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Countrywide Financial Corp., the nation’s largest mortgage lender, plans to offer refinancing or modifications on $16 billion in loans whose interest rate is set to adjust by the end of 2008.

Rocky Mountain News: Countrywide to push refis, modified loans

New York Times: Countrywide to Help Restructure Loansm

Or are they simply trying to get more business?

Mortgage giant Countrywide Financial Corp., whose loan volume is down sharply in the wake of the housing downturn and the sub-prime meltdown, is aggressively trying to get its customers to refinance. Here are excerpts from two pitches the company sent recently to homeowners:

Exciting news — we are now offering a Special Online Rate Discount. . . . If you qualify, you could get up to $511,006 to pay off credit cards and other loans.

– Countrywide e-mail

No need to show bank statements or verify other assets . . . no paycheck stubs or proof of income required . . . no new appraisal needed (in most cases).

– Countrywide flier

Could be a combination of both. However, this uber annoying Countrywide commercial has been in HEAVY ROTATION:

Here’s a mortgage primer on which loans are no longer the flavor of the month on Wall Street. They’re the Michael Vick’s of the mortgage world, they were once very popular on but now nobody wants to be associated with them. Okay, that’s a little bit too harsh since these loans didn’t kill dogs. Then again, these loans have put families in dire straits so lets keep the Michael Vick analogy.

Loans the Wall Street doesn’t like:

• THE LOANS WITH THE REALLY REALLY REALLY LOW RATE AND LOW MONTHLY PAYMENT

Also called: 1%, NEGATIVE AMORTIZATION, NEG AM, OPTION ARMS, PAY OPTION ARMS or

“A CAN OF WHOOP ASS WAITING TO HAPPEN”

• THE LOANS FOR BORROWERS WITH REALLY REALLY REALLY BAD CREDIT HISTORIES

Also called: SUBPRIME, NON PRIME, POOR CREDIT, 2/28s, 3/27s, or

“I GUESS THIS IS WHAT I GET FOR NOT PAYING MY BILLS”

• THE LOANS FOR BORROWERS WHO HAVE GOOD CREDIT BUT WHOSE OVERALL LOAN APPLICATION DOESN’T MEET FANNIE MAE OR FREDDIE MAC’S STANDARDS

Also called: ALT-A or

“SO I’VE GOT GOOD CREDIT AND A GOOD JOB BUT I’M PENALIZED FOR NOT SAVING ANY MONEY”

• THE LOANS FOR BORROWERS WHO CAN’T REALLY REALLY REALLY SHOW HOW MUCH MONEY THEY’VE MADE OR HOW MUCH THEY HAVE SAVED UP

Also called: STATED INCOME, STATEDSIVA, SISA, NO DOC, or

“DON’T THEY HAVE LOANS FOR PEOPLE WHO DON’T HAVE JOBS?”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY DON’T WANT TO PUT ANY MONEY DOWN

Are called: 80/20, 100% Financing, NO MONEY DOWN, 103%, 107% or

“I WANT A LOAN WHERE I GET TO KEEP MY MONEY IN CASE MY JOB GETS OUTSOURCED TO INDIA”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY DON’T WANT TO PAY AN AMORTIZED PAYMENT

Also called: INTEREST ONLY, IO, or

“IF I LIKE PAYING DOWN PRINCIPAL MY PAYMENT GETS RECAST TO A LOWER PAYMENT EVERY MONTH”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY WANT TO BUY A HOME THEY HAVE NO INTENTION OF LIVING IN

Also called: INVESTMENT PROPERTY LOANS, NON OWNER OCCUPANCY, NOO or

“I’M GOING TO BE THE NEXT DONALD TRUMP”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY MAKE A LOT OF DOUGH

Also called: JUMBO, NON CONFORMING, SUPER JUMBO, MILLION DOLLAR LOANS, ANYTHING OVER $417,000 or

“THAT’S PRETTY LOW FOR A RATE OF RETURN AND PRETTY HIGH FOR A MORTGAGE INTEREST RATE”

It remains to be seen if Wall Street still likes:

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY HAVE NO INTENTION OF LIVING IN THEIR HOMES FOR 15 to 30 YEARS

Also called: ADJUSTABLE RATE MORTGAGES, ARMS, 3/1, 5/1, 7/1, 10/1, TEASER RATE LOANS, HYBRID LOANS, BALLOONS or

“THE AVERAGE PERSON MOVES EVERY 5 to 7 YEARS, SO WHY SHOULD I GET A LOAN FOR 30 YEARS?”

