home if down payment on the new home is coming from the sale of your old home

             John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

By John R. Rapasky

            For the first time ever, beginning July 1, 2010, loan originators must be licensed to originate residential mortgage loans in Arizona.  Each licensee will be required to have a license number, which will be registered with the Nationwide Mortgage Licensing System.  This number will follow the licensee no matter where they work, thus creating a record for each licensee and establishing a system of accountability.  This will prevent licensees from performing misconduct at one company, just to leave that company and perform misconduct at another company.  Individuals who perform loan modifications will also need to be licensed.  You can check to see if your loan originator is licensed by clicking on http://nmlsconsumeraccess.org.   

            In order to acquire a license, the originator must: 

1.  Complete a 20 unit pre-licensing course consisting of 3 units of federal law, 3 units of ethics, 2 units of non-traditional mortgage products, 4 units of Arizona mortgage related law (i.e. title, appraisal, real estate, etc.), and 8 units of any other mortgage related courses that contribute to the maintenance and improvement of professional competence (i.e. FHA, VA, Appraisal, etc.)

2.  Pass a mortgage loan originator test which is comprised of two components: a national component and an Arizona state component.  Mortgage loan originators must pass each component with a score of 75% or higher.

3.  Be covered under a surety bond or recovery fund.

4.  Not have been convicted of a felony during the seven year period immediately preceding the date of the application or any crime of breach of trust or dishonesty, fraud or money laundering at any time preceding the date of the application.

            Each year, in order to renew their license, the licensee will be required to complete 8 continuing education units consisting of at least 3 hours of federal law, 2 hours of ethics – including instruction on fraud, consumer protection and fair lending issues, and 2 hours of training related to lending standards for the nontraditional mortgage product marketplace. 

            With the requirement of licensure, the intent is that originators will be competent and will offer appropriate products to customers based on their circumstances, and will not make any misrepresentations in the application process. 

             We, at Counsel Mortgage, welcome the requirement of loan officer licensing.  By July 1st, all of the originators working at Counsel Mortgage will be licensed.  I alreday have my license and am ready to help you with your mortgage needs.  Please contact us for professional advice regarding your mortgage. 

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2009 Counsel Mortgage Group®, LLC

By Ken Janzen

A new credit and underwriting process requirement, officially effective with loan applications dated June 1st, is forthcoming. 

At the end of February, FNMA (Fannie Mae) announced in their Loan Quality Initiative that, in addition to other less impactful quality guidance, lenders will be required to “determine that borrower liabilities incurred up to and concurrent with closing of the subject mortgage are disclosed on the final loan application” and evaluated in qualifying the borrower for the loan.  FNMA recommends that credit report data be refreshed just prior to closing and that any credit inquiries be investigated and verified.  As you might surmise, material changes in the borrower’s credit profile may result in a closing delay, affect pricing, or possibly even affect the loan approval.  Although the effective date is still several months away, we believe we can realistically anticipate that some lenders will adopt the process prior to June 1st.  As a result, Counsel Mortgage Group, LLC® will be working closely with our borrowers to significantly mitigate or eliminate any potential impact.

Going forward, it will be imperative that buyers and sellers be fully aware of this policy, along with the potential ramifications.  Buyers need to be appropriately and professionally counseled to avoid obtaining or applying for new credit, or even increasing utilization of existing credit, subsequent to the initial credit report used in underwriting the loan.  Additionally, it will be absolutely critical that the loan originator be thorough and determine exact amounts owed at the time of application rather than relying solely on balances (which could be as many as 30-60 days old) reported on the borrower’s credit report and then professionally advise borrowers on how to properly handle and document their credit usage prior to closing.

No problem!  As the mortgage and real estate industries continuously adjust to the dynamics of today’s economy, it is more important than ever to entrust your mortgage to an experienced, knowledgeable and professional mortgage broker.  Counsel Mortgage Group, LLC® appreciates your business and we’re looking forward to the privilege of working with you.  We are available to answer your questions regarding real estate or financing, whether transaction specific or general in nature. Please don’t hesitate to call, even if it’s just to obtain a second opinion, as we are here not only to originate and close loans, but also to be an accessible and valuable resource for you.

