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Finance Friday: CFPB launches new Mortgage Performance Trends Tool for tracking Delinquency Rates

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) announced the launch of a new Mortgage Performance Trends tool that tracks delinquency rates nationwide. Information newly available through this tool shows that mortgage delinquency rates nationally are at their lowest point since the financial crisis. In addition to national data, the online tool features interactive charts and graphs with data on mortgage delinquency rates for 50 states and the District of Columbia at the county and metro-area level. 

“Measuring the number of consumers who have fallen behind on their mortgage payments is a telling barometer of the health of mortgage markets locally and nationally,” said CFPB Director Richard Cordray. “This rich information source identifies mortgage delinquency rates down to the county and metro-area level, making it a useful public tool.” 

With a combined value of roughly $10 trillion, mortgages make up the nation’s largest consumer credit market. A delinquent mortgage is a home loan for which the borrower has failed to make payments as required in the loan documents. If the borrower can't bring the payments on a delinquent mortgage current within a certain time period, the lender may begin foreclosure proceedings. Whether consumers can make their mortgage payments is an important sign of the health of the mortgage market and the overall economy. For instance, job growth, higher wages, and higher home values generally lead to fewer missed or late mortgage payments. 

The Mortgage Performance Trends tool measures the delinquency rates in two general categories. The first category is comprised of borrowers who are 30 to 89 days behind on their mortgage payments, which generally means they have missed one or two payments. Tracking this rate can detect trends in the increase or decrease in the number of delinquencies, and act as an early warning sign for mortgage market developments that impact the overall economy. The second category is serious delinquencies, which is made up of borrowers who are more than 90 days overdue. If high, this rate reflects more severe economic distress. 

The interactive charts and maps in the tool track monthly changes in both categories of delinquency rates starting in 2008, when the financial crisis was unfolding. Leading up to the crisis, some lenders originated mortgages to consumers without considering their ability to repay the loans. The decline in underwriting standards led to skyrocketing rates of mortgage delinquencies and foreclosures. As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB put in place rules to address the issues that helped trigger the crisis. These rules require lenders to assess a borrower’s ability to repay a mortgage before making the loan and require servicers to assist borrowers struggling to repay their mortgages. Mortgage delinquency data reflected in the Mortgage Performance Trends tool shows that among other things: 

• Rates of serious delinquency are at the lowest level since the financial crisis: According to the data, the national rate of seriously delinquent mortgages peaked at 4.9 percent in 2010. As of March 2017, the rate had fallen to 1.1 percent, the lowest level since 2008. Colorado and Alaska have the fewest serious delinquencies, with 0.5 percent. New Jersey and Mississippi have the highest rates of delinquencies of more than 90 days, with 2.1 percent. For mortgages that are delinquent by less than 90 days, Mississippi has the highest rate, at 4.3 percent. Washington State has the lowest rate, at 1 percent.
• Most states hardest hit by the housing crisis have steadily recovered: At the peak of the financial crisis, both California and Arizona had rates of serious delinquencies of 7.5 percent and 7.6 percent, respectively, and both are now below 1 percent.  Nevada, which peaked at 10.7 percent, now has a serious delinquency rate of 1.2 percent, nearly the same as the national average. Florida, which peaked at 9.0 percent, now has a rate of 1.4 percent. 

Information in the Mortgage Performance Trends tool comes from the National Mortgage Database, which the CFPB and the Federal Housing Finance Agency launched in 2012. The database supports policymaking and research, and helps regulators better understand emerging mortgage and housing market trends. The National Mortgage Database includes information spanning the life of a mortgage loan from origination through servicing and captures a variety of borrower characteristics. It is a nationally representative sample of all outstanding, closed-end, first-lien mortgages for one-to-four family residences. 

The Mortgage Performance Trends tool has many protections in place to protect personal identity. Before the CFPB or the FHFA receive data for the National Mortgage Database, all records are stripped of information that might reveal a consumer’s identity, such as names, addresses, and Social Security numbers. 

The new Mortgage Performance Trends tool can be found at: https://www.consumerfinance.gov/data-research/mortgage-performance-trends

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Finance Friday: For Mortgages Shoppers - Tips on How to Negotiate Your Best Deal

Your home could be the biggest single purchase you'll ever make, and shopping for a mortgage to finance that home or to borrow money by taking out a "reverse mortgage" on your house can be overwhelming.