Wall Street will always like:

• THE LOANS WITH REALLY REALLY REALLY NO RISK

Also called: FHA, VA, CONFORMING, FANNIE MAE, FREDDIE MAC or

“THE LOANS THAT MAKE UP THE MAJORITY OF THE AMERICAN MORTGAGE LANDSCAPE”

I’ve never been a verbose writer. I took a high level Shakespeare class during my last semester in college and the professor wrote on my final paper - “You understand quickly, you write even quicker.” I asked him what his comments meant and he said, when you write, you get right to the point.

Here’s my view of what happened to the mortgage industry. (If you want a more verbose, simply google Mortgage Collapse.)

The subprime mortgage world has fallen flat on its face. Loaning money to people who have proven that they can’t pay back a credit card let alone a mortgage was bad business. These loans started off with a 2 year introductory rate and now we’re seeing those two years expiring and now we’re getting into the adjustment phase. The mortgage entities that bought these loans are filing bankruptcy en masse. As as a result, borrowers who need these loans can’t get them anymore. The effects of these loans are moving up the risk ladder with “ALT-A” companies (the risk level between PRIME and SUBPRIME) starting to close their doors as well. It’s a mess right now and it may take years for all this to get straightened out.

Here are two videos worth watching regarding the mortgage mess:

Jim Cramer (rather calm):

Jim Cramer (going ballistic):

Interesting links from the web:

The Denver Post has a great article, Sales surge for digs over $1M, on why the upper end homes are selling like hot cakes. Denver homes in the million dollar range are doing very well because move up buyers have done well with their investments in the stock market. Moving up like George and Weezie!

Speaking of luxury properties, I ran into my friend Dan at the Denver based real estate and mortgage blogger meet up last week. He now works for LuxuryProperty.com, a site that specializes in million dollar homes nationwide. Look for their launch very soon.

Jonathan Miller of Miller Samuel discusses when prices rise, people remodel. Anyone who links to a Roxy Music clip is pure genius in my book!

Just like every kid, I grew up playing soccer. It’s the premier sport in the world. Somehow it just doesn’t have mass appeal in America. Consider that Denver just hosted the Major League Soccer all-star game, did anyone care?

Chinatown real estate is hot according to CBS. This begs the question where is Chinatown in Denver? My best guess is Alameda & Federal area with their wide array of Chinese restaurants.

I get this question more than any other: What exactly do you do?

A mortgage broker acts as an intermediary who sources mortgages on behalf of individuals or businesses.

My role as a mortgage professional is to “broker” a home loan for a home purchase, home refinance or a home equity loan/line. I interface with borrowers (clients) and companies that buy mortgages.

Before I got into the mortgage business I worked as a systems analyst. I never thought of it this way but my previous life in the software field and my current life as a mortgage professional are one and the same. This clip from Office Space best sums up my previous life.

Senator Wayne Allard spoke at a Senate subcommittee hearing on the mortgage dilemma that faces the state of Colorado in a Denver Post article entitled Senators: Borrowers don’t understand mortgage risks.

First up the political jargon:

Consumers “must have adequate information. The information must also be clear and meaningful,” Allard said Wednesday. “Consumers should understand exactly what risks and benefits different products represent.”

Next up, what the banking regulators have to say:

Banking regulators including the Federal Reserve and the Office of the Comptroller of the Currency are working to upgrade lenders’ disclosure and loan-qualification procedures.

What Phil has to say:

The mortgage industry is full of a**holes who don’t even know how the Option Arm or Interest Only Loans work, yet sell them with reckless abandon. However, these high risk loans have allowed many Americans the opportunity to buy a home with little to no money down. Is that such a bad thing?

Borrowers receive disclosures at loan application. At closing the borrowers receive a Note, Riders, and a Truth In Lending document. These documents scream “PROCEED WITH CAUTION!” Hot tip to borrowers: START READING THESE DOCUMENTS!

… according to the new scoring model. I have yet to see a credit report reflect the news scores.

Credit Agencies Aim to Simplify Scoring
Tuesday March 14, 11:55 am ET
By Eileen Alt Powell, AP Business Writer

Three Large Credit Agencies Adopt Uniform Credit Score Aimed at Simplifying Loan Process

NEW YORK (AP) — The three major consumer credit reporting agencies announced Tuesday that they have created a new credit scoring system aimed at simplifying the loan process for both lenders and borrowers.The announcement by Equifax, Experian and TransUnion said the new “VantageScore” was “a direct result of market demand for a more consistent and objective approach to credit scoring.”

