Qualified Residential Mortgage guidelines will limit the availability of mortgage financing options, reduce the number of buyers in the market and increase costs.

Below are the 6 agencies to send your email comment letters to:
1. Office of the Comptroller of the Currency: regs.comments@occ.treas.gov (Include in the subject line, Docket No OCC-2010-0002)
2. Federal Reserve Board: regs.comments@federalreserve.gov (Include in the subject line, Docket No. R-1411)
3. Federal Deposit Insurance Corporation, Comments@FDIC.gov (Include in the subject line, RIN 3064-AD74)
4. Securities and Exchange Commission, rule-comments@sec.gov (Include in the subject line, File Number S7-14-11)
5. Federal Housing Finance Agency, RegComments@fhfa.gov (Include in the subject line, RIN 2590-AA43).
6. Department of Housing and Urban Development, comments to be submitted through www.regulations.gov ( Include in subject line, Docket No FR–5504–P–01)

Obtaining a home mortgage is like going to the circus with a twist, you arrive expecting three rings and instead there are ten.  What begins as an offer from a buyer to a seller brings together a buyers real estate agent, a sellers real estate agent, a mortgage loan officer and a loan processor, a title company and their staff, and a home owners insurance provider.  With so many parties involved it is imperative that an experienced and knowledgeable ring leader conduct the show.  The golden rule,  “he/she who has the gold makes the rules”, puts the responsibility of ring leader in the hands of the mortgage loan officer.  Like a good ring leader a mortgage loan officer will direct your attention to the action according to its time in the show.  Underlying all the action and the parties involved is a five step process to obtaining a home mortgage.

1. Prequalifying - The most important step in the process.  It is in your best interest, prior to shopping for a new home, to talk to a loan officer.  The guidelines for the mortgage industry are constantly changing and what was an approveable loan last month might not be this month.  The prequalifying process is an informal discussion which will encompass your employment, income, assets, debts, and credit to make an initial determination about your financing options. For more information about prequalifying see my post “What is the Mortgage Prequalifying Process?”.

2. Loan Application - The formal step of the process.  Your loan officer will ask for documentation to support the information provided during the prequalifying step.  He/she will ask for two years tax returns w-2’s and 1099’s, a recent paycheck stub, and most recent bank/investment/retirement statements.  It is from these documents that a loan application is completed and the ideal loan program is determined.

3. Loan Processing - The verification step of the process. After the loan application is completed your loan file is handed off to a loan processor.  It is the job of the loan processor to verifiy the information provided in the loan application, gather additional documents to meet investor guidelines, and prepare the file for submission to underwriting. The processor coordinates the underwriting and closing process, collects documents needed from the title company, along with the buyers insurance company to obtain home owners insurance information.  The loan officer leads the show.  The processor is the stage manager making sure everything comes together on time.

4. Loan Underwriting - The validation step of the process.  When the file is completely processed it proceeds to underwriting.  The underwriter reviews the loan file to ensure that it meets the guidelines of the investor and will approve, suspend or deny the loan.  The underwriter typically requests additional information (called conditions) to support an approval.  If the loan file is suspended the underwriter will tell us what other information will be needed to get an approval.  If the loan file is declined the underwriter will tell us what factors caused the denial (ideally the loan officer caught these factors at prequalification).  After underwriting the file goes back to the processor and if the loan is approved it is on to closing and funding.

5. Loan Closing and Funding - The money and keys step of the process.  With a clear approval your loan file is ready to move to the closing department. The closing department for the mortgage company works with the title company to verify that all fees and other loan costs are accurately reflected on a HUD1 settlement statement.  When a final settlement statement is determined loan documents will be released to the title company where you will go to close your purchase.  The title company acts as a disinterested third party ensuring the closing goes according to the sales contract and the loan closing instructions from the mortgage company.  The title company will also collect and distribute all funds.  Prior to showing up for closing you will want to obtain a cashiers check for the amount shown as “cash from borrower” on page one of the HUD1 settlement statement.  Make sure to bring your check book and your drivers license as well.  Once you and the seller have signed all of the closing documents your loan funds, money is distributed by the title company, and you get the keys to your new home.