There are many questions to ask, including: How do I get a good interest rate? What costs will I have to pay for a mortgage? Can I negotiate? If I want to buy a house, can I afford to buy the kind of house I'm interested in?

To help answer these kinds of questions, FDIC Consumer News recommends taking the following steps.

Get a copy of your credit reports at least six months before you plan to apply for a mortgage. Doing so will give you time to fix any errors and, in turn, possibly help you qualify for a better, cheaper mortgage. Lenders use your credit reports to help determine if you qualify for a loan and at what interest rate. The higher your credit score, the better the loan terms you may get. You are entitled to a free credit report once a year from each of the three nationwide credit bureaus. Go to AnnualCreditReport.com, the official site to help consumers obtain free credit reports, or call 1-877-322-8228. The Federal Trade Commission offers suggestions on how to fix errors on credit reports.

For advice on buying a home, consider talking to a housing counselor certified by the U.S. Department of Housing and Urban Development (HUD). To find a HUD-approved housing counseling agency near you, go to the HUD website or call 1-800-569-4287. These counseling agencies can offer independent advice, often at little or no cost to you.

Consider the best type of mortgage for you. There are basically two kinds of financing.

Fixed-rate mortgages feature a set interest rate for the entire loan term and predictable monthly payments. These are generally a good option for buyers who plan to stay in their home for a long time or just prefer the predictability of set monthly payments.

Adjustable-rate mortgages (ARMs) may start with a low introductory interest rate that changes periodically in relation to an index rate. Potential borrowers should be prepared for the likelihood that the initial low rate will go up, and that future rate increases sometimes can be sharp and dramatic, greatly increasing the monthly payment. During the term of the loan the interest rate can go as high as the lifetime cap. Many new ARM borrowers assume that their financial situations will improve before there are significant rate increases, but if not, the result can be a financial strain. For these reasons, ARMs are typically best for buyers who plan to live in their home for a limited number of years or expect to pay the mortgage off early. For more information about ARMs, see the article in our Summer 2013 issue.

Contact several lenders. You can shop for a mortgage online, by phone or in person. Many websites have calculation tools that can help you answer questions on what kind of home you can afford and how much your monthly payment will be under different scenarios. HUD's maximum financing calculator is a good place to start.

You might also use a mortgage broker who will arrange for you to get a loan. However, keep in mind that lenders usually pay brokers a fee for their help bringing in new customers, and some lenders may pay brokers more for their services if a borrower agrees to pay a higher interest rate than what the lender itself may be charging for the same loan. When contacting mortgage brokers you should ask how they will be compensated and compare their fees. Also see our Fall 2013 issue to learn about rules intended to protect consumers from being steered into costly or inappropriate mortgages.

Obtain all cost information. Knowing the monthly payment and the interest rate are not enough. You need to understand all of the mortgage costs. By law, lenders are obligated to provide you with a three-page “Loan Estimate” that provides a loan terms summary, estimated loan and closing costs, and additional application information. You can use the Loan Estimate to compare different loans and lenders.

“You should be able to depend on the cost disclosures in the Loan Estimate as the final amounts you’ll pay, because lenders face steep penalties if they charge you more at closing,” said Sandra Barker, an FDIC senior policy analyst. “And ask for an explanation of any fee you do not understand.”

Negotiate for the best possible deal. Once you know what each lender or broker has to offer, ask if they can give better terms than the original ones they quoted or than those you have found elsewhere. “Try to negotiate a waiver on charges such as application fees or a break on some of your closing costs,” Barker added.

Lock in a loan offer you like. If you are satisfied with the negotiated terms from a lender or mortgage broker, consider obtaining a written “lock-in.” It should include the rate agreed upon, the period the lock-in lasts, and the number of “points” (fees) to be paid to the lender or broker for the loan. (Usually, the more points you pay, the lower the interest rate.) A fee also may be charged for locking in the loan rate, but sometimes it may be refundable at closing.

