Are you committing Fraud with Seller Paid Concessions

First, let me say that Seller Paid Concessions are not the problem. They are a legal tool to help facilitate the financing of a home. However, if used improperly, you might be closer then you think...or want to believe.

The way that you structure Seller Paid Concessions might be considered an attempt to defraud the lender and artificially inflate the value of the property. I'm sure that most of you (us) have had the opportunity to seal the deal by getting a seller to agree to cover the allowable seller paid concessions in order to close on a home. This happens every day. It is legal, or it wouldn't be allowed. It is done by Realtors and Mortgage Brokers. It is in the guidelines of most lenders, including FannieMae and the FHA.

However, if you are increasing the sales price above what it has been listed for, you are treading on thin ice and had better be careful. Especially if it has been on the market for several months with price reductions and no offers. Here's why.

I attended a Fraud class last year as part of my continuing education in Oregon. The instructor was Richard Hagar, SRA. While he spoke on a lot during the 6 hour class, a HOT topic was the 3-6% seller paid concessions allowed by many lenders. 90% of the class was loan officers and it got ugly. Why? Because we were all guilty AND we had been led to believe that what we were doing was ok by our lenders. What he said upset most of us, and we doubted him, until the Asst. Attorney General for Oregon, Tim Spencer, got up and confirmed what he said.

Fraud can be defined in the Real Estate transaction as the "failure to disclose....anything" This goes for options, fees, rates, problems with the property... It revolves around the intent of the involved parties. It can be a State of Federal crime.

Here's where it gets ugly. If the money crosses a state line it becomes a Federal offense. This means if the lender is based in another state, if the underwriting is done in another state, if the funds come from another state... it has crossed state lines. My guess is that 90% of all transactions fall under the jurisdiction of the FBI, not just our State government.

The FBI is using the Rico Act, Title 18, US Code, Sections 1956 to enforce this. This is the statute that covers Laundering of monetary instruments. (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds. RICO was used by the Feds to bring down the mob in the 1930's and they are using it today to clean up the real estate industry.

An aspect of RICO deals with Layered Transactions. This is when layers are added on top of the list price to cover:
Down Payments
Loan Fees
Increased commissions for the agent
Cash to the buyer before and/or after closing

For the rest of this story click here

Larry Morris is a loan Officer with Equipoint Financial Network in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill COunty. He can be reached at larry.morris@equipoint.com . His website is www.PDX-Mortgage.com. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of Equipoint Financial Network.

Licensed in: OR, WA, AL, AK, AZ, CA, CO, CT, FL, GA, HI, ID, IL, IN, IA, MD, MA, MI, MS, MO, MT, NE, NV, NH, NM, OK, SC, SD, TN, TX, UT, VT, VA,

Updates

I've been spending most of my time on a new Real Estate related community Active Rain. Here are a few of my recent posts.

If you would like to be added to this community please let me know.

Are Mortgage Rates Heading Higher? Foreign bonds are creeping up in value making US bonds look less attractive.

Oregons New Gold Rush? Wave Energy Parks Could this be the solution to our energy problem and the coast's economic woes?

When is a Pre-Approval not a Pre-Approval? Is your pre-approval worth the paper it's printed on?

What is a buydown and should you do it? This old classic is coming back into vogue.

Getting the most out of memberships in anything. How to make use of the groups and orginizations that you belong to.

Who should attend an inspection? - Thoughts on this touchy subject.

Sherwood Oregon: Destination to Wine Country. Washington County has plans to make Sherwood a hub on a scenic tour.

See ya at the closing. Does your lender show up at closings? He (or she) should! Here's why.

Portland Oregon 2nd highest appreciation in the nation. Oregon's still got some real estate steam.

SubPrime Prime Time. Who is to blame and is there a solution?

Should I cut and paste? How do copyright laws affect us on the internet? I'll bet you've broke them...

As you can see I've been busy.

Check back often to either blog. I usually post on Active Rain more often then here.

Finally, Real Data on the Mortgage Meltdown

I don't know about you, but most of what I've read on the mortgage crisis is from reporters with limited information and an editor looking for a story. Finally we have scientific data that has revealed some interesting trends. Like all real research this is a dry read, but I'll highlight a few points.

First, the credit and link. In a Press Release found on Yahoo;

"First American CoreLogic, a member of The First American Corporation (NYSE: FAF - News) family of companies, released a new study today that investigates the impact of mortgage payment reset and provides insight into which loans will be most affected when adjustable-rate mortgages convert from low introductory interest rates to higher prevailing market rates. The study, titled "Mortgage Payment Reset: The Issue and the Impact," is a definitive and comprehensive analysis of the issues surrounding mortgage payment reset during the next five to seven years." (It's 18 pages and you need to give your email to receive the pdf.)

