Originating Mortgage Loans

RisMedia.com (01/25/07)
Michael Kodsi, Boca Raton, Fla.-based Choice Mortgage Bank's CEO, attributes recent gains in cash-out refinancings to the fact that borrowers would rather extract equity by refinancing into a fixed-rate mortgage at a rate of about 6 percent instead of securing a home-equity loan or line of credit tied to the prime rate of more than 8 percent. Freddie Mac reports that mortgages exceeding their original balances by 5 percent or more accounted for 89 percent of its refinancings during the third quarter, with the total amount of cash-outs down to $82.8 billion from $90.6 billion during the previous three-month period. Mortgage Bankers Association senior economist Mike Fratantoni says refinancings are presently fueled by borrowers looking to refinance out of adjustable-rate mortgages to avoid upward rate adjustments.
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Originator Times (01/22/07); Gores, Paul
Earlier this month, economist John Tuccillo gave an address to the Wisconsin Bankers Association, during which he estimated that more than $1 trillion in adjustable-rate mortgages are set to reprice upward this year. Consequently, he warned, the nation's homeowners should brace for a 25-percent increase in the amount of house payments unless they refinance. Tuccillo, former chief economist for the National Association of Realtors, noted, "The degree to which consumers react to that repricing by absorbing higher mortgage payments will determine how consumption spending goes for the rest of 2007." He does expect the U.S. residential property market to rebound in 2007 thanks to favorable demographics that will add a lot of prospects to the overall pool of home buyers.
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"The best time to have planted a tree is twenty years ago, the next best time is now!"

Chinese Proverb

We have all heard the old adage; "If you fail to plan, you are planning to fail." While most originators agree with this statement, how many truly follow through and build a business plan?

January, 2007 is almost over and if you have failed to complete your plan, now is the best time to get started!

Tim Braheem, CEO of LoanToolBox has recorded a great interview regarding "Mortgage Planning for Mortgage Professionals." Tim has a fantastic ability to articulate mortgage issues and solutions. Please take the time to listen to this valuable interview:

Mortgage Planning for Mortgage Professionals

 

A "couple of hundred" mortgage banking firms could fail in the next year or so as the industry works out its excess capacity, according to the chief economist for the Mortgage Bankers Association. "It could be a significant" number of firms, said the MBA's Doug Duncan at a forecast conference hosted for the media. "There's a lot of capacity in the industry," he said. The trade group, though, does not think residential production will fall off the cliff this year. The MBA is forecasting that home lenders of all stripes will fund $2.4 trillion in loans this year -- 45% of it refinancings -- compared with $2.5 trillion in 2006. (The MBA's volume number for 2006 differs from that of the Quarterly Data Report, which found lenders funded about $3 trillion in 2006.) Over the past three months several mortgage firms have exited the business, either through merger or failure.

(For a partial listing, see the Jan. 15 issue of National Mortgage News.)

On December 17, 2006, I posted a Blog titled; "Yes The Mortgage Business Is Going Through a Shakeup - Be Thankful." In it, I wrote the following:

Over the past few years, mortgage ranks have swollen from 180,000 to over 300,000 people in the industry.  That's a whole lot of people who have only known the golden days of the refi-boom.  They know how to be an order-taker not a loan officer (thankfully all of us are true professional mortgage consultants). 

Loan Originators who have been around for 10 to 15 years or more know what it means to ORIGINATE a loan.  It means marketing yourself aggressively, building a reputation, and generating a steady stream of referrals.  They've seen high rates and low rates and they know that this too will pass.  Rates will go down again, and they'll be well prepared to take advantage of the next interest cycle.  Veteran producers aren't giving-up.  Neither should you.  Decide now if you have the determination to stick-it out.  Do you have a passion for what you do?

Be thankful for the shake-up because it means a whole lot of unskilled loan officers will go the way of the saber tooth tiger and stop ruining the reputation of the industry.  Best of all, it means a whole lot more business for you!

As we are witnessing with the lenders MBA is warning about, this same shakeup applies to mortgage lenders.

Our business will only get stronger.

Baltimore Sun (01/19/07); Harney, Ken
The property appraisal industry is currently in a state of turmoil, with traditional appraisers up in arms over data companies that assemble vast quantities of publicly accessible property information to create "automated valuation models." More and more lenders are turning to AVMs for home equity loan transactions and to make primary mortgages. While traditional appraisals can cost as much as $500 and take days for final delivery, AVMs are available almost instantly via the Internet and typically cost a lender no more than $25. Appraisers complain that their valuation reports are being stripped of key data for use in AVMs without their approval and without any compensation. Industry professionals are urging home buyers to demand a copy of the full appraisal in order to ensure that it was performed not by an electronic black box but by a licensed appraiser.
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Chicago Tribune (01/18/07)
The recent decrease in borrowing costs and increase in applications for mortgages have given U.S. home builders more confidence about new residential sales in the months to come. According to the latest National Association of Home Builders/Wells Fargo index, industry sentiment has risen to a six-month high of 35 in January--up from a revised reading of 33 last month. Builders consider market conditions to be poor when a reading fails to reach 50, and the latest assessment comes on the heels of an estimated 17-percent decline in sales in 2006. Three of four regions recorded increases in confidence, while the West was unchanged in its outlook.
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Wall Street Journal (01/18/07) P. D6; Simon, Ruth
Federal District Court Judge Lynn Adelman of the Eastern District of Wisconsin has ruled in favor of a Wisconsin couple who filed suit against Maryland-based Chevy Chase Bank for inadequately disclosing the terms of their option adjustable-rate mortgage. Because the disclosure statement read "5-year fixed," the couple believed the introductory interest rate of 1.95 percent was fixed and were surprised when the bank notified them two months later that the rate had risen to 4.375 percent. Ruling that the bank should have made it clear that the payment--not the interest rate--was fixed, the judge has ordered the bank to return payments, closings costs and attorneys' fees paid by borrowers who were given the same disclosures when refinancing with an option ARM. Attorneys anticipate similar lawsuits in the near future, with Charleston, W.Va.-based attorney Daniel Hedges calling option ARMs "amenable to abuse." A task force created by the Mortgage Bankers Association has developed a voluntary disclosure form to help lenders improve borrowers' understanding of loan terms.
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Regulators at both the Federal and State level have been actively focusing on the mortgage industry.  One of their main concerns is the number of people using "exotic mortgage" financing.  

Both Interest Only and the Option ARM mortgages fall into this category. 

I'm often asked if these financing options are good or bad. The answer is; sometimes they are and other times they are not. Each individual and circumstance is different. It is critical consumers work only with a Professional Mortgage Planner skilled at Strategic Equity Management.

As such, I recommend you also read a disclosure booklet for consumers to have a better understanding of these products.

This document will help consumers make informed decisions when obtaining a mortgage.  It is also a great piece for mortgage loan originators to download and use as a tool to help their clients better understand Option ARM's and Interest Only Mortgages.

American Banker (01/09/07) P. 1; Sloan, Steven
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, is likely to add language to a reform bill governing Fannie Mae and Freddie Mac that would raise the conforming loan limit, according to observers. Although some bankers have softened their stance on allowing the two federally chartered companies to buy more expensive mortgages in high-cost markets, the White House and Senate Republicans continue to resist such a move. Meanwhile, trade groups such as the National Association of Realtors and lawmakers representing pricey areas support a higher conforming loan limit. The issue was not resolved in the deal that the Bush administration reached on GSE reform and is considered to be a major impediment to passing such legislation.
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