 Ken Janzen is a Senior Mortgage Consultant with the Counsel Mortgage Group®, LLC.  He would be happy to guide you through the new regulations.  You can contact him at counselmtg@cox.net.  Copyright 2010© Counsel Mortgage Group®, LLC

By John R. Rapasky

            Did you know when you apply for a loan, there are actually 2 approvals that take place?  The lender reviews the file based on your credit and income, and also reviews the collateral.  The collateral must be sufficient in order for a loan to be approved.  When the collateral is a condominium, there is increased scrutiny by the lender.  This is due to the fact that a condo typically has shared walls, ceilings, or floors, and there is more risk to the lender because the loan is somewhat dependent on the status of the units surrounding the condo.  Thus, lenders will ask questions of the Homeowners Association (“HOA”) regarding the condominium complex to evaluate whether they want to accept the risk and make a loan on the property.  This blog article focuses on factors a lender considers when lending on a condominium. 

            The type of loan you apply for can make a difference to the lender as to whether they will approve the condo.  First, if you are applying for a FHA loan, the condominium complex must be approved by FHA.  You can check to see if the complex has been approved by FHA by going to the FHA approval list at:  https://entp.hud.gov/idapp/html/condlook.cfm

            Fannie Mae also has a list of approved condos.  However, contrary to FHA loans, if the condominium complex does not appear on its approved list, it may still qualify for financing.  The Fannie Mae approved condo list can be found at: 

https://www.efanniemae.com/sf/refmaterials/approvedprojects/index.jsp?from=hp

            To get on an approved list, the condominium association should contact FHA or Fannie Mae to obtain an application. 

            In addition to being on an approved list, the lender typically has a questionnaire that must be completed by the condominium association before they will lend on the property.  The following are some of the criteria lenders review before determining whether to lend on a condo: 

• Whether at least 51% of the units in the condo project are owner-occupied
• Whether any single investor owns more than 10% of the units
• Whether the common areas are 100% complete
• Does the project contain any commercial space
• Does the project operate like a hotel, i.e. is there a rental desk in the lobby, cleaning service, and other hotel-like amenities
• No more than 15% of the units are more than 30 days delinquent in the payment of HOA  dues
• Is the HOA involved in any litigation
• The amount of reserve funds for future repairs and/or replacement
• If a conversion or converted in the last 3 years, is the renovation 100% complete and completed in a workmanlike manner

          Thus, when you are considering purchasing a condominium, contact the HOA and find out what the answers are to the above questions.  A little bit of homework before you accept a contract will save many headaches and heartbreak later in the process.  If you have any questions, contact us and we will be happy to help you. 

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2010 Counsel Mortgage Group®, LLC

By Ken Janzen

Effective February 1, 2010 FHA will be waiving, subject to conditions, the regulation that limits a seller’s ability to sell a home utilizing FHA financing during the first 90 days of ownership. This waiver will permit sellers who acquire a property at a discount (perhaps via a foreclosure auction or other distressed sale process) to renovate, market and sell the property to an FHA buyer without significant restrictions.

The general requirements are:

·         All transactions must be arms-length in nature, with no identity of interest between any of the parties participating in the transaction. The lender must ensure that there are no inappropriate agreements or collusion between the parties.

·         There is no pattern of previous flipping activity for the subject property.

·         The property must have been marketed openly and fairly (MLS, auction, FSBO or developer marketing).

·         The seller must hold title to the property.

When the sales price of the subject equals or exceeds 120% of the seller’s acquisition cost, the waiver will ONLY apply under the following two conditions:

·         The lender must justify the significant increase with supporting documentation (rehab contracts, receipts for improvements completed, etc.) and/or a second appraisal which verifies that the seller completed legitimate improvements to substantiate the increase in value; OR in the case of limited or no significant improvements, the appraiser provides an acceptable explanation or justification of the value increase since the prior transfer;  AND

·         The lender (not the seller, buyer or Realtor) must order an acceptable comprehensive independent property inspection to be provided to the buyer prior to closing.