"The research predicts that, due to payment reset in the absence of equity, 32 percent of teaser loans will default, 7 percent of market-rate adjustable loans will default and 12 percent of subprime loans will default over the next six to seven years.

The analysis concludes, however, that while those involved with the riskiest loans may suffer, on a national basis, the losses will translate to less than 1 percent of total U.S. mortgage lending projected for that period and will not significantly impact the economy or the mortgage lending industry.

It also shows that market place remediation has already begun. Borrowers are, on their own refinancing out of risky loans and lenders are working with clients to modify or refinance loans to avoid default." This is good news. Lenders ahve the ability to restructure loans to make them workable. It appears that some are.

This is an indication once again that our market forces will work themselves out. Sure, there will be many destroyed lives and lost equity in some areas, but we will rebound and be stronger for it. Look at it as a thinning of the ranks of those who just wanted to make a quick buck.

Before you purchase or refinance, make sure that your lender is truly looking out for your best interests.

Oregon's Foreclosure Rate

CNN.Money has an article on state rankings in foreclosures. It is by Les Christie, a CNN.Money staff writer. Florida Foreclosures Lead Nation

Nationally foreclosures are declining. This could be as people are getting out from under their Christmas debt they find a little more cash. Also housing sales are picking up in many areas as spring brings buyers back out.

Oregon is ranked 27th with 725 filings. This averaged 1 in 2008 household going into foreclosure. This is up .55% from January of 07 and actually down 1.63% from February of 06.
Les attributes foreclosures in part to investment speculation and over production of housing and feels that the subprime ARM's adjusting could make these numbers rise. I would agree, but am concerned that subprime and speculation are being lumped together.

While I've sold my share of sub prime loans to clients who couldn't otherwise qualify for a loan, not one was for an investment property. These just never made sense. Every one of the investment properties that I have financed were with an Alt A loan. These are better priced and more lenient in underwriting. These are also the loans that are most likely being defaulted on with the investment properties.

Overall, Oregon seems to be in pretty good shape. We haven't been a huge sub prime market and while we've seen our share of investment speculation, I don't believe that it has been as bad as many other states. Investors at this point are having to settle for less profit if they need to get out from under a mortgage debt.

This is one chart that I don't mind being in the middle of the pack.

A Brave New World

I'm going to add a new twist to the blog by providing links to articles that I feel relevant to real estate in the Pacific NW. I'll still give the occasional opinion piece.

Here goes...

Making sense of the mortgage mess By Mara Der Hovanesian, Peter Coy, Matthew Goldstein, & David Henry Well balanced article of how we got here and what should happen.

Fed looks set to stay course amid housing turmoil by Mark Felsenthal As the Fed completes it's 2 day meeting look to see the Prime Rate stay the same. However, strategists hope to see a softening of the wording that a cut might be in the future. Look for a market reaction if the wording is less then expected.

Subprime's Salvation Is Fed's Conundrum By Liz Rappaport Opinion piece doubting the need for the Fed to step in to "save the day" since the free market system we love seems to be doing it for them.

Builders' confidence falls in March By Chris Isidore Builders are a little down in the dumps since there aren't as many easy credit buyers available to buy the glut of homes they built last year. The west still looks ok...

House buyers have more to choose from in Portland Associated Press Confirmation that we're leveling off into a sustainable market. Prices are rising modestly, there isn't the "feeding frenzy" of the last few years and rates are holding steady.

Economy Can WithstandMore Mortgage Foreclosures By James R. Hagerty Interesting take on the 1.1 million potential foreclosures over the next few years. Spread out over time the impact could be modest...except for the 1.1 million...

Ranking the Real-Estate Agents:Clunky Site Identifies Best Bets By James R. Hagerty How does your realtor match up against his/her peers? Not sure the reliability of the linked site, but it's interesting info...

How Good Are Zillow'sHome-Price Estimates? By James Hagerty Good blurb on Zillow. We're finding that it's a good barometer, but boy, can it be wrong...

As always, if there is anything I can do to assist please let me know.

Affiliated Relationships

I recently responded to a post by a fellow blogger, Charles Turner. His blogs are Portland specific and overall it's a great blog. He won't respond to my attempts to get together for coffee, but that's OK. There are a lot of Realtors out there...

His blog can be found at PortlandRealEstateBlog.com

Following are my comments. For the rest of the story click on the above link.

Interesting twist on this blog.

RESPA does not allow us (mortgage brokers or real estate professionals to receive a "thing of value" for a referral or for the attempt to gain a referral. This certainly would include a kick back or referral fee. So, while it might happen, it's illegal if it does. If you're dealing with funds that transfer State lines, which most do, then it could be a Fed offense. Not good!!

Affiliated relationships are also going by the wayside as is evidenced by a Minnesota law suit. http://www.twincities.com/mld/twincities/news/16855258.htm . 1st Am Title had Joint Venture relationships with Realtors, mortgage brokers, builders... They recently had 35 JA's shut down. The problem was that dividends were paid as a part of the business transaction.
Builder Banker Coldwell Burnett is having problems now for steering their clients towards their in house Title company.

