Most buyouts are completed by the following process: First, an agreement is made as to who will live in the home and who will have their interest bought out and this is written into the separation agreement. Next, the buyer applies for a refinance loan, to replace the old loan and take any needed cash to compensate the spouse whose interest is being bought out. Lastly, a consideration letter and a quit claim deed are signed at closing and file in the county. It’s everything that happens before and during this process that can complicate this process. There is simply no substitute for having an experienced mortgage representative handle your buyout.

Have you worked out a buyout agreement for your home? Whether you are buying someone out and being bought out all the details need to be worked out before the divorce is complete. Sometimes what you want may not even be possible. If you want to handle this responsibly you must investigate early. This investigation may determine what direction of your negotiations.

Have you checked to make sure that you can afford the ongoing expense of buying out your spouse’s interest? You would not believe how often this is not tested before an agreement is made.

Did you know if your spouse fails to make payments on the mortgage while your divorce is pending it can impact your ability to buyout their interest and ruin your credit rating? You should make sure that a spouse that is responsible to make payments to a mortgage or other accounts that you may share is making payments so that you will not have negative reports to your credit.

Have the numbers been worked out in advance? Don’t let lawyers and judges treat the subject of your buyout too casually. Often whether or not the buyout is feasible is never even a subject of consideration for people who handle divorces daily. You need to know to avoid future failures that can really put you in a financial crunch.

Have you made sure that your divorce agreement includes a date by which the buyout must take place and the ex’s name be removed from title and the old mortgage paid off? If no date is included you may wait far too long for your money and you may have to return to court to enforce or change the agreement later. NOT FUN!

Tags: divorce buyout mortgage, quitclaim deed, separation agreement, buyout, refinance, mediator

Since many people don't know how many inquiries are too many they avoid credit running entirely and subsequently hamper a company's ability to deliver an accurate quote. Unethical salespeople will attempt to prevent clients from shopping for better deals by insisting that they have stop additional credit inquiries even if the client has had no other credit inquiries recently. These people perpetuate an innaccurate picture of when to run or not to run credit.

It should be cautioned that if you have already been shopping and had a few companies run your credit or have shopped for several types of transactions during the last ninety days you could begin losing points as you increase the number inquiries. Be smart and keep track, but if you're not in double digit credit runs in the last ninety days keep your options open.

A safe bet is to verify who you're working with by looking them up in various internet or phone directories or asking for a state or federal license number before allowing them to run your credit. License numbers should be available for the asking.

Tags: credit points inquiries runs fico score

Variable rate loans or ARM loans can be tied to a number of indices, but the most prevalent are The US 1-Year Treasury Bond and the LIBOR or London Inter Bank Daily Rate. If your variable rate loan is tied to one of these loans and you're past the introductory period you can track upcoming changes by looking up these indices and comparing them to where they were when you originally took your mortgage loan.

Home Equity Lines are tied to US Prime Lending Rate, sometimes just called "Prime Rate". This index is more volatile than the others and such loans often have no rate cap at all. In the both 1970's and 80's there were significant rate spikes in the US Prime Lending Rate.

If you're interested in knowing where the mortgage market is going or where it's been you no longer have to rely on vague or innaccurate information, you can just look it up.

Tags: rates banks rate setting trends index prime

Long overdue.

Chicago Tribune:

Sen. Barack Obama (D-Ill.) proposed a sweeping set of federal reforms Tuesday to combat mortgage fraud, ratcheting up enforcement and creating a national database of brokers who have been disciplined.

Obama's bill would increase funding for federal law enforcement programs, create new criminal penalties for mortgage professionals found guilty of fraud and require industry insiders to report suspicious activity.

Mortgage fraud is "robbing thousands of Americans of their dream of homeownership, and costing the mortgage industry hundreds of millions of dollars each year," Obama said. "Congress needs to come to the table and do its part."

Currently, neither lenders nor consumers have a systematic way to review brokers who have been sanctioned, having to rely instead on disparate sources from state banking departments for public notices. The new legislation would create a single database whereby lenders and consumers could check to see if a particular mortgage broker is a worthy originator.

The original Chicago Triune investigative report which uncovered the growing problem of drug dealing gangs scamming low-income families, and spurred the Illinois Senators to action can be found here: Mortgage Fraud: The New Street Hustle.

Tags: mortgage fraud legislation fbi

On the surface, a torrid pace of housing starts seems to be a good thing for the economy, but in this case it appears that the weather has skewed the data from home heating (way down) to retail (way up, especially in building materials.) After December's very disappointing figures, January's numbers may not add up to an increase in demand for this year, but merely a shift in timing.