If you're considering borrowing money using a reverse mortgage, take precautions before you agree to anything. Reverse mortgages allow homeowners over age 62 to borrow against their home’s “equity” (the current market value minus the outstanding mortgage balance) and don’t need to be repaid until the borrower dies, moves or no longer lives in the property. A reverse mortgage can be a good option for individuals near or in retirement because it typically offers monthly, lump-sum and other payout options. But, a reverse mortgage can be complicated and it might not be right for you. One big reason a reverse mortgage might not fit your needs is that the loan balance and the interest owed will increase over time, so you and your heirs might have to refinance or sell the house to have enough money to pay off the loan.

If you want to shop for a reverse mortgage, we suggest you consider the following:

• Ask a reputable housing counselor for an unbiased opinion about your suitability for a reverse mortgage, including the financial and tax implications.
• Consider a Home Equity Conversion Mortgage (HECM), which is generally a less expensive reverse mortgage, partly because the federal government insures it. In addition, HUD requires borrowers to receive counseling and undergo a financial review before getting a HECM. You also may find attractive reverse mortgage alternatives offered by state and local government agencies, nonprofit organizations and other lenders.
• Take your time. A reverse mortgage isn’t something to rush into. You should stop and check with a counselor or someone else you trust before you sign anything, and if you don’t understand the cost or features of a reverse mortgage or you feel pressure or urgency to complete the deal, walk away.

To learn more about shopping for a mortgage, read Looking for the Best Mortgage, tips published by the FDIC and other federal government agencies. The FDIC also has published an online Affordable Mortgage Lending Guide that is primarily designed for bankers but provides helpful information about mortgage programs for low- and moderate-income people and communities.

For more information about reverse mortgages, see the article in the FDIC Summer 2015 issue.

A Real Estate Reminder: President's Day does not count as a business day under TRID Rules

If you are near the end of a transaction, please remember that the timing for the delivery of the Loan Estimate or the initial Closing Disclosure (1026.19(e)(1)(iii)(B) or 1026.19(f)(1)(ii) below) is based on the definition of business day (1026.2(a)(6) below) which indicates for these two specific sections of Regulation Z, the definition of business day means all calendar days except Sundays and the legal public holidays, of which Monday, Washington’s Birthday, is a legal public holiday.

Business day means a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions.

However, for purposes of rescission under §§ 1026.15 and 1026.23, and for purposes of §§1026.19(a)(1)(ii), 1026.19(a)(2), 1026.19(e)(1)(iii)(B), 1026.19(e)(1)(iv), 1026.19(e)(2)(i)(A), 1026.19(e)(4)(ii), 1026.19(f)(1)(ii), 1026.19(f)(1)(iii), 1026.20(e)(5), 1026.31, and 1026.46(d)(4), the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.

For Washington's Birthday, the legal public holiday is defined as the third Monday in February and as such, Monday cannot be a business day in counting the three- or seven-day waiting periods.

Fun Fact: Washington's Actual Birthday is February 22nd, but the 1971 Uniform Monday Holiday Act cemented the observance to the third Monday in February, even though it had unofficially been celebrated on that day for some time.

Finance Friday: Consumer Rights under the FTCs MARS Rule

Mortgage Relief Scams | Consumer Information

Know your Rights

The FTC's MARS Rule gives you rights – and sets out requirements for people who sell mortgage assistance relief services:

You don't have to pay any money until the company delivers the results you want.

It's illegal for a company to charge you a penny until:

1. it's given you a written offer for a loan modification or other relief from your lender; and
2. you accept the offer. The company also must give you a document from your lender showing the changes to your loan if you decide to accept your lender's offer. And the company must clearly tell you the total fee it will charge you for its services.

Companies must disclose key information.

The Rule requires companies to spell out important information in their advertisements and telemarketing calls, including that:

• They're not associated with the government, and their services have not been approved by the government or your lender;
• Your lender may not agree to change your loan;
• If a company tells you to stop paying your mortgage, it also has to warn you that doing so could result in your losing your home and damaging your credit.
• Companies can't tell you to stop talking to your lender. You should always feel free to contact your lender directly to see whether they can offer you additional options. Companies that tell you otherwise are breaking the law.

If a company doesn't follow these rules, it could be trying to scam you.