I'll take Charles word for it that they are not directly compensated for referrals to Columbia or Transnation. My experience is that several good friends of mine work for various Prudential shops and seem afraid to use anyone outside of Columbia or Transnation. There is a lot of pressure from the top down.

I know that other companies who have JA's share in profits...not necessarily on a per deal basis, but over time. Some allow for quicker checks at closing to the realtor, others offer retirement plans geared on JA profitability.

An excellent article written by a Realty Times contributing editor, Kenneth Harney, details this practise, and that if structured correctly, they can stand the test of litigation. http://realtytimes.com/rtcpages/20070305_realtyfirm.htm

So, should you do business with the title company or mortgage broker that the realtor refers you to? Yes, if after meeting with them you feel comfortable with them. Are you required to no. That's illegal.

The partnerships that I as an independent mortgage broker have with my Realtors and title companies are mutually beneficial. We do not receive kick backs, dividends, profit sharing or retirement plans. We help each other be successful by joint marketing, working together on deals and, over time, develop a track record of consistently getting deals done and covering each others backs. I do have several Realtors who try their best to get their clients to at least speak with me as they know that I will look out for their best interests as well as treat their clients with honesty and integrity. Basically, they trust me because of who I am, my professionalism and their experience with me.

Our clients enter into that partnership and they benefit from our experience together. Do they have to work with all of us as a team? No. Should they? Often times, yes.

In that I definitely agree with Charles.

Ch..Ch..Ch..Changes

WOW!!! The last week has been a roller coaster. The stock market has seen it's largest decline since 9/11 based on market jitters in China, Japan and Europe, as well as a remark from former Fed Chief Greenspan that we "might" see a recession by the end of the year.

This resulted in a flight to security in bonds which helped mortgage rates decrease. Home prices came out and they are all over the map. Some areas are seeing decreases in value and other only modest gains.

But the biggest changes are in the lending world. Many subprime companies have gone out of business and on the heals of Federal criminal investigation of New Century mortgage, several more are on their way out. Last week there was also a fear that the Alt A mortgage market would see a decrease in value due to high risk loans. Alt A is where most stated income, non-owner occupied or high loan to value loans have been placed. Many of the properties that were purchased as speculative investments were done in this category.

Last week I was informed by several of my lenders to get ready for change. Yesterday it came. Lending guidelines are getting much more conservative for non-owner occupied properties and stated income loans. The loan to value has decreased, credit score requirements have increased as well as a few other loan specific requirements have been put in place.

The bottom line is that if you don't have stellar credit or can't fully document your income, be prepared to bring cash to close if you are purchasing or a smaller loan to value if you are refinancing.

The good news is that for high credit borrowers there are many flexible products with great rates.

Flip This Home

If you are a fan of late night TV you can't not see an infomercial showing how you too can make a fortune in real estate. They purport to show you how to do this with little or no money down and that often you can do it without actually taking out a loan or going on title.

I'm not going to say that their systems don't work, because they do. Many people have made a fortune through creative real estate transactions. But what they don't tell you is that things have changed. Some of the ways that deals were structured in the last few years are no longer able to be financed today. Following are a few.

Earnest Money with buyer "or assignee". This would allow a borrower to purchase a property or assign the right to purchase to someone else. For the last few years many investors used this clause to lock up the rights to purchase a property with a small down payment and then find another buyer to purchase it from them at a higher price. This was, and still is, very popular with new construction developments or condo projects. A buyer will try to get in at the beginning of the project while properties can be bought cheaply. Their hope is that as the project moves towards completion property values will increase and they will be able to make a nice profit. It wasn't uncommon to see an increase of $10,000 or more over a few months time.

Most of my lenders will no longer allow this wording on earnest money agreements. One of the reasons is that to many Realtors and investors would make an offer on a property at close to market value and the find a buyer willing to pay tens of thousands more for the same property with little to support the increase. Couple this with appraisers who would stretch the value of the property and you have potential for fraud. This is one of the reasons that property values have increased so much over the last few year.

I honestly believe that there will be a lot of surprised investors, and Realtors who have recommended this strategy, who will be in for a surprise as their clients try to assign the property to another party for a higher purchase price when it comes time to close on the property. Many will either have to go ahead and purchase or lose their earnest money.

While it's not impossible to fund these loans, the industry trend is moving away from allowing them.

Option to Purchase: This is a tool used by many investors and is a legitimate method. It allows an investor time to do their due diligence and look at their options prior to purchasing. It also allows them time to find another buyer. This has also been combined with a simultaneous close allowing investors to quickly make money with no credit, down payment or risk. (These are the ones you see on TV.)