The Washington Post reports:

But all that good news could have a downside. Good weather generally doesn't result in new houses being built or additional money being spent; it merely shifts around when those houses are started or when that spending occurs. For example, because Bozzuto began work on those Baltimore County townhouses in January instead of March, there will be that many fewer housing starts in March.

"An unusually warm January borrows some housing activity from future months," said Bill Cheney, chief economist of John Hancock Financial Services Inc., suggesting that February and March housing data could look weak in comparison. That said, he and most economists believe that there genuinely is a healthy economic expansion underway -- just one that is less explosive than economic data of the past week would suggest.

There is also a chance that the weather worsens from here and that cold times could delay new houses, postpone shopping trips and raise fuel bills. In construction, at least, Bozzuto said he has just enjoyed the favorable turn of events.

Tags: housing starts economy weather demand

Bloomberg News:

Higher home prices and borrowing costs will curtail demand this year, according to real estate industry forecasts. Demand for refinancing and home equity loans, which have driven consumer spending and boosted economic growth, may also fade. Federal Reserve Bank of St. Louis President William Poole said business investment will begin to replace housing as an engine of growth.

Today's data shows existing home sales at a two year low for December, falling by 5.7%, though houses up for sale rose slightly. This scenario of more houses on the market and lower sales dovetails with predicitions of a cooling real estate market, and transition to a buyer's market from a seller's market.

New home sales figures are due from the Commerce Department on Friday.

Tags: realestate data housing homeprices rates interest

A recent article on Bankrate entitled "Mortgage borrowers know that they don't know much" sums it up:

The need for consumer education underlies all three of these surveys: Radian's, which found that homeowners wish they knew more about mortgages; Freddie Mac's, which reported that delinquent borrowers don't know their options, and LendingTree's, which uncovered confusion about all kinds of debt.

The difference can be absolutely staggering between loans specifically structured to suit your unique situation, versus a rush job by unknowledgeable lenders or brokers who don't apprise you of your options, or keep you in the dark about programs designed to save you money. Over the course of an average thirty year mortgage, such subtle distinctions can mean five or even six figures in savings, if your loan is handled correctly from the onset. Conversely, it can also mean six figures in extra payments if handled poorly. And who wants to spend hundreds of thousands more for the same product?

Since a home purchase is likely the single largest purchase most people will ever make, it's only rational that borrowers would seek to educate themselves at least as much as they do for, say, a new car purchase. While the fun is found in the home you're buying, rememeber that the devil is in the details.

The solution?

But who should do the educating? Radian recommends "lenders and others in the financial services arena."

We're doing all we can. ;-)

In addition to the articles posted here, you can get free government info packages via our website here, or peruse these helpful links:

• Understanding the Process and Your Right to Fair Lending (Federal Reserve)
• What you should know about Home Equity Lines of Credit (Federal Reserve)
• The Borrower's Bill of Rights (Mortgage Bankers Association)
• The Ten Warning Signs of Predatory Lending (Mortgage Bankers Association)
• Mortgage Consumer Bill of Rights (Fannie Mae)
• Stop Mortgage Fraud (Mortgage Bankers Association)
• Consumer Handbook of Adjustable Rate Mortgages (PDF -- from Federal Reserve)

The Washington Post writes:

A plan by Fannie Mae to make $10 billion worth of home construction loans over the next 10 years has renewed calls among banks and lenders for legislation that would tighten regulation of the housing finance giant and its sibling, Freddie Mac.

Although the company first announced the plan as part of an affordable-housing initiative two years ago, remarks made yesterday by Fannie Mae chief executive Daniel H. Mudd at a gathering of the National Association of Home Builders in Orlando stirred concerns in the banking industry about a move by the giant company into construction finance, a $350 billion industry.

Even though the District-based company is struggling to overhaul its books after a multibillion-dollar accounting scandal, its critics contend that the government-chartered firm has a competitive advantage because it can borrow money more cheaply.

Back in October, the House overwhelmingly passed stricter GSE oversight regulations, but the bill died in the Senate shortly thereafter. Expect calls to the Senate to pick this issue up again in the face of Fannie Mae's announcement.

After months of consecutive rate increases by the Fed, and many experts predicting higher rates in 2006, Lereah suggests that sellers across the US may have to adjust their expectations in the coming months, but most especially in the Northeast.