FHA believes that waiving the 90-day rule will allow homes to be improved and resell as quickly as possible, helping to stabilize real estate prices, neighborhoods and communities as well as mitigate the affect of the foreclosure crisis. Unless extended or withdrawn, the waiver is currently scheduled to expire in 12 months.

As always, we welcome your comments and questions. 

By Ken Janzen

Here is a summary of planned FHA changes, issued in an announcement January 20th, which may affect you and your clients later this year. The changes are being made to assure that a financially secure FHA continues to provide affordable and responsible mortgage products supporting the housing market’s recovery: 

1) There will be an increase in the upfront MIP from the current 1.75% to 2.25%, resulting in a very modest increase in monthly payments of something less than 0.5% (a little over $4/month on a $150K loan). This change, which does not affect the borrower’s initial cash investment, will be effective for new FHA loans with case numbers issued on or after April 5, 2010.

2) Seller contribution limits will be reduced from the current 6% cap to 3%, possibly resulting in greater buyer cash investments or limiting the ability to use of seller paid discount points to reduce the buyer’s interest rate.  Probable effective date - summer 2010.

3) Borrowers with credit scores below 580 will be required to put at least 10% down. This change will have little or no affect on our local FHA market, as most lenders already overlay a 580-620+ score requirement on FHA loans.

Of course, the mortgage industry is dynamic and there may be some adjustments made before we see these announced changes take effect. As always, your questions and feedback are welcomed.

            The full press release can be found at:

http://portal.hud.gov/portal/page/portal/HUD/press/press_release

s_media_advisories/2010/HUDNo.10-016

Ken Janzen is a Senior Mortgage Consultant with the Counsel Mortgage Group®, LLC.  He would be happy to guide you through the new regulations.  You can contact him at counselmtg@cox.net.  Copyright 2010© Counsel Mortgage Group®, LLC

By John R. Rapasky

            Beginning January 1, 2010, a new 3-page Good Faith Estimate (“GFE”) will go into effect.  For the first time, the GFE will be a uniform document, to be used by all mortgage brokers and bankers.  The purpose of this new form is to make it easier for you to shop for a loan.   However, a closer examination of this form is necessary to safeguard against misleading information. 

            A GFE must be issued within 3 business days of the application.  In order to issue a GFE, it is presumed the loan originator has the following 6 pieces of information:  borrower’s name, loan amount, estimate of the value of the property, property address, borrower’s monthly income, and borrower’s social security number in order to obtain a credit report.  After obtaining and reviewing this information, the loan originator can issue a GFE. 

            The first page contains new information that was not on the previous GFE.  The first page provides time lines for how long the quoted interest rate is available, the time period the estimated settlement charges are available, the time period the interest rate is locked, and the amount of time to lock the rate before settlement.  The settlement charges quoted are good for 10 business days.  The borrower has 10 business days from the date of the GFE to give intent to go forward with the loan.  If no intent is given by the borrower, then the GFE is no longer valid. 

The first page also summarizes the loan product being offered.  It quotes the loan amount, loan term, and interest rate, and provides specific information regarding the loan product.  It provides information such as:  whether the interest rate can rise, can the loan balance increase even if you make your payments on time, can the monthly mortgage payment increase even if you make your payments on time, whether the loan has a pre-payment penalty, and whether there is a balloon payment.  In the event of any of these circumstances, the form provides for additional information such as the maximum amount the interest rate can rise, the maximum amount the loan balance can rise, the amount the monthly payment can increase, the maximum amount the monthly payment can increase, the amount of the pre-payment penalty, and the amount of the balloon payment.  In addition, towards the bottom of the first page, it provides whether an escrow account for paying homeowners insurance and taxes is required. 

            At the bottom of the first page is the summary of the settlement charges, which are itemized on page 2. 