Getting Help from a Lawyer

Some lawyers may offer to help you get a loan modification or other mortgage relief. Under the MARS Rule, lawyers can require you to pay an upfront fee, but only if:

• They're licensed to practice law in the state where you live or your house is located;
• They're providing you with real legal services;
• They're complying with state ethics requirements for attorneys; and
• They place the money in a client trust account, withdraw fees only as they complete actual legal services, and notify you of each withdrawal.

Unfortunately, some people advertising mortgage assistance relief services falsely claim to be getting you help from lawyers. So before you hire someone who claims to be an attorney or claims to work with attorneys, do your homework:

Get the name of each attorney who'll be helping you, the state or states where the attorney is licensed, and the attorney's license number in each state. Your state has a licensing organization – or "bar" – that monitors attorney conduct. Call your state bar or check its website to see if an attorney you're thinking of hiring has gotten into trouble. The National Organization of Bar Counsel has links to your state bar.

Ask relatives, friends, and others you trust for the name of an attorney with a proven record of getting help for homeowners facing foreclosure.

Beware of attorneys who make bold promises or try to pressure you into hiring them.

Warning Signs

If you're looking for a loan modification or other help to save your home, avoid any business that:

• guarantees to get you a loan modification or stop the foreclosure process – no matter what your circumstances;
• tells you not to contact your lender, lawyer, or housing counselor;
• claims that all or most of its customers get loan modifications or mortgage relief;
• asks for an upfront fee before providing you with any services (unless it's a lawyer you've checked out thoroughly);
• accepts payment only by cashier's check or wire transfer;
• encourages you to lease your home so you can buy it back over time;
• tells you to make your mortgage payments directly to it, rather than your lender;
• tells you to transfer your property deed or title to it;
• offers to buy your house for cash for much lower than the selling price of similar houses in your neighborhood; or
• pressures you to sign papers you haven't had a chance to read thoroughly or that you don't understand.

Where to Find Legitimate Help

If you're having trouble paying your mortgage or have gotten a foreclosure notice, contact your lender immediately. You may be able to negotiate a new repayment schedule.

Consider other foreclosure prevention options, including reinstatement and forbearance.

You also may contact a credit counselor through the Homeownership Preservation Foundation (HPF), a nonprofit organization that operates the national 24/7 toll-free hotline (1.888.995.HOPE) with free, bilingual, personalized assistance to help at-risk homeowners avoid foreclosure. HPF is a member of the HOPE NOW Alliance of mortgage servicers, mortgage market participants and counselors.

Report Fraud

If you think you've been the victim of foreclosure fraud, contact the Federal Trade Commission, your state Attorney General's office, or the Better Business Bureau.

 

Finance Friday: FTC warns consumers about Mortgage Relief Scams

Mortgage Relief Scams | Consumer Information

The possibility of losing your home to foreclosure can be terrifying. The reality that scam artists are preying on desperate homeowners is equally frightening. Many companies say they can get a change to your loan that will reduce your monthly mortgage payment or take other steps to save your home. Some claim that nearly all their customers get successful results and even offer a money-back guarantee. Others say they're affiliated with the government or your lender and still others promise the help of attorneys or real estate experts.

Unfortunately, many companies use half-truths and even outright lies to sell their services. They promise relief, but don't deliver. In fact, many of these companies leave their homeowner customers in worse financial shape.

The Federal Trade Commission (FTC), the nation's consumer protection agency, has a Rule in place to protect homeowners. The Mortgage Assistance Relief Services (MARS) Rule makes it illegal for companies to collect any fees until a homeowner has actually received an offer of relief from his or her lender and accepted it. That means even if you agree to have a company help you, you don't have to pay until it gets you the result you want.

If you're struggling to make mortgage payments or facing foreclosure, the FTC wants you to know how to recognize a mortgage assistance relief scam and exercise your rights under the new Rule. And even if the foreclosure process has already begun, the FTC and its law enforcement partners want you to know that legitimate options are available to help save your home.