The Northeast has experienced the largest downturn, in the face of baby boomers retiring and migrating to warmer climes. Where home prices were increasing at rates of 16.7% year over year, Lereah suggests we may now be looking at a slow leak, with home prices only expected to increase 5% overall this year. Some localities, especially those experiencing job losses, may even see negative numbers in the coming months.

With the new bankruptcy law in force this fall and credit card companies virtually doubling their minimum payments within the next few months, a major shift in American personal finance has arrived. The new bankruptcy legislation was signed into law in April 2005 and took effect on October seventeenth. This new law makes it significantly harder to discharge debt through bankruptcies and will benefit credit card companies by significantly reducing losses they experience due to bankruptcies. In a related move, prompted by a 2003 directive, credit card companies in America are raising their minimums, ostensibly to improve a borrower's ability to payback their balances more quickly and encourage more prudent use of credit cards. With two such important changes happening simultaneously there will undoubtedly be some negative long and short term effects and perhaps even some benefits.

Bankruptcy laws enable individuals who have created too much debt to either decrease their debts and re-organize the remaining balance into a more manageable monthly payment, known as a chapter 13 bankruptcy; or to entirely discharge all their debts and give the individual a fresh financial start, known as chapter 7 bankruptcy. In both cases the aim is to allow these individuals to regain a financially viable footing, by enabling them to keep their home and car and start again. These individuals also pay a penalty for claiming bankruptcy as their credit reports are clearly marked for up to ten years with a record of the bankruptcy. The stigma attached to borrowers with bankruptcies limits their ability to borrow and increases their cost to do so for years to come. These long term consequences mean that declaring bankruptcy is far from a free ride for people in debt.

On the corporate side, lenders have long argued that past bankruptcy laws were too lax and slanted in favor of debtors, granting unwarranted bankruptcy protection that allowed debtors to abuse the system. New bankruptcy laws are specifically aimed at preventing bankruptcy abuse. These laws will clearly bring benefits to corporations, recapturing much of what was once lost through looser bankruptcy protection laws. Since the goal of this law is to re-balance a system deemed to be full of loopholes it seems that small business owners who are owed money and large credit card and financing corporations stand to gain the lion's share of the benefit.

The new bankruptcy laws in action force individuals seeking bankruptcies to run a much more stringent gauntlet to qualify for bankruptcy than ever before, preventing significantly more people from obtaining bankruptcies and forcing many more than before to payback monies owed on a chapter 13 repayment plan. Thus far there has been no great public outcry from individuals who feel that the new laws are unfair, but the law is still quite new. Opponents of the new law feel that the law may prevent individuals with extenuating circumstances, such as losing jobs, or severe illness, from obtaining protection they genuinely deserve. There may soon be stories of financial ruin emerging ever more frequently now that these laws have tightened. Especially, because many people are about to experience a big surprise that's about to make the transition to new stricter bankruptcy laws a reality for them.

Starting in January 2006 the major credit card companies have been directed to raise their minimum payments to approximately twice their former levels. Up until now most credit card minimum payments were 2- 2.5% of the balance owed, so a $5,000 balance would cost about $100-$125 per month. At this rate such a debt could take over twenty years to pay back. With the new minimums in force this same $5,000 balance is going to cost $200 each month. The extra principal will be applied to lower the balances owed faster. But, for the millions of American's who are already carrying too much debt and barely making ends meet there may be a crisis this winter, as they find themselves paying nearly twice what they're used to paying to their credit cards. Normally, such a dramatic change in payments would be enough to push many consumers over the edge towards bankruptcy. However, with the tighter laws in place, it would seem that many will find themselves between a rock and a hard place, unable to handle the increased minimums on the financed debts and unable to qualify to discharge the debts through bankruptcy.

It's quite likely that even in a mortgage market with significantly increased rates during the last year that many of these financial refugees will need to find shelter by refinancing their homes and taking second mortgages. It seems that this winter and spring a mortgage boom could be in the offing to rectify many American's finances. While many who hold high credit card balances will benefit from using the equity in their homes to stabilize their finances, others who do not own homes, and may not qualify for bankruptcies may have hard times ahead.

Unquestionably, the old 2% credit card minimums that spread out paybacks on purchases over twenty years or more are clearly bad for the long term financial health of consumers, in the short term the cure may seem worse than the disease. While raising credit cards minimums seems a responsible idea on the whole, which will force consumers to spend more judiciously, the implementation of these increases in a matter of months, as opposed to a gradual increase, may have unintended consequences and will likely make for a much rougher transition. In an economy largely fueled by consumer spending such changes could have a negative effect on the economy in 2006, even if the intent is to promote better financial habits among Americans.