            Page 2 has two parts.  The top portion, summarized in Line A, is the origination charges, and the bottom part, summarized in Line B, contains the settlement charges.  The top portion, the origination charges, contains two blocks.  Block 1 includes the origination charge which includes items such as underwriting fees, processing fees, origination fees, and the yield spread premium that is paid to the mortgage broker.  Block 2 contains 3 boxes.  Box 1, used mainly by banks, notes any charges or credits for the interest rate quoted. Box 2 gives a credit for the interest rate chosen, typically the yield spread premium paid to the mortgage broker.  Box 3 provides for any origination fees for the loan.  What has changed from the current GFE is there is no longer an itemization of loan origination charges.  Also, the banks do not need to disclose their commission on this form, only the mortgage brokers.  The origination charges are summarized in Line A, the adjusted origination charges.  These charges cannot increase at settlement. 

            The second part contains the charges for all other settlement services.  Block 3 itemizes services required to be completed for settlement that are selected by the lender, e.g. appraisal, credit report, tax service, flood certification, up front mortgage insurance premium, VA funding fee, and subordination agreement fee.  Block 4 includes the lender’s title services and escrow fees, e.g. escrow fee, title insurance, and title endorsements.  Block 5 is for the owner’s title policy, which the seller typically purchases in a purchase transaction (owner’s title will probably not be provided in a refinance transaction).  Block 6 is required services you can shop for, such as survey and termite inspection fees.   Block 7 is the government recording charge.  If the borrower uses the lender’s selections of providers from Blocks 3-7, then these charges cannot increase by more than 10% at settlement.  If the charges are in excess of 10%, then there is a “tolerance violation,” and the lender is required to pay for the difference.    

            Block 8 is for transfer taxes.  This charge cannot increase at settlement. 

            The charges in the remaining Blocks on page 2 can change at settlement.  Block 9 is the initial deposit into the escrow account to pay future homeowners insurance and property tax charges.  Block 10 is the prepaid interest charge.  Block 11 is the homeowner’s insurance premium required to be paid at closing.  The total for all of the other settlement services are summarized on Line B. 

            The bottom of the form totals the estimated settlement charges from Lines A and B.  These totals also appear on the first page of the form. 

            The third page of the GFE provides comparison tables for different scenarios.  The tradeoff table allows the customer to review different scenarios with different rates and closing costs.  The shopping chart at the bottom allows the customer to shop different GFEs from different lenders. 

            In general, once the GFE is issued, it cannot be changed.  However, there are certain circumstances, called “changed circumstances”, where the GFE can change after it is issued.  Changed circumstances are defined as:  (1) Acts of God, war, disaster, or other emergency; (2) Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided, which information may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE; (3) New information particular to the borrower or transaction that was not relied on in providing the GFE; or (4) Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.  Once a changed circumstance is known, a new GFE must be issued within 3 business days. 

            Notwithstanding the changes to the GFE, the form omits information that would be important in shopping for a loan.  The following are 10 items that would be important in shopping for a loan that are not on the new GFE:  (1) whether the loan is for a primary residence, second/vacation home, or investment property; (2) the purchase price or estimated value of the property; (3) the loan-to-value ratio, or down payment; (4) the type of loan program, i.e. conventional, VA, FHA, USDA, etc.; (5) the amount of cash needed to close; (6) an indication of what are the APR impacting fees; (7) itemization of the lender’s charges; (8) a provision for the seller’s contribution towards closing costs; (9) the amount of HOA fees; (10) and the total payment including taxes and insurance.  Each of these items is important and could affect the terms quoted in the GFE.  Because these items are not in the new GFE, you can be misled.  Thus, you should not rely solely on the GFE and you should ask questions. 

In sum, the new GFE is an improvement from what previously existed.  It does provide information to the borrower to shop for a loan.  But, as existed with the previous GFE, the customer should work with someone they trust and ask questions to make sure they are obtaining the loan that is right for them.  We, at Counsel Mortgage Group, LLC, specialize in helping you find the right loan.  Contact us and we can help you with the new GFE, and in finding a loan.    

            John Rapasky is the President of the Counsel Mortgage Group, LLC.  You can learn about them at www.counselmortgage.com.  Copyright © 2009 Counsel Mortgage Group®, LLC