An example of how this could work is party "A" makes an offer with an "Option to Purchase" with party "B" for $200,00. "A" then finds a buyer, "C", who is willing to pay $220,000 for the property. "A" and "C" draw up a purchase agreement to close at the same time that "A" and "B" close. "B" is not aware of "C".

Where the lender would have a problem is when the Title company is instructed to pay"A" a "fee" of $20,000. "A" is not on Title nor a real estate professional. "A" is doing many of the same tasks of a real estate professional yet is not licensed to do so. Lenders want to see a clean paper trail with sellers being on Title. In this case, "A" never goes on Title.


Many lenders are no longer allowing for a quick flip at a higher selling price unless there is substantial proof that the property was either sold under value or that sufficient work was done to the property to support the increase. I'm also finding that most lenders want an investor to bring cash to the table and/or carry a 6 month to 1 year pre-payment penalty.

I am in no way saying that these practises are illegal or not being used. I'm just trying to show that the market has changed and lenders are no longer making many of the same lending decisions that they formally did.

I've been told that a "reasonable" increase for a quick flip will be allowed. This would probably equate to 1-2% of the purchase price. Not a lot, but still a decent living for an aggressive investor.

The best way to invest and see an profit in your purchase is to go on Title, plan on holding the property for 6 months to a year or make significant improvements.

Most importantly, work with a competent mortgage professional who can help you understand what financing issues your future buyer will be faced with when the evidence of your purchase transaction comes to light.

Blessings and good investing.

Mortgages: Local Lender or Internet Lender?

The Internet is a great source of information and the savvy consumer can get a great deal in many cases. Often, at prices that your local business cannot compete against. This is especially true with commodities, like consumer electronics, books, and clothes… In some cases service is good, other times it is non-existent.

But what about mortgages? Are they really just a commodity? Is one mortgage just like another? Is the final product really all that matters? Is rate really the most important component? Can a company out of Texas provide just as good of a product or service as a local one? The answers to all of these are maybe.

If the most important element is rate, then just like gasoline, a mortgage is a commodity. But you also get what you pay for. Most “cheap gas” is just that…cheap! Saving a few bucks can result in the need for major repairs to your car.

But not all mortgages are alike and not all mortgage brokers are alike. The wrong mortgage at the best rate can cost you a fortune. A good mortgage broker can show you why. An average one doesn’t even know what I’m talking about.

I am both a local lender and an Internet lender. I have clients all over the nation. I feel that I can do a great job in all situations, but I do my best work when I can develop a relationship with my borrowers and get to know their needs. This is easiest when we can sit down together for a cup of coffee and talk. I also find that it is reassuring to my clients if I am available to meet with them.

After reviewing my business, I’ve decided to take it even further by making a commitment to my local clients to be at the closing whenever possible. Why should I put the burden on the realtor or title officer to answer questions about the financing?

But what about those great rates posted on the Internet, or the mantra, “Everyone wins when banks compete”? Most of the sites on the Internet that advertise mortgages are nothing more than lead generation companies. If you complete a form to have someone contact you, expect to be bombarded by lenders who pay anywhere from $150 for a live transfer to $5 for a 180 day old lead. http://pdx-mortgage.blogspot.com/2006/08/bankrate-is-feeling-heat.html Other sites post rates from different lenders who are paying a fee to get in front of you. They will often post rates that are inaccurate just for the hopes that you will contact them. http://pdx-mortgage.blogspot.com/2006/08/bankrate-is-feeling-heat.html

Regardless, put yourself in their shoes. If you have paid good money for a lead, how aggressive would you be? What would you be willing to say to get the deal? Or how long would you be able to spend the money, tell the honest truth and watch the deal go to another, less scrupulous lender? (I no longer buy Internet leads…)

Now, do you really want to put yourself in the position of working with a lender who already has a vested financial interest in closing the loan…possibly at any cost? Do you really want to trust what could be the largest financial investment to someone that you really don’t know, or have the ability to know?

My advice. Use to Internet to educate yourself, and to get an idea of what you want. (But remember that what you have spent a few hours, days or weeks learning, a good mortgage broker has spent years doing.) Then ask around for a recommendation from your family, friends or co-workers. Or try your realtor, insurance agent, CPA, financial planner, minister or other professional.

Or better yet, follow this link and get to know me. http://www.pdx-mortgage.com/.

What about a 50 year loan?

With the increase in interest rates and home prices lenders are getting creative. Lately we are seeing the introduction of 40 year loans and now 50 year loans. While these sound better than an interest only loan, what is the truth?

I'll be honest, as I write this blog I haven't actually compared these over a long term. I know that there are interest rate adjustments for most "add-ons", and that the longer the amortization (length of time it takes to repay a loan), the less principle (equity) that is applied to your loan balance.