Tags: bankruptcy law congress creditcard payments

by Matt Killikelly

As the competition in the lucrative mortgage market increases lenders are offering more niche market products, which target transactions outside the norm, to gain an edge on their competitors. This influx of specialized products creates wider loan availability to borrowers than ever before; increasing the possibility to each individual borrower that a product exists that really serves their needs perfectly. Obviously, these products present a a benefit to borrowers when applied to the proper situation. However, this same range of products that bring benefits to clients can also make a consumer’s head spin. Without careful consideration and good guidance a borrower could end up with a loan that simply does not suit their needs. With the dizzying array of loans available to choose from consumers are faced with a difficult choice when selecting which mortgage loan is right for them. A bad choice made on the loan program can cost a borrower immensely. What's worse, is that the problems can occur at either end of the spectrum, when a borrower or loan officer is too aggressive, or so careful that they cost themselves money.

What should a consumer look for for best suit their needs? Getting some good advice is a smart start. Many consumers get so wrapped up in price shopping that they miss an opportunity to work with a seasoned professional loan officer who can help them avoid some real pitfalls within the mortgage industry. A true mortgage industry professional with years of experience can help borrowers select niche market products when necessary and avoid problems that plague consumers who take bad advice or are not particularly financially savvy themselves. A loan officer who asks a lot of questions about your particular needs and future plans before quoting prices and programs will often present better and more appropriate products.

Unfortunately, borrowers, whose misconception that price is the only factor, will often gravitate to inexperienced loan officers that promise low price and sometimes deliver this in the form of niche programs that do not fit the needs of their borrower. Although negative amortization loans, variable rate loans, prepayment penalties and loan discount points are all viable and beneficial options under the right circumstances they are often misused and misunderstood by borrowers and loan officers alike.

Problems with misuse of products are often made worse when a lender fails to ask key questions that could reveal huge benefits to the consumer. Conversely, there are times when a lender is suggesting the use of of niche market product that is not beneficial to the borrower, this could also cost the borrower money. Such oversights, when a borrower may unwittingly end up with a loan that does not truly meet their needs, can cost a borrower thousands over the life of a loan.

One very common example is when a borrower takes a fixed rate loan even though they do not plan to live in the home more than a few years. A variable rate loan fixed for five or seven years would carry a significantly lower rate, and in the specific case of this borrower, cost a lot less per month. Imagine the amount of money saved in just five years if the difference between a fixed rate loan and a variable fixed for five years saved only one hundred dollars: a borrower that moved to a new home after five years, who took the wrong loan would have lost six thousand dollars. All of this money would have been saved if the bank or broker had simply asked the borrower what their plans were and explained why a variable rate loan might have been a better fit in this case.

Taking a fixed or variable rate loan is not the only question or place where mistakes with regards to mortgage financing can be made. There are also many other mistakes that can cost consumers many thousands of dollars or even endanger the very ownership of their home. Loans such as pay option ARMs with the potential for negative amortization can be very good loans for someone with very good cash-flow, but for many homeowners this loan can be a major mistake. Recently, as costs to own homes increase proportionately faster than borrowers incomes, niche loans, like pay option ARMs, that were once unusual have become far more common. Pay option ARM loans, also described as “negative amortization loans” are complex and fit only a very specific type of customer's needs for long term financing. Unfortunately, there is nothing to prevent a bank or broker from making this loan for a client who is grossly unsuited for this loan type. To understand how this loan could be a bad choice for someone, who for example is on a fixed income, look no further than what this loan is and what it is capable of doing.

A pay option ARM mortgage is a variable rate loan with a fixed, graduated monthly payment schedule that starts with monthly payments approximately half as much as those of a normal thirty-year amortizing loan. Sounds great until you realize that in order to achieve this low payment the client must be willing to have a loan wherein the principal balance they owe will quite likely increase significantly and the monthly payments will also increase over the life of the loan.

The structure of this loan is why a Pay Option ARM loan is not for everyone. Each monthly statement from the lender offers the client the option of paying a minimal (scheduled payment) in which the principal is not reduced and the payment may also not be sufficient to cover interest due for that month; in such cases the unpaid interest gets added back to the principal balance. Hence, the term “negative amortization” which indicates that the principal balance is actually increasing.

Each monthly statement also offers options to pay higher payments, which if the borrower is able to pay one of these options, would prevent the loan from adding unpaid interest back to the principal. But, these options require significant payment increases to overcome the deficiency between the minimum payment and what is needed to amortize or at least keep the principal from increasing. The inherent danger is that the borrower's capacity to repay the loan is qualified off of the lowest payment option, thus creating the opportunity for borrowers that have no hope of affording any of the higher payment options to take pay option ARM loans anyway.