The agencies in the past each used their own proprietary formulas to create their own scores, meaning that a lender dealing with a consumer’s application for a credit card or a mortgage might have to reconcile three widely different scores.

With the new system, a single methodology will be used to create the scores.

“Under the new scoring system, credit score variance between credit reporting companies will be attributed to data differences within each of the three consumer credit files and not to the structure of the scoring model or data interpretation,” the agencies said in a joint statement.

It added that VantageScore “will provide consumers and businesses with a highly predictive, consistent score that is easy to understand and apply.”

Kerry Williams, group president of Experian’s credit services division, told The Associated Press that his agency was making the new scores available immediately to financial institutions and expected wide adoption, but said he did not expect the scores to be rolled out for consumers until later this year.

Credit scores are important because they measure how much debt a consumer is carrying and how well the consumer keeps up with bills.

The higher the score, the more credit worthy the consumer is considered and the lower the interest rate the consumer is likely to be charged.

The three credit agencies termed the move to a unified score as “unprecedented.”

The scores will range from 501 to 990. The top end is slightly higher than scores currently in use.

Colleen Tunney, spokeswoman for TransUnion, told a conference call with reporters and credit industry representatives that the new score was created by looking at millions of consumer files at the same time to ensure consistent readings across the three bureaus’ data.

She and spokesmen for Equifax and Experian said it was not immediately clear how quickly the new score would be adopted by lending institutions.

“Step one is we’re talking to our credit grantors as we speak,” said David Rubinger, spokesman for Experian. He said each agency was marketing the new score to its own customers.

He added: “For any score to have merit in the marketplace, all parties need to be at the table.”

Many lenders, especially those in the mortgage business, use FICO scores, which are named for the Minneapolis-based Fair, Isaac Corp. which developed them. Others use proprietary scores from the individual credit bureaus or use the bureau data to generate their own scores.

Spokesmen for Fair, Isaac could not immediately be reached for comment.

Rubinger said the new score was expected to reduce the variance in a consumer’s scores by about 30 percent compared with what it was under the old system. He gave no other details.

He said the score would reflect a consumer’s frequency of borrowing, delinquency in paying bills and other “file content,” but had no specific weights for the components.

In a separate statement, Experian said the new scores will be grouped on “the familiar academic scale.” Experian gave these groupings:

A — 901-990

B — 801-900

C — 701-800

D — 601-700

F — 501-600

Experian said it was hoped that “as consumers increase their awareness of the importance of credit scores and credit reporting, the consistency of VantageScore will provide the type of information they need to evaluate their credit standing and make sound financial decisions.”

VantageScore is being independently marketed and sold separately through each of the three national credit reporting companies via licensing agreements with VantageScore Solutions LLC, the joint announcement said. The spokesmen said that VantageScore was jointly owned by the three credit bureaus. They said it did not yet have a headquarters, although an informational Web site had been set up at http://www.vantagescore.com.

The credit reporting agencies are operated by Equifax Inc. of Atlanta, Experian Information Solutions Inc. of Costa Mesa, Calif., and TransUnion LLC of Chicago.

http://www.equifax.com

http://www.experian.com

http://www.transunion.com

A stated-income loan qualifies a borrower using the income the borrower states on the application form - as opposed to the income the borrower can document. With a stated income loan, the lender agrees not to attempt to verify the income the borrower has stated on the application.

Stated income mortgages are ideal for the self-employed and for home buyers in professions with salaries comprised mostly of cash tips, such as waiters and hotel porters. This type of loan applicants can often afford a mortgage, but don’t have the necessary pay stubs to document their true earnings. Self-employed business owners whose personal assets are commingled with the business assets often utilize “Stated-Income Stated-Assets” mortgage programs.

You are responsible for providing an accurate figure when the loan officer asks for your income amount. The loan officer should not coach you or fill in the amount for you. If the loan is audited and fraud is discovered you and or the loan officer can be held accountable under the law.

One of the reasons for a stated income loan is to minimize paperwork during the loan application process. A number of requirements that would normally be requested are W2 Statements, 1099 Forms, Bank Statements, and Pay Check Stubs. A stated income loan would not require the borrower(s) to find and organize this information to be approved for a loan. In many cases the interest rate difference is very minimal but normally slightly higher than a loan which requires proof of income.