This blog will look at actual numbers for a "normal" borrower with several differet loan scenarios. We'll look at a 15 year fixed mortgage, 30 year fixed mortgage, 30 year fixed mortgage with interest only for 10 years, a 5 year ARM (fixed for 5 year than adjusts), a 5 year ARM with Interest Only, a 40 year mortgage and a 50 year mortgage (with a 3 year prepayment penalty). We'll make the assumption that the borrower can document income and assets and has a 680 credit score, the loan amount will be $100,000 with a loan to value of 80%. The reason for $100,000 is that it is easy for you to extrapolate for your situation.

Here goes...

Program is the type and amortization period
Rate is the interest rate used to calculate the monthly payment
Payment is the monthly payment for principle and/or interest
5 Yr TI is the 5 year total interest paid
5 Yr TP is the 5 year total principle paid

Comparison Chart

Program.......... Rate .....Payment ..5 Yr. TI .........5 Yr. TP
15 Yr.................. 5.875%.. $837.12....... $26,057........ $24,170
30 Yr................. 6.125%... $607.61....... $29,654.......... $6,803
30 Yr IO........... 6.375%....$531.25....... $31,875........... $0
5 Yr Arm.......... 5.875%... $591.54....... $28,401........... $7,091
5 Yr IO Arm...... 6%......... $500............ $30,000.......... $0
40 Yr................ 6.25%...... $567.74....... $30,770.......... $3,294
50 Yr. 3 Yr...... 6.625%.... $573.15....... $32,895............ $1,493

Sorry about the crude chart... : )

Based on the above anaylsis, over a 5 year period if you were looking for the smallest payment, the 5 Yr Interest Only ARM would be the best. It would be $ 73.15 per month less expensive than a 50 year loan and would actually be $1,402 less expensive over a 5 year period. While no principle is paid, the interest paid is less. It would also be $67.74 per month less than a 40 year loan. However, over 5 years the 40 year loan would accumulate a little equity ($66 per month).

If you can afford the 40 or 50 year payment you can most likely find a way to pay for a 30 year fixed rate mortgage. Even on a $300,000 mortgage that is only $120 per month more. If not, you're probably best off with a 5 year ARM or 30 year fixed interest only loan and do your best to pay extra towards the principle or invest elsewhere. (If you put an additional $100 per month into your 401k or an IRA you would most likely see a nice 5 year nest egg.)

Of course, you can always look for a less expensive home.....

Bankrate is Feeling the Heat

From Barry Habib, co-founder of Mortgage Market Guide.

Just like King Kong clutching the top of the Empire State Building…Bankrate, the "800-pound Gorilla" of online home loan rates is falling under fire. The Bankrate website draws millions of visitors, as it promises to give a listing of companies and their rate and cost offerings for mortgage loans, and even passes that information on to most of America's largest newspapers as fact. It proclaims itself to be a tool for the consumer, just delivering information and advice…but as many reputable mortgage lenders have known all along, it turns out that consumers are finding the reality of Bankrate to be a little different.

A lawsuit is in the works against Bankrate, after hundreds of consumers complained about lenders who failed to deliver the rates and terms they promised on the website. In fact, one lender actually told a Bankrate employee that a consumer would need a "direct pipeline to God" in order to qualify for the rates and terms they advertise on the site.

Why would a lender post rates and terms they are unwilling or unable to honor? To lure in consumers who truly want to believe that they are getting an interest rate or cost package that is significantly lower than all the competition. And by the time the consumer finds out they are not getting the package they were promised, they likely have wasted enough valuable time that they feel somewhat stuck to use whatever terms the lender hauls out.

Of course there are real reasons that the terms of a loan package can change mid-stream. When working with a reputable lender, it would generally only be caused by a change from what was submitted on the loan application. Some examples of this include a change in credit, income, employment, debts or assets.

So are there any reputable lenders on Bankrate? Yes, of course. And some of those lenders were the ones who prompted the lawsuit in the first place. As they were posting real interest rates and terms they could actually honor, they could see that consumers would instead be contacting the less-reputable lenders who were posting completely unrealistic rate and cost offers. And the consumer might not find out the difference until it was too late.

Mortgage lenders get their money from essentially the same places - so anytime there is a very large difference between quotes on identical programs, it pays to ask some questions.

Bottom line - the internet at large can be a great place to gain basic trends and information about a home loan, but the Bankrate lawsuit illustrates the need to work with a Trusted Advisor. A home loan is generally the largest financial transaction of your entire life - working with a real professional who can advise you on correct strategies and programs for your needs is a must. And like your mom or dad always used to say - you get what you pay for, and solid advice from a real professional may cost more than a bargain basement operation.

Most importantly, remember that the absolute lowest rate and terms on the WRONG financial strategy or loan program for your life will prove to be far more costly than a competitive rate package on the RIGHT strategy, which correctly fits your financial goals and needs.