Simply put, these loans are best suited for self-employed people with very strong cash flow, or a client whose income will increase dramatically in just a few years, such as a doctor in their residency. However, not many people can predict with reasonable certainty that their income will increase dramatically in just a few years. For an unsuspecting senior citizen or anyone on a fixed income this loan is an unmitigated disaster.

The sad fact is that many people simply hear the things that sound good and ignore the downside until it becomes a painful reality. If the real estate market in a particular area takes a dip in value, people with increasing principal balances and declining property values could find themselves unable to even sell their homes because they owe a mortgage lender more than the home's market value. Albeit this may be a worst case scenario, but in an real estate market with an unsure future this could be a reality for many families.

Most consumers do not really understand how complex the mortgage market is. Lenders marketing to the public often oversimplify these complexities and to be fair, it’s probably impossible to make such a complicated subject clear to everyone. This means that no matter what laws are made to stop abuse or misuse, or what efforts are made by lenders to educate their employees and borrowers, there will be clients that end up with the wrong loan for their needs. Furthermore, extra caution will not suffice to avoid problems; one must actually research and learn what is best for themselves. A borrower can err just as easily on the side of caution as be too aggressive, as in the example of the borrower who paid a fixed rate for five years when a variable loan would have been the better choice for their long term plans. There is simply no substitute for working with honest mortgage industry professionals who put your specific needs first when helping you choose a program.

Tags: mortgage loan comparison fixed adjustable option interest-only

by Matt Killikelly

Many borrowers ask the question: Is it in our best interests to pay upfront points when buying or refinancing a home? Short answer: it depends. There is no hard and fast rule.

It’s a shame that many misguided “rule of thumb” answers are still circulating at the family barbeque or being touted within the trusted walls of the accountant’s or attorney’s office. The real answer depends mostly on the borrower’s plans for remaining in the home and their budget. There is a simple test that a borrower can conduct themselves to see what’s best for them. Read on.

First...what are “points”? A point is one percent of the loan amount, paid by the borrower at closing. This percentage can be paid either out of their pocket upfront, or taken directly out of the proceeds of a refinance loan. One point paid on a $200,000 loan would cost a borrower $2,000, two points would cost $4,000, etc. So, a point typically means that more money is required at closing. So why pay points? What advantage does that give the borrower?

Just as you consider the bird in the hand to be worth two in the bush, so does the lender.

With the assurance of points paid upfront, the lender is willing to offer a lower interest rate to the borrower. In other words, points can be used to “buy down the rate”. On a long-term loan commitment, the one or two percent paid upfront can mean tremendous savings for the borrower over the lifespan of the loan, due to lower interest rates against a large principal sum.

The most common misconception among borrowers is that no points upfront equals a better deal for them. This common bias against paying points can actually work against the best interests of the borrower.

The real answer depends on three variables:

1. How much lower is the rate as a result of paying points upfront?
2. How long does the borrower have to stay in this mortgage to recoup and ultimately come out ahead?
3. And
   finally, if the borrower is planning on holding the loan past the
   break-even point, can they afford to lay out the money to pay the
   points comfortably?

A loan without loan origination points paid carries an inherently higher rate and therefore a higher monthly payment. So, if a borrower pays points the closing fees will be higher, but the monthly payment will be lower, thus creating the “break even point” for having paid points.

The break-even point is the time after which the investment of points to “buy down the rate” is overcome by the accumulated monthly savings which result. If the borrower then holds the loan past this moment, paying the loan origination points becomes a good investment and saves the borrower money. If however, the borrower refinances the loan or pays off before the break-even point, paying the points becomes a financial loss.

Here's an example using a $200,000 purchase mortgage:

a) $200,000 (0 points paid) @ 6% = monthly payment $1199

b) $200,000 (1 Point paid, $2,000 upfront) @ 5.5% =monthly payment $1135

Option b costs $64 dollars per month less than option a.

Therefore; the $2,000 in points will break-even in 31 payments. Each payment beyond payment 31 saves the borrower an additional $64 above the cost. If this borrower held this loan for the remainder of the thirty years paying points would have netted them a total savings of $21,056. This is a huge benefit for the borrower.