Under the big top of mortgage financing there is a lot going on.  With a good loan officer as the ring leader a complicated process will become an enjoyable show.

Now that the merriment of the holiday season is upon us I want to pass along some information in regards to your shopping and credit card habits.  A special “thank you” goes to Stacy London with Houston Capital Mortgage for sharing her insights.

Did you know that:

30% of your credit score is impacted by the category called “amounts owed”.  Credit card balances fall into this category.
20% of your score is impacted by the category called “credit utilization”.
Utilization means the amount of available credit you are using at the time of your score.
Credit utilization rate is calculated by dividing the account’s outstanding balance by the credit limit.
The higher the utilization, the greater the lowering impact to your credit score.
50% of your score is impacted by your holiday shopping habits.

Credit holiday FAQ’s & tips:

Does applying for many new credit accounts at holidays hurt your score more than applying for just one?
Yes, generally the fewer the better.

Should I use just one card for all holiday purchases?
No, it is better to spread out the debt, due to utilization shown above.
1 card “maxed out” is worse then 2 cards each with 50% balances.

What does a “maxed out” card balance do to my score?
If your score is in high 700’s=  score will drop by 25-45 points.
If you score is in the high 600’s= score will drop by 10-30 points.

Ooops I shopped too much, what if I have to pay late after the holidays?
If your score is in high 700’s= score will drop 90-110 points by a late pay.
If your score is in high 600’s= score will drop 60-80 points by a late pay.

In mortgage lending you are your credit score.  A drop below 720 and 680 will make a big difference in the world of financing

If you are curious about how the mortgage meltdown began watch this
Mortgage Mike endorsed video.  It is ten minutes long, easy to
understand, and to the point.  Thank you Rob Rule with Heritage Texas
Properties for sharing.

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Amidst all the great news surrounding the extension of the tax credit the higher loan limits for FNMA, FHLMC, and FHA  have also been extended.  The higher loan limit increases the number qualified buyers allowing more homes to be sold.  Also there is congressional support to change the current HVCC process, the article below does a great job of explaining the problems inherent with it (I could not have explained it better myself).  Mortgage Mike says; “since when does one state attorney General (Cuomo from New York) set the tone for the rest of the country?  It is about time congress stepped into the HVCC issue, considering we and the national government now own FNMA, FHLMC, and FHA.”

WASHINGTON - Could the controversial appraisal system imposed nationwide by mortgage giants Fannie Mae and Freddie Mac last May - and now tied to lowball property valuations, busted home sale transactions, and higher fees to consumers - be on its way out?

It just might be. Under a bipartisan amendment approved Oct. 22 by the House Financial Services Committee, the “Home Valuation Code of Conduct” would be terminated early in the existence of a proposed new Consumer Financial Protection Agency.

The amendment would require the agency’s director to replace the code with an improved set of rules developed through the regular administrative procedures and public comment periods used by all federal agencies. The valuation code, by contrast, was the product of a settlement among New York Attorney General Andrew Cuomo, Fannie Mae, Freddie Mac and the two quasi-private companies’ regulator, the Federal Housing Finance Agency.

Cuomo agreed to back off from an investigation of Fannie’s and Freddie’s appraisal practices in exchange for their adoption of a set of valuation rules. The code’s core purpose was to ensure “appraiser independence” from loan officers, lenders and brokers who wanted them to “hit the number” needed to get the mortgage funded, even if it meant inflating the actual value.

Though virtually no one disagrees with the goal of appraiser independence, critics say the code went overboard and created its own set of problems. According to homebuilders, real estate agents and consumers who signed protest petitions, the code has encouraged many lenders to use appraisal management companies, some of them owned by or affiliated with the lenders themselves.