Don't Click "Continue" at LendingTree.com

This post was from THE GRIPE LINE WEBLOG by Ed Foster


It shows that the internet can be a shark infested water, especially when shopping for a home loan. Most people are not aware that Bankrate, LendingTree and many other large internet mortgage companies are merely lead generation companies. They collect your information and sell it as many times as they can. Trust me, I've paid a bundle myself for these leads.

"When lenders compete, you lose ... your privacy, that is. That's what one reader discovered recently after making the mistake of shopping for a loan on LendingTree.com.

"My husband and I have been thinking about taking out a home equity loan for some remodeling we'd like to do," the reader wrote. "We haven't decided for certain if we are ready to do it, but I thought I could find out what kind of rates and payments we could expect by going to LendingTree.com. I began filling out the form for an equity line of credit, but then I got nervous about what having four different banks checking our credit report will do to our credit score. So I did not complete or submit the form."

The next week the reader started getting phone calls from eager mortgage brokers, all promising incredibly low rates and no fees on an equity loan. "This was surprising, because we still had not decided to apply for a loan anywhere," the reader said. "When I told them we weren't interested in applying right now, each bank said they had gotten our name and phone number from LendingTree. One even told me he was paying good money to LendingTree for these sales leads and he was sick and tired of all the leads turning out to be bum steers."

After turning down four would-be lenders, the reader assumed the calls would stop, since that's how many banks LendingTree's ads say they will have bid. But the calls kept coming. "After the sixth call, my husband called LendingTree to complain," the reader wrote. "Since I had not completed the LendingTree form or submitted it, we thought LendingTree had no right to share our phone number with anyone. But LendingTree answered that it was my fault for not having read their privacy policy more closely, because hitting the 'Continue' button on the first page of the form is enough to let them share our information."

Sure enough, the LendingTree privacy policy does indeed state that clicking 'Continue' to the second page two of their form opens the privacy floodgates:

"Sharing information with our participating Lenders and real estate professionals. At your direction (when you click on the "Submit" button), the information that you provide to us on the loan or realty request will be sent through the LendingTree system and presented to up to four participating Lenders who offer the types of loan products you have identified, other parties relevant to your transaction and/or participating real estate professionals. Lenders will also receive your credit history when they review your request. If you complete the first page of the loan request form (by hitting the "Continue" button on "Page 1: Tell Us About Your Loan") but leave portions of the form incomplete, LendingTree will transmit your loan request form to up to 4 of its lenders who can help you complete your loan request and possibly extend you loan offers. By completing the first page of the loan request form, you authorize LendingTree to transmit your loan request form to up to 4 lenders. No credit check will be performed on behalf of LendingTree until you authorize us to do so by submitting a completed loan request. As our Lenders and real estate professionals may keep and use your information whether or not you qualify for a loan with them or use their services, we recommend that you contact them directly for more information about their specific privacy policies."

So not only does LendingTree expect you to read its privacy policy in detail, it also expects you ti contact its lenders about their privacy policies before you even know who the lenders are. How is that supposed to work? And how did more than four lenders get the reader's phone number?At any rate, their LendingTree experience has soured the reader and her husband on the whole idea of taking out a home loan right now. "With all the concerns about identity theft these days, I think it is outrageous that LendingTree would be so quick to share important personal information about us," the reader wrote. "At least the phone calls from their lenders seem to have stopped, so I think my husband's complaint did some good. But when we do decide it's time to take out a loan, I can tell you for certain we won't be using LendingTree.com.""

So, what's the best way to approach the loan process? Use the internet to do your research, maybe even to interview a few companies, but stay away from the lead generation companies. Put yourself in their shoes. If you had paid anywhere from $10 to $100 for a lead, how aggressive would you be on the phone? What would you be willing to say just to get the business? Or to keep your job?

Find out all you can about the company and the loan officer. Work only with those who you feel comfortable with.

When is the best time to "Start the Loan Process"?

This is almost the "What came first..." question.

Do you put your home on the market and find another one first or make sure your financing is in order? Do you wait until your Adjustable Rate Mortgage is ready to convert to a higher rate to refinance or make sure your financing is in order first?

All too often I get a phone call or email indicating that it is time to get a borrower pre-approved because an offer has been accepted, or someone has an ARM that will adjust in a month or two and they want to start shopping for a new loan.

In most cases this is not a problem and we are able to move ahead quickly. We are able to find a competitive rate and product and consummate the deal. But usually with a little work we can improve the situation and save thousands of dollars IF we have the opportunity to spend the time necessary to improve the situation. Even if you have great credit, there can still be issues with the transaction that prevent you from getting the best rates.

One of the most important things to remember is that lenders have guidelines that they rarely deviate from. A good mortgage consultant will guide you through the loan maze and make sure that everything is in order.