What borrowers must avoid at all costs are “rules of thumb” such as “never pay points” which simply ignore beneficial strategies that can really pay off for a borrower under the right circumstances. These rules are oversimplified and meant to cover all situations and borrowers in exactly the same way. And they are wrong. Instead of hurting yourself by ruling out origination points, ask your loan officer a series of questions to see whether it's the right move for you.

a) What are my point options?

Have your loan officer make a spreadsheet that maps out
upfront costs, rates, and payments for loans with 0,1, and 2 points.
Calculate monthly savings difference in options and determine a
points-paid/break even point in number of months.

b) Next, ask yourself, how long do I realistically expect to hold this
loan? Do I have any reason that I know I will be selling my home soon
or a planned refinance at a particular point? Is this timeframe shorter
than the break-even point?

If you plan to hold the loan beyond the “break-even point”, it makes sense. If not, no points should be paid.

c) Can I afford to pay for the points on my purchase loan or out of the proceeds of my refinance?
Here you have your answer.

What gives rise to the dogma that says “never pay upfront points” in the first place? After all, every borrower wants the best deal, don't they? So why cast out what may be a tremendous tool for savings in the borrower's arsenal?

Well, it’s a fact that some banks and brokers simply charge a higher premium for their services for the exact same product. Leveling the playing field here is simply a matter of a side-by-side comparison.

Although present laws do not require lenders and brokers to guarantee your actual price until the time of closing, it is advisable to borrowers get a complete loan application, fee agreement, truth in lending statement and good faith estimate from your loan officer as early as possible in your process. As long as both companies have included an accurate representation of fees that you will see at the closing and the loan programs and options within the programs are the same you can choose the lower A.P.R. and know you’ve taken the better deal. When doing such a comparison, compare the following side by side:

a) Loan amount
b) Term of loan
c) Loan type
d) Upfront points
e) Pre-payment penalties
f) Rate Lock period
g) A.P.R (Annual percentage rate)
h) Closing fees

If a proactive borrower follows these guidelines, does their homework and levels the playing field, intelligent loan buying decisions can be made systematically. A federal “Truth-In-Lending” disclosure will help you level the playing field between lenders, by allowing you the opportunity to compare the A.P.R. or annual percentage rate, which represents the real cost to borrow. Check that the A.P.R. at closing is not significantly higher than the A.P.R. on your original application.

Borrowers often inquire about other pricing differences that derive from different products (for example variable vs. fixed rates) as well as product options (such as taking on pre-payment penalties, balloons and interest only payment options). All are legitimate ways for a borrower or bank to manipulate rates to fit a particular need.

Unfortunately, lack of understanding by both borrowers and loan officers, and misapplications of these methods often interfere with clients ability to use these options in their favor. Just like paying points -- there are times to use any of these options and borrowers should be willing to explore such options with an open mind, but cautious of the ramifications if they are not applied properly.

Tags: mortgage upfront points buying rate

by Matt Killikelly

Everyone who has ever sold real estate, or sold anything for that matter, knows just how challenging the world of sales can be. A realtor is faced daily with demands of buyers and sellers, deadlines and contracts, along with doing everything else it takes to be successful in our field. Of course most people would not sign on for such a high stress occupation without the strong incomes that reward those who perservere at such a demanding job. Let’s face it; many people are simply unwilling or unable to do what it takes in spite of the great compensation available to those few who succeed. For those who go on to become top producers in the field there are some secrets learned along the way that allow us to maximize our efforts in a number of areas. One way realtors can do this is to form alliances in related industries, such as the mortgage field, which can help make the most of opportunities and actually result in a higher income. We’ve all heard that eighty percent of the sales are usually made by twenty percent of the sales people, and forging alliances with strong mortgage professionals is an important ingredient in the recipe for success.

Realtors are faced with a complex sale, and sometimes get so involved in selling that a very important fact gets overlooked: nearly every sale requires a mortgage. So, why then are all too many guilty of assuming that the mortgage is nearly a forgone conclusion when it can make or break the transaction as well as harm your valuable reputation in so many instances? Moreover, many lack the true understanding of what their erstwhile counterparts in the mortgage field can do to improve closing ratios, avoid wasting time and send clients to your doorsteps. A lack of attention to this relationship can cost dearly.