How the Scams Work

Fraudsters use a variety of tactics to find homeowners in distress. Some sift through public foreclosure notices in newspapers and on the internet or through public files at local government offices, and then send personalized letters to homeowners. Others take a broader approach through ads on the internet, on television or radio, or in newspapers; posters on telephone poles, median strips, and at bus stops; or flyers, business cards, or people at your front door. The scam artists use simple – but potentially deceptive – messages, like:

"Stop foreclosure now!"

"Get a loan modification!"

"Over 90% of our customers get results."

"We have special relationships with banks that can speed up the approval process."

"100% Money Back Guarantee."

"Keep Your Home. We know your home is scheduled to be sold. No Problem!"

Once they have your attention, they use a variety of tactics to get your money. By knowing how their scams work, the FTC says you'll be better able to defend against fraud.

Phony Counseling or Phantom Help

The scam artists tell you that if you pay them a fee, they'll negotiate a deal with your lender to reduce your mortgage payments or to save your home. They may claim to be attorneys or represent a law firm. They may tell you not to contact your lender, lawyer, or credit counselor. They promise to handle all the details once you pay them a fee. Then they stop returning your calls and take off with your money.

Sometimes, phony counselors insist you make your mortgage payments directly to them while they negotiate with the lender. They may collect a few months of payments – and then disappear.

The "Forensic Audit"

In exchange for an upfront fee, so-called forensic loan "auditors," mortgage loan "auditors," or foreclosure prevention "auditors" offer to have an attorney or other expert review your mortgage documents to determine if your lender complied with the law. The "auditors" say you can use their report to avoid foreclosure, speed the loan modification process, reduce what you owe, or even cancel your loan. In fact, there's no evidence that forensic loan audits will help you get a loan modification or any other mortgage relief.

Rent-to-Buy Schemes

Con artists who use the rent-to-buy scheme tell you to surrender the title to your house as part of a deal that allows you to stay there as a renter and buy it back later. They say that surrendering the title will let a borrower with a better credit rating get new financing and prevent the loss of the home. But the terms of these deals usually are so expensive that buying back your home becomes impossible. You lose the house and the scam artist walks off with the money you put into it. Worse, when the new borrower defaults on the loan, you're the one who's evicted.

In a variation, the scam artist raises the rent over time so you can't afford it. After missing several rent payments, you're evicted, leaving the "rescuer" free to sell the house.

In a similar equity-skimming scam, fraudsters offer to find a buyer for your home, but only if you sign over the deed and move out. They promise to pay you a portion of the profit when the home sells. Once you transfer the deed, they simply rent out the home and pocket the proceeds while your lender goes ahead with the foreclosure. The result: You lose your home – and you're still responsible for the unpaid mortgage because transferring the deed does nothing to transfer what you owe on the mortgage.

Bait-and-Switch

In a bait-and-switch scam, con artists give you papers they claim you need to sign to get another loan to make your mortgage current. But buried in the stack is a document that surrenders the title to your house to the scammers in exchange for a "rescue" loan.

Next week we will discuss consumers' rights under the FTCs MARS Rule and how to exercise those rights.

More information can be found online at ftc.gov.

Finance Friday: FDIC Consumer Series - Obtain the Best Deal You Can when shopping for a Mortgage

Once you know what each lender has to offer, negotiate for the best deal that you can. On any given day, lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications. The most likely reason for this difference in price is that loan officers and brokers are often allowed to keep some or all of this difference as extra compensation. Generally, the difference between the lowest available price for a loan product and any higher price that the borrower agrees to pay is an overage. When overages occur, they are built into the prices quoted to consumers. They can occur in both fixed and variable-rate loans and can be in the form of points, fees, or the interest rate. Whether quoted to you by a loan officer or a broker, the price of any loan may contain overages.

Have the lender or broker write down all the costs associated with the loan. Then ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. You'll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. There's no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere.

Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender or broker. The lock-in should include the rate that you have agreed upon, the period the lock-in lasts, and the number of points to be paid. A fee may be charged for locking in the loan rate. This fee may be refundable at closing. Lock-ins can protect you from rate increases while your loan is being processed; if rates fall, however, you could end up with a less favorable rate. Should that happen, try to negotiate a compromise with the lender or broker.

