Did You Know?

Due to the high foreclosure rates of certain loans, a lot of lenders are making it more difficult for certain clients to get a mortgage.  A self employed borrower typically writes off expenses to reduce their taxes.  Doing this reduces their overall income as it would be calculated by an underwriter.  In this case a loan officer should ask the borrower what they actually earn, in other words 'State' the amount of income they make.  This would be a 'Stated Income' Loan.  Lenders are now requiring a minimum of a 660 middle credit score for 100% financing(zero down), with more preferable rates starting at 680.  In January 2007 we could have closed a stated 100% loan with a minimum score around 600 - 620.

Problems arose because loan officers were not asking what their clients actually make; they calculated what income was needed to qualify the borrowers for a house and used that number as the borrowers 'Stated' income.  One lender did some research on their portfolio of defaulted stated income loans and found that around 60% of the defaulted stated income loans showed income that was at least double the income that the borrower actually made.  The loan officer should have given these clients a 'No Income' loan, where you only show that the person has a job or has been self-employed xnumber of years then leave the income section blank.  The rates would be slightly higher but rates only increase in proportion to the amount of risk the lenders are taking.

Next.... Lender Guidelines are Tightening Up - Subprime

....we(most states in our country) are facing the highest foreclosure rates this year.  Currently a county has 1 foreclosure filing for every 124 households, Wayne County/Detroit.  Many other counties is several states are not far behind.  Many foreclosures are due to people being SOLD into buying more expensive houses with low payments due to a loan program called the "Option ARM".

    Many times unprofessional loan officers just sell a program that makes them the most money even though it is not a good program for the client.  Option Arms were sold to people who should not have received them, even though they fit into the guidelines.  Loan programs are created for certain groups of borrowers.  The Option Arm was meant for the borrower who has periods of low to no income then have months of really good income.  For example; actors or salespeople.  It was also meant for the wealthy who at times would like more cash flow then on some of the next payments make extra payments to offset the deferred interest.

    With foreclosures increasing, so are the predators out there.  Beware of 'Foreclosure Rescue' scams.  If you are behind on payments don't become a victim.  Here is just one of the stories I was told by clients that were referred to me:

One older couple had around 45% equity in their house.  He owed about $209,000 and it was valued around $380,000.  His wife was extremely ill and ended up passing away during the scam.  He was focussing 100% attention on his wife and his bills were piling up.  A loan officer came into the picture who said she was going to help them.  After 2 more months of delays by the loan officer she said that she could not get them a loan but she had an investor that can help them.  The investor, who ended up being a 'close' friend of the loan officer, ended up talking them into signing over the house to him in exchange for catching them up on payments and a $25,000 fee(small fee he thought considering that included paying him back for back payments and he had $170,000 equity to protect).  The condition was that he bought the house back within 3 months.  Well, the house was signed over then the loan officer got the investor a HARD MONEY loan to catch up the back payments by paying off the loan and taking out a loan in his name.  To top it off the HARD MONEY loan had $25,000 in fees paid to the lender and the loan officer.  The payoff for the original owners mortgage had nearly $10,000 of fees and back payments.  Now the buyback price was $209,000(loan amount)+25,000(Hard Money loan costs)+10,000(loan payoff fees)+25,000(fee to investor)= $269,000.  Since the loan officer couldn't help the original owner purchase the house back within 3 months the investor added another $10,000 penalty plus the investor refinanced it to lower his carrying costs so those refinance fees were around $7,000. Now his buyback cost was $286,000.  When trying to purchase the house back he couldn't get a loan on a purchase because of his credit.  If the original owner got a hard money loan now their was no way he can afford the payment with the lenders fees added on plus the high interest rates.  The original owner was evicted and lost nearly everything.  The loan officer should have taken the original owner to the Hard Money lender since they lend primarily off of equity.

If you know of a person in foreclosure warn them to be cautious.  There are some good Foreclosure Rescue programs out there, but there seem to be more bad ones where the Rescue person/companies whole goal is to make it as difficult as possible to allow the homeowners to keep their house.  Feel free to contact me if you have any questions, to run a scenario by me, or to review your a Good Faith Estimate if you are unsure the loan program you are looking at is right for you and you are not being overcharged.  I will do anything I can to help.