For example, how many times have you been so excited to get out and show a prospective buyer some homes that you really think will fit their tastes, that you never bothered to determine if they could afford the asking prices? After all, what they want and what they can afford may be worlds apart. Worse yet, you might have spent several days showing homes to someone that ultimately is unable to qualify for a loan at all. If you’ve kicked yourself for this in the past you must remember that targeting a realistic goal for your prospect’s financing should go before any other work you do. High performing realtors often ask prospective clients to fill out a basic information sheet, which is then relayed to a mortgage company for immediate analysis. Obviously, clients have the right to do their mortgages where they choose. But, this analysis, made by a reliable mortgage professional, can often reveal limitations that can help us redirect the sale to make sense and in some cases will prevent the exasperation of showing a number of homes to an unqualified buyer. In short, your mortgage relationship can save you time and every salesperson will tell you that time is money. Therefore, if you spend your time unwisely you will lose income, if you spend it well you’ll prosper.

Another way that you can capitalize on your relationship with a mortgage person is by trading referrals. After all, what salesperson among us couldn’t use more prospects? By maintaining weekly contact with select (read: highly competent) mortgage people, and sending them referrals for clients who need financing one would obviously expect referrals in return. Remember that just as clients come to realtors without having first explored mortgage financing, there are also people visiting their local mortgage banker or broker to feel out their financing opportunities before they ever even look for a home through a realtor. So why not trade? Since you can both help each other this is a match made in sales heaven. This method is a simple and effective way to increase your production. However, there is one important caution to note with such referral relationships. These alliances can be fragile, especially if one person or the other neglects their duties within the agreement. To avoid building and losing such relationships they must be reaffirmed consistently. By doing this you can make certain that the referral pipeline keeps flowing. A weekly call and perhaps a monthly lunch should ensure that this valuable relationship remains healthy.

There is still yet more help your mortgage professionals can render. This comes in the form of supplying the realtor with full underwriting approvals, which the realtor can submit to the seller at the time bids are being considered. This comes into play in two common situations. First, if your buyer has a more risky credit profile or can only put down a low down payment; both of which are often a concern to sellers with regards to the buyer’s ability to actually complete a transaction. Secondly, in situations where multiple bids are being submitted to a seller. When submitting bids this is a very good idea to increase the chances that your buyer’s offer is accepted over other offers by submitting a full underwriting approval for a loan. Of course, this requires additional effort by your mortgage contact to be sure, and it still does not guarantee that your buyer’s offer is the one accepted, but there is no question that sellers are more inclined to accept an offer supported by a full underwriting approval than one accompanied by a flimsy letter stating that a customer can get a loan. Certainly, any realtor who has had a problematic mortgage situation ruin a transaction and cost them a huge commission is aware that most pre-qualification letters that lack the proper diligence and expertise are worth no more then the paper they are printed on. While we can’t expect a full approval for every transaction it’s certainly fair to ask your mortgage counterpart for help in the instances where it can make the difference between going through the motions with yet another risky client or multi-bid scenario and bagging significantly more sales.

Understanding the nature of the symbiotic relationship between realtors and mortgage professionals can be a huge benefit to a realtor. Establishing such relationships may require some work to find the right type of mortgage people; who are willing to walk the walk and not just talk the talk. However, once the relationship is established, incorporating these simple ideas into your relationship with mortgage professionals will not only make your job as a realtor less stressful but will also assist you in maximizing your sales opportunities. As long as we’re taking the risk of being sales people we may as well reap the most reward we possibly can. This is a great way to ensure that success.

Tags: mortgage realtors sales partnership

by Matt Killikelly

A bi-saver takes an existing loan and essentially forces the borrower to pre-pay principal toward a loan in order to shorten the term.

There are two issues I do not like about bi-savers. First, bi-savers usually have a fee attached, anywhere from $200-$600 yearly for the servicing. The second issue is the way they are sold -- most customers don't realize that it's not the fact that the payments are made bi-weekly that makes them save more, it's the fact that by paying bi-weekly the client actually pays more money towards their mortgage over the year and that's what makes the savings.

In essence the bi-saver simply forces a customer to pre-pay a loan using their own money, something they can do on their own. The rub is that the bank charges to do this. In reality, any customer can do this themselves without any expense just by adding a small amount to their regular payment. Here's what I mean:

Normal payment

Normal monthly payment $1000

Normal year = $1000 x 12 payments = $12,000 in mortgage payments made

Bi-saver

Bi-saver payment $500 every two weeks
Bi-saver year = $500 x 26 payments = $13,000 in mortgage payments made
Cost: $200-$600

Voluntary pre-payment
Voluntary customer pre-payment of $84 per month = $1084 monthly payment
$1084 x 12 payments = 13,008 in mortgage payments made
No additional cost to borrower and 12 regular payments made.