REMEMBER: SHOP, COMPARE, NEGOTIATE

When buying a home, remember to shop around, to compare costs and terms, and to negotiate for the best deal. Your local newspaper and the Internet are good places to start shopping for a loan. You can usually find information both on interest rates and on points for several lenders. Since rates and points can change daily, you'll want to check your newspaper often when shopping for a home loan. But the newspaper does not list the fees, so be sure to ask the lenders about them.

The Mortgage Shopping Worksheet that follows may also help you. Take it with you when you speak to each lender or broker and write down the information you obtain. Don't be afraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal.

FAIR LENDING IS REQUIRED BY LAW

The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, whether all or part of the applicant's income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act.

The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, sex, handicap, familial status, or national origin.

Under these laws, a consumer cannot be refused a loan based on these characteristics nor be charged more for a loan or offered less favorable terms based on such characteristics.

CREDIT PROBLEMS? STILL SHOP, COMPARE, and NEGOTIATE

Don't assume that minor credit problems or difficulties stemming from unique circumstances, such as illness or temporary loss of income, will limit your loan choices to only high-cost lenders. If your credit report contains negative information that is accurate, but there are good reasons for trusting you to repay a loan, be sure to explain your situation to the lender or broker. If your credit problems cannot be explained, you will probably have to pay more than borrowers who have good credit histories. But don't assume that the only way to get credit is to pay a high price. Ask how your past credit history affects the price of your loan and what you would need to do to get a better price. Take the time to shop around and negotiate the best deal that you can.

Whether you have credit problems or not, it's a good idea to review your credit report for accuracy and completeness before you apply for a loan. To order a copy of your credit report, contact:

• Equifax: (800) 685-1111
• TransUnion: (800) 916-8800
• Experian: (888) 397-3742

 

The FDIC programs on research and analysis are all available for review online at fdic.gov.  

For more information on financing resources and loan types, VanEd offers the Finance in Real Estate CE course online and offers CE credit for real estate licensees in some states. Learn more by clicking here.

Finance Friday: FDIC Consumer Series - Looking for the Best Mortgage

Shopping around for a home loan or mortgage will help you to get the best financing deal. A mortgage--whether it's a home purchase, a refinancing, or a home equity loan--is a product, just like a car, so the price and terms may be negotiable. You'll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars.

OBTAIN INFORMATION FROM SEVERAL LENDERS

Home loans are available from several types of lenders--thrift institutions, commercial banks, mortgage companies, and credit unions. Different lenders may quote you different prices, so you should contact several lenders to make sure you're getting the best price. You can also get a home loan through a mortgage broker. Brokers arrange transactions rather than lending money directly; in other words, they find a lender for you. A broker's access to several lenders can mean a wider selection of loan products and terms from which you can choose. Brokers will generally contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Consequently, you should consider contacting more than one broker, just as you should with banks or thrift institutions.

Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. And most brokers' advertisements do not use the word "broker." Therefore, be sure to ask whether a broker is involved. This information is important because brokers are usually paid a fee for their services that may be separate from and in addition to the lender's origination or other fees. A broker's compensation may be in the form of "points" paid at closing or as an add-on to your interest rate, or both. You should ask each broker you work with how he or she will be compensated so that you can compare the different fees. Be prepared to negotiate with the brokers as well as the lenders.

OBTAIN ALL IMPORTANT COST INFORMATION

Be sure to get information about mortgages from several lenders or brokers. Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information. The following information is important to get from each lender and broker:

RATES

• Ask each lender and broker for a list of its current mortgage interest rates and whether the rates being quoted are the lowest for that day or week.
• Ask whether the rate is fixed or adjustable. Keep in mind that when interest rates for adjustable-rate loans go up, generally so does the monthly payment.
• If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down.
• Ask about the loan's annual percentage rate (APR). The APR takes into account not only the interest rate but also points, broker fees, and certain other credit charges that you may be required to pay, expressed as a yearly rate.

POINTS

Points are fees paid to the lender or broker for the loan and are often linked to the interest rate; usually the more points you pay, the lower the rate.

• Check your local newspaper for information about rates and points currently being offered.
• Ask for points to be quoted to you as a dollar amount--rather than just as the number of points--so that you will actually know how much you will have to pay.