If there are errors on the credit report it can take 2-8 weeks to get the changes corrected. If there are employment or income issues these can take up to 1-2 years to correct. If downpayments or reserves are needed it can take up to 2 months to see them become "seasoned". These can be worked around with different loans and lenders,. But if they can be easily resolved with the luxury of time, why should you be penalized by a higher rate or a riskier loan program.

While in most cases any loan officer can get you a loan today, the good ones will take a look at your situation and the time available, and make recommendations on how to improve your situation to make you a stronger borrower. This can save you tens of thousands of dollars over the lifetime of your loan.

Back to my question, I believe that you should have your situation reviewed annually regardless of whether or not you are currently in the market for a loan. You never know when your situation might change.

If you have over $25,000 of consumer debt at 14%+ interest rate and are only able to make the minimum payment you should immediately speak with a mortgage consultant who can show you how much you can save over time.

If you know that you will be purchasing a home, you should talk to a good mortgage professional 3-4 months before you start looking.

If you are going to be selling your home you should talk to a mortgage professional several months BEFORE a realtor. Our job is to make it easier for you to get into your next home and loan, and it might take a few more months than you or your realtor are prepared to wait. But it could save you a bundle and a lot of headaches.

If your current loan is going to adjust soon, I believe that 5-6 months is a good time to start the process, especially if there was a reason for being in a short-term loan.

If you are looking at a lease-option to buy, you should be talking at least 1 year in advance.

The sooner that you can get a clear picture of your financial situation the better chance that you will be a strong borrower and get the best rates available. But, it's your money... My job isn't to tell you what to do, just to make work what you bring me...

Please call or email me with any questions.

What is a buydown and should you do it?

Buydown options

A buydown is a type of financing where the buyer or seller pays extra points (also called discount points) to reduce the interest rate on a loan. Buydowns make it easier to qualify for a loan because they lower a loans interest rate. They can also allow you to buy more house for your money.

There are generally two types of buydowns: a permanent buydown and a temporary buydown. A permanent buydown lets you pay extra points to get a low interest rate over the life of your loan.

A permanent buydown can be paid by the seller or the builder as an incentive to finalize a sale by creating lower monthly payments. Sellers can also benefit from assisting with a buydown with a difficult to sell property or during slower market conditions. It increases the buyer’s ability to qualify for a loan, therefore, allowing the home to be sold quicker. Plus, a buydown offer is usually less than a price reduction on the home.

In a temporary buydown, you prepay interest in exchange for a lower rate during the early years of a loan. The most common temporary buydown is called 3-2-1, meaning the mortgage payment in years one, two and three is calculated at rates 3 percent, 2 percent and 1 percent, respectively, below the rate on the loan. On a 2-1 buydown, the payment in years one and two is calculated at rates 2 percent and 1 percent below the loan rate. And on a 1-0 buydown, the payment in year one is calculated at 1 percent below the loan rate.

A temporary buydown can be a benefit to a buyer whose current income is low but anticipates that it will increase during the next two years. First-time homebuyers who need to purchase all of the furnishings that go into a new home may also find a temporary buydown appealing.

From my experience, if you are paying for the permanent buydown, it really depends on how long you plan on staying in the home. If it takes you 4 years to re-coup the cost (the cost of the buydown divided by the difference in what you would have paid with the actual rate and your new rate), and you only plan on staying in the home about 2-3 years then it wouldn't be worth it. Statistics say that most people stay in a home, or loan around 7 years, so just keep that in mind.

If you can get the seller or builder to pay for that cost then great. 1-2% of the cost of the house will go a long way to permanently reduce your interest rate and payment.

Suppose you took out a loan of $200,000 and you received 1% of the loan amount towards a rate buydown from the seller or builder. If the posted interest rate was 6.25% you could get a .25% reduction in rate to 6%. The 1% doesn't go towards the rate, it goes towards the "price" posted on the rate sheets. Call me if you need an explanation on the difference.

This would amount to a monthly payment reduction of $32.33. It would take about 5 years to re-coup the cost difference ($2000 divided by $32.33). So, if you have to pay the buydown with your cash it had better be a property that you plan on staying in for awhile.

A temporary buydown is completely different. The "cost" is usually associated in the price structure of the loan and is what it is. They are fantastic if you truly are in a position of increasing income and can't quite fit into a conforming rate structure.

I hope this helps and please call if you have any questions.

Oh, check out our new website. www.PDX-Mortgage.com .

Your Credit Pull has just been Sold!!!

A little known fact is that the credit bureaus are selling your information as soon as you inquire about new credit. When you fill out an application for a new loan, be it a new car, credit card or mortgage, there are companies that are paying to get access to that information. Why? Because you have just become a Hot Lead. You have expressed the ultimate criteria that marketers are looking for. You have expressed the desire to purchase AND have taken it to the extent of allowing someone to pull your credit to see if you qualify. It doesn't get any hotter then that!!