Those management companies, in turn, often pay appraisers much less than their standard fees but hit homebuyers and refinancers with full charges or higher at closing. An appraisal management company, for example, might pay $175 or $200 for a valuation the appraiser previously received $375 or $400 to complete. The management company then would charge the consumer $400 or more at settlement, pocketing a large portion of the difference.

Management companies argue that they bring significant value to the equation - assembling networks of appraisers, making assignments, and handling administrative tasks. But realty agents and homebuilders say the system often causes more harm than good. The appraisers who are willing to work for rock-bottom fees tend to be less experienced, and more likely to accept assignments far from their geographic areas of competence, they claim.

The National Association of Realtors and the National Association of Home Builders have conducted member surveys that found that the appraisal system often produces valuations below the agreed-upon price in sales contracts - causing delays and disputes among sellers and buyers - and that management company appraisers use inappropriate foreclosed and distressed-sale transactions as “comparables” in their valuations of houses in non-distressed situations.

Mortgage brokers complain that the code has cut them out of their traditional role of choosing qualified local appraisers, and has forced some loan applicants to pay for multiple appraisals. When applicants are quoted an unacceptable rate or fees by one lender, other lenders often won’t accept the original appraisal. In other words, appraisals under the code no longer are “portable” as they had been traditionally, when brokers could send consumers’ application files to multiple lenders using a single appraisal.

The net effect, said Roy DeLoach, executive vice president and CEO of the National Association of Mortgage Brokers, “is that we now have a dysfunctional system that’s holding back the housing recovery. Incompetent, low appraisals not only hurt individual sales, but depress property values in entire neighborhoods unfairly.”

The amendment that would terminate the Fannie-Freddie code still has a long way to go before becoming reality. It was co-sponsored by Reps. Gary Miller, R-Calif., and Travis Childers, D-Miss., and is an outgrowth of an earlier bill that would have clamped an immediate 18-month moratorium on the code. That larger legislative proposal currently has 118 co-sponsors and could still move in the House independently.

Legislation creating the new Consumer Financial Protection Agency itself faces an uphill battle. Though the House Financial Services Committee bill has the strong endorsement of President Obama, and could pass the full House as part of a larger regulatory reform package, its future is uncertain in the Senate, where big banks and mortgage companies are massing forces against it.

What happens if the consumer agency bill falters? DeLoach said housing groups will still lobby for the 18-month moratorium proposal. Equally important, however, he added, “a major committee of Congress has now sent a clear message” to Fannie and Freddie: “Your appraisal code is not acceptable.”

• Write to Ken Harney at P.O. Box 15281, Chevy Chase, MD 20815 or via e-mail at kenharney@earthlink.net.

© 2009, Washington Post Writers Group

“The more things change the more they stay the same. ”

Alphonse Karr

I recently worked on a loan for a self employed person purchasing an investment property.  I began the process of collecting tax returns and he commented how much more paper work was needed than when he purchased his last rental property.  His comment was along the lines of “the mortgage industry was giving away money back then”.  True enough the mortgage industry was giving away money based on a 620 or better credit score and a pulse, not the case any more.  The mortgage business is requiring tax returns for self employed as well as salaried borrowers.  You can also expect the tax returns to be verified via a form 4506 and the IRS prior to submission to underwriting.

We have come full circle.  When I began my career in mortgage banking 17 years ago we made common sense loans based on verified income and assets, good credit and an acceptable property or the 3 C’s capacity, credit, and collateral.  The last five years saw a production race (based on a demand created by Wall Street), and a turn away from traditional underwriting guidelines.  Quality control rules the roost now.  Mortgage companies, consumers, real estate agents, and any party involved in the closing of a real estate transaction are feeling the effects.  Expect the three C’s to be scrutinized as a loan makes its way through the process.  Expect your loan officer to document as much as possible prior to submitting the loan to underwriting.  It is better to have the full story up front to mitigate any problems, ensure a qualified buyer and a smooth closing.  It is back to the basics.