Um, yes I'll take the good loan please.

What makes a good loan?

Well, now that’s an interesting questions. If you took the easy answer then it would be the loan that is the best fit for your specific situation. More importantly though, and more common, what makes a bad loan? This is where many focus their attention.
The root of a bad loan is always the same. A loan consultant that either doesn't have YOUR best interests in mind, or lacks the knowledge to properly advise his/her clients. A loan that adjusts in 2 years is not a terrible loan, but if the loan officer gave you a 3 year pre-payment penalty to go with it, he just jumbo sized your troubles. Did you know that the average ARM loan adjusts only 1% every 6 months? Well that’s not so bad, oh by the way the initial adjustment is usually up to 5%!!!! So your 6.375% could go up to 11.375% the month it goes adjustable! So, on an average $350,000 loan your payment just went up 164% or almost $1,250.00! So you decide to re-finance. Well, the 3 year pre-payment penalty adjusted to the new rate is almost $16,000.00! Wait, it gets better, you decided to get an interest only loan to keep your payments low, so your balance hasn't decreased. You bought the home 2 years ago and the value has only increased at the average of 4% a year. So your home is worth $378,500 and you owe $350,000+$16,000 pre-pay penalty. Combine that with your average cost of a refinance and you are at almost 100% loan-to-value. Wait, wait, wait... it gets BETTER! With the recent mortgage industry scares and changes, you need a minimum of a 680 credit score to go up to 100% loan-to-value, and the rates are not very fun when you get up to that level of loan to value. So as opposed to the 6.375% rate that you are used to, the average rate for this style of loan is about 8.00%. So combined with your new loan amount your payment would be over $2,750.00 and the mortgage insurance would be $308.70. Your new payment would be over $3,000.00 a month! This is what makes a bad loan!
This is where a mortgage pro will shine or go out of business. You as a consumer need to establish a relationship with a mortgage pro that has your best interests in mind. Your mortgage pro needs to be competent in all things mortgage to find a loan that fits your specific situation. I invite you contact me today if you are facing this situation or a similar one. What is the solution to the above problem? That is a good question, but I already answered it. Get the best possible loan for your specific situation. I’ll talk again with you soon.

"Subprime" collapse, we wish...

All the talk on the news pages seem to be regarding the immanent collapse of the sub prime lending industry. We wish. We wish that this shakedown was limited to just the sub prime industry, but now the Alt-A lenders are suffering from the same problems. The industry is only part of the cause of the collapse, it is also due, in part, to borrowers getting loans that they didn't qualify for in the first place. The other part is what's politely referred to as "Stupid Lending Practices". Where will the lending industry land? Who will be there for those people that need a mortgage, but their credit isn't good? Well, now more than ever you need to have a knowledgeable and aggressive mortgage broker in your corner.

The first part of the problem was lenders having very risky loans. Remember, to a lender, risk means the level of default risk. At one time, very rare now, there were loans for illegal immigrants, 500 credit score without any income verification, and believe me it gets worse from there. This is what the term "Stupid Lending Practices" is reffering too. When lenders were making loans to people with poor credit scores the underwriting guidelines were also very lax inviting fraud and defaults. There was very little quality control for loans. The industry's standards are, like the real estate industry, returning to normalcy, cleaning house, and NOT falling apart like the news would have you believe.

So where does this leave you, the borrower? Well, there are some things you need to watch out for. The first, and probably the most important is your current loan. Lenders are actually going back through their files and auditing them. If you did a stated income/stated asset loan previously, your lender may consider that a red flag for fraud. If your loan is investigated the lender may ask to see proof of income, assets, or other documentation. If you can't meet their demands it could result in calling the loan due. That means you have two weeks to pay off your mortgage or they seize your home. Most people do stated income/stated asset loans because they can't qualify for the lender's guidelines on a full documentation loan. This will put you in a tough spot if you have to refinance quickly. Your best bet is to sign up for a credit repair program, even if you have good credit. The better your score, the better your chance of getting a good loan even if you have to refinance quickly. The average score needed to get a stated income/stated asset loan is roughly a 680.

The second thing you need to watch for during this time are scam artists. It's going to be an all too common story, Mr. and Mrs. Jones get a letter in the mail that states their loan has been sold. Effectively immediately please make your payments to this company at this address. Well, Mr. and Mrs. Jones' loan has been sold before, no big surprise. They make a payment to the new company and think nothing of it. 15 days later they get a late notice from the original lender. They inquire with the lender as to why they sent them a late notice and say they already made the payment. Surprise surprise, their loan was not sold at all. A scam artist sent the letter, cashed the check and Mr. and Mrs. Jones just made the schemer's mortgage payment, not their own. If you receive something in the mail from a company claiming to be your new lender, eye it with suspicion. By law you have to be notified in writing by both the new and the old lender that your loan has been sold. Once that has happened you should call your lender and verify verbally that your loan has been sold and verify the company if possible.