FEES

A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Every lender or broker should be able to give you an estimate of its fees. Many of these fees are negotiable. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. "No cost" loans are sometimes available, but they usually involve higher rates.

• Ask what each fee includes. Several items may be lumped into one fee.
• Ask for an explanation of any fee you do not understand. Some common fees associated with a home loan closing are listed on the Mortgage Shopping Worksheet in this brochure.

DOWN PAYMENTS and PRIVATE MORTGAGE INSURANCE

Some lenders require 20 percent of the home's purchase price as a down payment. However, many lenders now offer loans that require less than 20 percent down--sometimes as little as 5 percent on conventional loans. If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the lender in case the home buyer fails to pay. When government-assisted programs such as FHA (Federal Housing Administration), VA (Veterans Administration), or Rural Development Services are available, the down payment requirements may be substantially smaller.

• Ask about the lender's requirements for a down payment, including what you need to do to verify that funds for your down payment are available.
• Ask your lender about special programs it may offer.

If PMI is required for your loan,

• Ask what the total cost of the insurance will be.
• Ask how much your monthly payment will be when including the PMI premium.
• Ask how long you will be required to carry PMI.

Next week we will discuss how to obtain the best deal you can when shopping for a mortgage. Through the FDIC consumer resources.

The FDIC programs on research and analysis are all available for review online at fdic.gov.  

For more information on financing resources and loan types, VanEd offers the Finance in Real Estate CE course online and offers CE credit for real estate licensees in some states. Learn more by clicking here.

Finance Friday: Mortgage Fraud "Red Flags"

 These are oddities or discrepancies in the loan file that will help you see that a particular file requires closer examination. Keep in mind that below is not a complete or detailed list. More information can be found on both government sites or by completing the online Mortgage Fraud course. And please also be aware...

Not every red flag contains fraud!

Our industry is full of talented, ethical, and professional individuals who would never stoop to committing fraud. So don't go on a witch hunt. Every individual you encounter does not intend to commit fraud.

Every file you review will not contain fraudulent documents.

The purpose of introducing these red flags is to help you become more alert to the widespread threat. Don't become paranoid. But don't let fraud and the people who commit fraud infect your organization with a lack of trust.

We will consider areas from which fraud may or may not originate under four categories:

1. Applicants with an employer (company, government, etc.)
2. Applicants who are self-employed
3. Social Security number identity theft or fraud
4. The details about the property in question

There are a number of red flags to look for in the loan package or the buyer's information.

The list that follows is not complete, but it is a start. Any or all of these items can point to fraud. You might find it helpful to print these red flag lists and post them prominently in the office. It is also a good idea to share these lists with those employees who are involved in any transaction.

HELPFUL HINT:If you make all borrowers sign a 4506-T at the loan application and inform them that your company will check the income information if the file is chosen for pre-funding quality control, a fraud most likely will not complete the transaction as is with you. This may help to deter some fraud before it starts. It may also help to prevent soft fraud by forcing a would-be-fraud to tell the truth about a particular issue in order to qualify to purchase the new home.

Red Flags for Employment

• Evidence of white-outs or alterations on Verification of employment, pay stub and/or W-2
• Squeezed-in numbers (a number being added to a space too small)
• Appearance that verification of employment form was hand carried rather than mailed (i.e., the document is not folded)
• Handwritten pay stubs or W-2 forms
• Income out of line with type of employment
• Business entity not registered or in good standing with the applicable regulatory agencies
• No prior year's earnings on Verification of employment
• Company name and/or employer name are not imprinted on pay stub
• Check stubs from a large employer are not preprinted
• Sequence of payroll check numbers do not correspond with the payroll dates
• Social security number is not consistent on pay stub and loan application
• FICA amounts are incorrect
• W-2 contains invalid employer identification number

Red Flags for Self-Employed Borrowers

• Tax returns not signed or dated by borrower
• Evidence of white-outs or alterations
• Borrower with substantial cash in bank reporting little or no interest income
• Tax computation does not agree with tax tables
• Address and/or profession does not agree with other information submitted on the loan application
• No estimated tax payments by self-employed borrower (Schedule SE required)
• Paid preparer signs taxpayers copy

Social Security Number Identity Theft or Fraud

While few future homeowners would dare use their social security number for more than tax or identification purposes, to the mortgage marauders, the social security number is one of the main tools in their tool box.

