The Loan Lady Blog

As I struggle through the toil and trouble of getting loans through increasingly difficult guidelines, I often get frustrated with Underwriters.

Underwriters are the ones who hold the final approval power on a loan.  They review every piece of documentation provided on the loan file.  They look for discrepancies or red flags on what they review.  Underwriters must make sure the loan conforms to the lender's guidelines.  If they have a question about something, or require more information, they withhold approval until the information is provided satisfactorily.

Underwriters are under great pressure these days to make sure the loan is a good loan and I do feel a little bit sorry for them sometimes. But as the "gatekeeper" on the loans I submit, I have a love-hate relationship with them--I love it when my loan sails through with an approval, and I hate it when it is not approved or I have to jump through increasingly higher hoops to get a file approved.

I doubt if any child dreams of one day becoming a loan underwriter, but if your child does, arrange for career counseling at once!

  Thursday, May 07, 2009

Bankruptcy is an uncomfortable subject for a variety of reasons. The most obvious is the potential havoc it can wreak on your finances. Running a close second is the negative stigma which is often attached to the process.  But with so many people having financial difficulties these days, bankruptcies are often discussed freely, with no shame or embarrassment.

Bankruptcy becomes a viable option for someone who is “upside down” in terms of cash flow. If someone has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.

One of the worst things people can do in this situation is to borrow more money to try and pay off their debts. It is very common for individuals to pursue this strategy in an attempt to buy time and hold off on filing for bankruptcy, however it can often compound the problem and serves only to delay the inevitable.

Here are some practical tips to keep in mind: 

1. Find a good bankruptcy specialist and follow his or her advice.

2. Establish a household budget and stick to it.

3. Save all paperwork regarding your bankruptcy, and keep it organized. You will probably need it again. Also, be sure to write down your discharge date. It’s surprising how many people forget to do this.

4. Throughout the bankruptcy, do your best to not only live below your means, but to save as much cash as possible. You never know what you may need it for once the process is completed.

5. Be prepared for a barrage of junk mail. There will be sharks on the loose who are hoping to capitalize on your need for credit.

Tips for Rebuilding Credit: 

• Get a secured credit card. Secured credit cards allow for the cardholder to deposit money into an account, thus establishing the spending limit of the card.  (Be wary of offers of “easy credit” or any card which asks you to call a 900 number. You will be charged for the call.)
• Meet with a credit repair specialist. Not only can they help you clean up the damage to your credit report, they can advise you on specific ways to rebuild the credit you lost as well.

While it does take time, there is definitely life (and credit) after bankruptcy.  I  work with an excellent credit rehabilitation company and can refer you for a free one-hour consultation.  Contact me at 408-354-5523 or paula@theloanlady.net to sign up for this. It is important to take positive steps to rebuild your credit.

Origination points are often misunderstood. Points are nothing other than interest paid at the time of closing to obtain a lower interest rate on a loan. One point is equivalent to 1% of the loan amount. If you are going to borrow $450,000 on your loan, one point would equal $4,500. This generally  generates 1/8 to 3/8 of a percent lower interest rate, depending upon the loan program.

When does it make sense to pay points? Paying points is a smart financial move, if you are planning to be in the loan for a long period of time. As a general rule of thumb, you will need to be able to recuperate the total cost of the points in a period of time that is less than the amount of time you will need to borrow the money.

As an example, let's say you are going to borrow $450,000 for your mortgage, and choose to pay one point, which equates to an initial up front cost of $4,500. If paying one point up front saves you $150 a month, this means it will take you 30 months or 2.5 years, to recover the cost of the point that you paid. If you refinance the home anytime before that 30-month mark, or decide to sell the home, you will have effectively wasted money. However, if you keep that loan for longer than a 30-month period of time, it is a smart financial move.

When deciding whether or not you should pay points, take into consideration what interest rates are when you seek financing, and compare that to historical market trends. When interest rates are at historical lows, it makes much more sense to pay points, especially if you think you will live in the property for an extended period of time. Historically low rates, combined with the fact that you know you do not intend to move would indicate you will have the loan for a long time. It is unlikely rates will go down farther, giving you incentive to refinance. Rates are cyclical. When interest rates are off of their historical lows, and higher than they generally are, we know that there is a strong likelihood rates will eventually come down. This is certainly no time to pay points. The chances of refinancing at some point in the future are extremely high, and therefore, you would not need to be in this loan for a long period of time.

I always try to be a positive thinker, a “glass half full” kind of person even though the mortgage market for the past couple of years has been challenging. I have new reasons to be positive about where things are headed, due to a number of new or improved programs that offer help to both buyers and current homeowners.

The High Balance Conforming Loan Limit is being reinstated to $729,750 in May for our high cost Bay Area. The higher loan levels will allow more people to qualify for purchase or refinance loans at rates much better than for non-conforming loans.   Although the rates on these programs have not been published yet, I’m hoping they will be priced just slightly higher than standard conforming loans up to $417,000.

FHA Loans currently go up to the $729,750 limit and continue to be popular with the low down payment requirement of only 3.5% of the purchase price. Other features that make FHA Loans the best solution for many people include credit score qualification as low as 620, and flexibility in allowing a non-occupant co-borrower to help the borrower qualify for the loan.  These are also a great tool for refinancing if you no longer have 20% equity in your home.

Would you believe you can refinance up to 105% of the value of your home? You can with a new program that is part of the stimulus package for loans currently owned by Fannie Mae or Freddie Mac.  The maximum loan limit is $417,000. This program is already helping many homeowners who have lost equity in their property. The qualifications and interest rates are comparable to conventional 80% financing.  Call me and I can check if your loan qualifies for this refinance.

FHA Streamline Refinancing is available for those who currently have FHA loans on their homes. Owners can take advantage of current low FHA rates through a smooth refinance process. No appraisal is required, which is beneficial if your property value has declined.

I remain positive about the mortgage market in California. Property values are showing some stabilization on the low end, with multiple offer situations on bargain properties. I believe the value stability will move up the price range as financing for high-end property becomes more available and the economy turns toward recovery.

In the meantime, everyone I know is cutting expenses and trying to save money wherever they can. Frugality has become chic--people are not embarrassed to say “I can’t afford it right now”. This is a good thing, a reality check to bring us back from our over-spending habits.