I have been contacted by several companies that sell these leads. I haven't inquired about the cost, but they probably are not cheap. My reason for not inquiring is for ethical reasons. I just plain don't like it! I feel that it is an invasion of privacy.

In addition, I feel that I am a professional and that there is much more to what I do than just quote a rate. My task is to make the deal work. Sometimes this is easy and sometimes it is a minor miracle. I often feel like a conductor in an orchestra trying to hold everything together. I care to much about my clients and my referral partners to not charge enough to stay in business. I'm not afraid of competition, I just don't believe that the mortgage loan is a commodity. The lowest rate/cheapest fees don't mean a thing if the deal doesn't get done.

Anyway, off my soap box.

For some, this isn't a problem. It gives you the ability to go to one lender (car, credit card,mortgage, etc.), have them pull your credit and then sit back for a few weeks and watch the vultures fight for your business. This is kind of like placing an RFP (Request for Proposal) with the credit bureaus and letting interested businesses contact you.

In that sense, I really don't have a problem. I just wish it was an "Opt in" situation. By default you have opted in.

There is a solution for those who do not welcome the barrage of mailers and phone calls soliciting your business. You can opt out by calling 1-888-567-8688 or going to http://optoutprescreen.com/faq.htm .

Your rights as a consumer under the Fair Credit Reporting Act include the right to opt out for five years or permanently. This will allow you to stop receiving credit solicitations period. It takes approximately five days for it to go into effect for the five year option and slightly longer for the permanent option.

For those who are tempted to use the lowest rate/fees remember that there is no such thing as a free lunch. There will either be hidden fees or service will be horrible. If you are buying a VCR take a chance, but if you are buying, or refinancing a home, is it really worth it?

Remodel or Sell "As Is"?

The author of "remodel or sell as is", has asked that I remove this article as it is "intellectual property" and as such I was violating copywrite law. He is correct and I apologize for using his material without his permission. I had given credit where credit was due, and was actually helping spread his message, but was not following legal protocol.

Shopping Around for a Mortgage?

HERE’S THE INSIDE SCOOP ON HOW TO DO IT RIGHT!

First: make sure you are working with an experienced, professional loan officer. The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way. But how can you tell?

Here are FOUR SIMPLE QUESTIONS YOUR LENDER ABSOLUTELY MUST BE ABLE TO ANSWER CORRECTLY. IF THEY DO NOT KNOW THE ANSWERS…RUN…DON’T WALK… RUN…TO A LENDER THAT DOES!


1) What are mortgage interest rates based on? (The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. DO NOT work with a lender who has their eyes on the wrong indicators.)

2) What is the next Economic Report or event that could cause interest rate movement? (A professional lender will have this at their fingertips. For an up-to-date calendar of weekly economic reports and events that may cause rates to fluctuate, visit www.MorrisEquityGroup.com and hit the MMG Weekly tab – this is a copy of our weekly newsletter, let us know if you want to be added to my weekly distribution list). We also have a monthly newsletter that is less techmical.

3) When Bernanke and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates? (The answer may surprise you. When the Fed makes a move, they can change a rate called the “Fed Funds Rate” or “Discount Rate”. These are both very short- term rates that impact credit cards, Home Equity credit lines, auto loans and the like. On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change. This is due to the dynamics within the financial markets in response to inflation. For more information and explanation, just give us a call).

4) Do you have access to live, real time, mortgage bond quotes? (If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!)


Be smart... Ask questions… Get answers!

More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life… but we do this every single day. It’s your home and your future. It’s our profession and our passion. We're ready to work for your best interest.


Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you must know to “shop” effectively.

First, IF IT SEEMS TO GOOD TO BE TRUE, IT PROBABLY IS. But you didn’t really need us to tell you that, did you? Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook. Is there a prepayment penalty? If the rate seems incredible, are there extra fees? What is the length of the lock-in? If fees are discounted, is it built into a higher interest rate?

Second, YOU GET WHAT YOU PAY FOR. If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, expect that you may not close at all. All too often, you don’t know until it’s too late that cheapest isn’t BEST. But if you want the cheapest quote – head on out to the Internet, and we wish you good luck. Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience. Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run. This is the largest financial transaction most people will make in their lifetime. That being said – we are not the cheapest. Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.

Third, MAKE CORRECT COMPARISONS. When looking at estimates, don’t simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls. And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and worthless as a tool of comparison.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND. This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis. For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

Again, our advice to you is to be smart. Ask questions. Get answers.

As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t pretty confident that we feel that we can give you a great value and serve you the very best.

Please call us with any further questions you may have at this time – we are ready to work for your best interest!





The Larry Morris TEAM * Integrity Lending, LLC
"When Integrity Matters"
5075 SW Griffith Dr.• Suite 100 • Beaverton, OR 97005 • 503-924-1402 Office • 603-924-1414 Fax http://www.MorrisEquityGroup.com