Signs someone may be using a false or invalid social security number to help them commit fraud:

• Is it a valid number issued by the Social Security Administration?
• How many different variations of the number are on the credit report?
• Does it match in all areas of the file?
• Is the issued number consistent with the location of issue and the borrower's place of residence?
• Where bad social security numbers originate:
• Transpose the numbers, intentionally or accidentally
• Use a deceased person's number
• Use children's or a minor's social security number
• Stolen data bases via identity theft
• Use a tax ID number

The Property as the Key to Fraud

The final category to consider for fraudulent activity is the information describing the property. In the real estate business and the mortgage loan business, the property is central to the transaction. There is significant opportunity to introduce fraudulent information and documents regarding the property itself.

• Comparable properties not verified as recorded (data source MLS, sales office, SREA, CMDC, real estate agent, etc.)
• Information blank borrower, client, occupant, etc.
• Ordered by a party to the transaction other than the originator (i.e., seller, buyer, real estate broker, etc.)
• Tenant shown to be occupant on owner-occupied loan
• Income approach not used on tenant occupied single-family residences
• Subject photographs not consistent with date of appraisal or other information within the report
• Photos do not match the description of the house
• Occupants are unknown

These are just a few of the areas where fraud can be detected. Next week we will discuss some prevention techniques for borrowers.

Click Here for more information on our recently updated Mortgage Fraud class online, available for 6 hours of MRE, Master of Real Estate Credit and Continuing Education credit in some states.

NREC Discusses TRID the TILA-RESPA Integrated Disclosure Rule "TRID" and License Number Disclosure

In order to make compliance with the new TRID requirements regarding agent license numbers on the new financial disclosure forms easier, the Commission is now including license numbers on the information provided on our website for individual licensee searches.  Click on the “Licensee & Applicant Information Search” on the left side of the Commission homepage to access the licensee search function.  The license numbers are displayed on the lower right of on the individual licensee information pages.

The TRID requirements from the Consumer Finance Protection Bureau regarding the paperwork required for closing  most consumer credit transactions secured by real property, such as a traditional residential mortgage require real estate licensees acting as agents in the transaction to provide their individual salesperson’s or broker’s license number. In the past we have generally advised licensees to keep their license numbers private, however, they will need to provide them to the lending institutions under the new law. The forms also ask for a “State License ID”. This has been interpreted or referred to shorthand as a company ID or broker ID or license number.  The Commission does not issue a “State License ID” to brokerage companies, and some lenders do not ask for it on the form.  However some lenders do request a company or broker ID, in those instances  the designated broker’s individual license number should be provided.  The designated broker’s license number is also available on our website through the individual licensee search function. 

 

Finance Friday: Supreme Court decision paves way for MLOs to be covered by FLSA

Mortgage loan officers do not qualify for the administrative exemption from the Fair Labor Standards Act minimum wage and overtime compensation requirements. This is the result of a long running case ruled on this week by the U.S. Supreme Court.

In deciding an issue that arose after a 2006 DOL opinion that mortgage loan officers were exempt from overtime pay requirements under the Fair Labor Standards Act (FLSA) that was subsequently overturned by the DOL in 2010. At that time the Mortgage Bankers Association sued claiming that the DOL did not have the authority to simply rule without a public comment period.

The Supreme Court has now upheld that authority and thus the interpretation stands and mortgage loan officers should be classified as non-exempt from the overtime pay rules under FLSA.  What effect this will have on the industry remains to be seen, but at least one large lender has already stated that this will have no bearing on their business as they were already classifying their employees in this manner.

You can read more about the decision on the following articles;

http://www.bmandg.com/Portals/0/EasyDNNNewsDocuments/293/3-12-15%20SCOTS%20Perez%20Decision%20-%20Loan%20officer%20overtime%20compensation%20requirement%20(2015%20WL%20998535).pdf

http://www.natlawreview.com/article/supreme-court-mortgage-loan-officers-must-be-paid-overtime

http://reversemortgagedaily.com/2015/03/10/overtime-pay-rules-apply-to-mortgage-loan-officers-supreme-court-rules/