My main reason why I dislike bi-savers is the way they are sold to customers. The bank is not explaining that what the bi-saver does is simply make a customer pay more. Is there benefit? Yes. But, the same benefit can be obtained without a cost to establish. In my mind, if customers knew what I know, the bi-saver would simply not exist, at least not with a charge attached.

Tags: mortgage pmi bisaver amortization

By Matthew Killikelly

Borrowing money is different than other financial transactions in that the risk to the lender is ongoing so long as the loan exists. This means that the bank's profit margin is not calculated solely on cost to provide the borrower with the service less the cost of the product as in other purchases.

In the case of a loan the qualifications and history of the borrower, the amount of investment by the borrower and even property type and occupancy status of the property being collateralized are weighed to determine a unique risk profile for each loan. Every aspect of the transaction is carefully considered before a bank makes any solid offer for interest rate or closing fees.

Here are the factors considered by the lender in pricing your loan:

Transaction type-What are the customer’s needs?

1. Purchase of existing property that has been built recently.

2. Purchase of property currently being built by a builder or about to be built.

3. Land Loan i.e. Buying undeveloped land for later development

4. Construction on land borrower already owns

Income type-How is the customer showing income?

1. Employed with verifiable income-Works for same corporation more than two years. Showing two years W-2’s, last two pay stubs and tax returns if necessary.

2. Self employed verifiable income-Owns
   a corporation, partnership or sole proprietorship. Has filed business
   tax return for at least two years. Can show other evidence of
   self-employment such as business license or CPA letter.

3. Stated Self Employed-
   Can prove self-employment for at least two years, but is unable to show
   adequate income on tax return to make debt to income ratio parameters.
   (Increased risk for lenders)

4. Stated Wage Earner-

   Works for company and may have other undocumented income but is unable
   to verify enough income for debt to income ratio parameters.
   (Additionally increased risk for lenders)

5. Stated, Stated- Unable to provide any employment or income information of any kind. (Significant risk for lenders)

Credit grading-What credit history can the borrower present to the lender?

1. Lender considers scores of borrower 450-850

2. Lender looks at all mortgage histories for lateness and defaults on past and present loans.

3. Lender
   reviews catastrophic credit events, if any, such as Bankruptcies,
   judgments, charge offs, collection accounts, state and federal tax
   liens, child support etc. All outstanding balances on past catastrophic
   credit events are weighed based upon recency and severity. Any unpaid
   balances are usually required to be paid off prior to closing on
   additional loans.

4. All other non-catastrophic adverse credit events are considered also based upon recency and severity.

Down payment-What percentage of the purchase price is being put down towards the new transaction?

1. Lenders consider 20% of the purchase
   price a normal down payment for any transaction. All lower down payment
   transactions will effect pricing in some way.

2. Lenders
   mitigate risk on low down payment loans by requiring a borrower to pay
   PMI insurance or breaking loan into two parts called piggybacking.

Property type-What type of risk is associated with the property type being bought or constructed?

1. Property is residential single-family dwelling and freestanding.

2. Property is residential single-family dwelling and attached to another. Sometimes a townhouse or row-home.

3. Property is residential two-family dwelling or mother-daughter and freestanding.

4. Property is residential two-family dwelling or mother-daughter and attached.

5. Property is a low or hi-rise Condominium.

6. Property is a low or hi-rise Co-Op.

7. Property is 3-4 unit multi-family dwelling. *

8. Property is a 5 or more unit multi family dwelling. *

9. Property is a mixed residential/commercial use. *

10. Property is undeveloped land.

11. Property is commercial office space. *

12. Property is commercial light industrial use. *

13. Property is commercial heavy industrial use. Environmental concerns may play a role. *

* If multi-unit complex or building is being constructed, are units pre-sold or pre-rented? Is the transaction speculative?

Occupancy status-What will the occupancy status of the property be?

1. Owner occupied

2. Vacation home

3. Non-owner occupied rental investment

Assets for down payment- How much in verifiable sourced and seasoned liquid asset is available at the time the contract is signed?

1. Need copies of bank statements from checking or savings

2. Need copies of 401k, 403B or other deferred compensation account being used.

3. Need copies of Annuity, IRA, mutual fund or other investment account.

PITI assets- How many payments of Mortgage Taxes and Insurance will remain in liquid asset after the transaction is complete?

1. Need copies of bank statements from checking or savings

2. Need copies of 401k, 403B or other deferred compensation account being used.

3. Need copies of Annuity, IRA, mutual fund or other investment account.

---

Matthew Killikelly is the President of USA Liberty Mortgage Inc.,
a registered mortgage broker in New York, Florida, Connecticut and Massachusetts.