On some stated income programs, the lender may require the borrowers to complete and sign Internal Revenue Service form 4506. This form gives the lender permission to access past and future tax returns of the borrowers. Having a signed and completed 4506 form in the file greatly enhances the marketability of the loan to the secondary market.

Some times this loan program has been referred to as “The Liars Loan”. It is important to understand, the existence of this loan, is for the purpose of helping borrowers, who otherwise cannot document their Actual Income. It is not designed to fictitiously inflate your income.

Stated income may be used in lieu of full documentation if you have higher credit scores. Lenders view you as less risky and therefore are willing to dismiss income documentation to speed up the loan process. The rate you receive is contingent on specific loan to value and/or down payment restrictions.

Lenders will often check with widely-available salary survey sources like salary.com to determine whether or not the income stated is consistent with the borrower’s profession and title.

There are many reasons why you should employ the services of a professional, licensed mortgage broker when you are ready for your next home loan. Probably the biggest reason is that they are on your side. If you go directly to a bank to get a home loan, the banks loan person has only the banks interest in mind, not yours. Another reason is that mortgage brokers are contracted with banks and lenders at wholesale prices, which mean you can get a better rate. For example, if you had the option of buying a new BMW from either the BMW dealer for full price, or from BMWs wholesaler that gets the cars directly from the plant at a huge discount, which would you choose? Most people like to save money and when you work with a mortgage broker, you are likely to get a better rate.

Mortgage Brokers work to find the best loan program for your specific situation matching you with the loan program that fits best. Having access to hundreds even thousands of loan programs means that your broker will find the best program for your personal needs.

What’s the difference between a mortgage broker and a lender? A mortgage broker counsels you on the loans available from different wholesalers, takes your application, and usually processes the loan which involves putting together the complete file of information about your transaction including the credit report, appraisal, verification of your employment and assets, and so on. When the file is complete, but sometimes sooner, the lender “underwrites” the loan which means deciding whether or not you are an acceptable risk.- Back to Top -Will I save money going directly to a mortgage lender? Not necessarily. In fact, if you are a reasonably astute shopper, you will probably do better dealing with a mortgage broker. Mortgage brokers do not add any net cost to the lending process, because they perform functions that would otherwise have to be done by employees of the lender. Furthermore, because mortgage brokers deal with multiple lenders — in a typical case, 25 to 30, sometimes more — they can shop for the best terms available on any given day. In addition, they can find the lenders who specialize in various market niches that many other lenders avoid, such as loans to applicants with poor credit ratings, loans to borrowers who do not intend to occupy the property, loans with minimal or no down payment, and so on.

The best reason of all, the Mortgage Broker works for you. He doesn’t work for the bank or any lender, but for you. His primary goal is to fit you into a product that is right for you, process the loan as quickly as possible, fund the loan in a timely manner. Another satisfied client and hopefully many referrals

Another reason to work with a Mortgage Broker is that you will have access to hundreds of loan programs instead of the small number offered by a specific lender. Mortgage Brokers also are more likely to help borrowers with poor credit, hard to prove income, or financing for unique situations.

Brokers make banks compete for your business

By having the ability to switch lenders at any time A mortgage broker can also deal with any problems that may arise much more efficiently then a bank.

Mortgage brokers have hundreds of loan products available to them, where as your local bank may have only a handful of loan programs. This means that credit, income, and other factors are not as important when it comes to getting you approved. The mortgage brokers job is to take a completed loan application and present it to various lenders, to find you the best possible rate and program that fits your needs.

Mortgage Brokers are compensated only if the mortgage loan closes. For this reason, mortgage brokers have an interest to see to it that the home buyer’s purchase proceeds quickly and smoothly.

Why lenders decline your loan application and what to do when it happens: 

Ask specifically why the loan is being turned down. Is the problem with you the borrower, or is it the property? If you’re weak on loan qualifying, would a larger down payment make a difference? How about if you reduced some of your debt? Would another loan program help you qualify? Asking specific questions can get you specific answers on what needs to be changed and why.

Improving the quality of your credit will help a great deal in getting approved for a home loan.

A good quality mortgage broker will be able to help you work through the issues and tell you exactly what needs to be done in order to qualify for a future loan.

Your mortgage broker may also try another lender if your loan is denied. There are many lenders with many different programs on the market today. Flexibility is where a mortgage broker’s strong point is over a bank. Your mortgage broker can search through many different sources to find a lender who will possibly fund your loan.

The most important thing is to Never Give Up! Work with your loan professional on steps to make homeownership a reality.

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