Word of the Month: January, 2018

A little late to the show, but here is what I shared with my branch at the start of the year:

Happy 2018 to you all!
   We’re past the holidays and in our first complete week of the new year. What we do now sets the tone for the rest of the year; work hard now and reap the rewards, slack off and you’ll be fighting that inertia for months.
   I also encourage you to turn inwards for a moment and consider what you’d like to accomplish this year (and further into the future) and, more importantly, why you’d like to accomplish it. It is great to have goals to strive for but even better to be cognizant of why you want those goals. If you don’t have a clarity of purpose you are more likely to struggle with sticking to your goals and to lose sight of them as the work piles up and life comes at you in waves. For some people, they are working for providing for their family. Others want to build a business. Some want to project an image of success. Still others are seeking to achieve financial independence. There are innumerable purposes and nearly all are perfectly valid, but you need to find yours. Once you have your purpose, you have your true north and can navigate in the right direction. You can ask yourself, “How does this help me achieve my purpose?” If something doesn’t help you can discard it or de-prioritize it. Same thing with the people in your life, if they are hindering you from your purpose then you can leave them behind or reduce their influence on you.
   Similarly I want you to keep in mind that your clients and your referral partners have their own purposes. If you can identify them and help them with their purpose then you can truly partner with them. That’s one of the ways to strengthening your referral network. By helping someone towards their purpose you will be going farther than most of the other people in their life and your relationship can more easily weather rough patches or challenges. The flip side, of course, is that if you are NOT helping someone with their purposethen you risk being discarded or being left behind.
   Know what you seek, why you seek it and you will find it. Know what others seek, why they seek it and help them find it!
“Being busy does not always mean real work. The object of all work is production or accomplishment and to either of these ends there must be forethought, system, planning, intelligence, and honest purpose, as well as perspiration. Seeming to do is not doing.” – Thomas A. Edison
“True happiness… is not attained through self-gratification, but through fidelity to a worthy purpose.” – Helen Keller

Word of the Month: December 2017

Every month I send out a Word of the Month to my branch. I thought I’d share this one:

The end of the year is a fantastic time for reflection upon one’s life and a celebration of one’s good fortune. I’m
generally a melancholy person unless I am making an effort to be social. During the holidays I try and notice how
lucky I am. You and I share a lot of that fortune, so I invite you to celebrate it yourself. Are lucky enough:

  1. To live in the United States which, for all its flaws, is one of the highest standards of living in the world
  2.  To live without a daily struggle for food or clean water (which is a problem for millions of people around the
    world – including some right here in America)
  3.  To have the advantages of telecommunication (just think about the internet and what it was like before we had
    all in the information humanity has ever gathered – minus the recipe for Greek Fire – at our fingertips 24/7.
    Then just think about your cell phone. We all have one and we can call anywhere in the world, at any time for
    very, very little cost)
  4. To have a high degree of confidence in our personal safety everywhere we go. This is not the situation for a lot
    of the world.
  5. To be gainfully employed in an industry with no caps on earning potential
  6. To have the opportunity to improve someone’s life
  7. To have been born in this day and age. No plagues, relatively little war, running water, sewer systems,
    electricity, and readily available chocolate in various forms
  8. To have people in our life that care (and if you think you don’t, you’re wrong – at the very least, know that I
  9. The list can go on, give it a thought for a minute

One of our branch’s clients recently lost their spouse unexpectedly. I can barely wrap my mind around loss of that
magnitude. So, whatever your complaints are today – keep them in perspective and be thankful for what and who
you have, and spend less time focusing on what you don’t have because time is fleeting and unmerciful.

Show respect to all people and grovel to none. When you rise in the morning, give thanks for the light, for your life,
for your strength. Give thanks for your food and for the joy of living. If you see no reason to give thanks, the fault lies
in yourself.” – Tecumseh (maybe)

Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance,
chaos to order, confusionto clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend.” –
Melody Beattie

CFPB cracks down on Kickback scheme disguised as MSA



This is fantastic! A lot of crooked real estate agencies (which is a frighteningly large percentage of them) lean in on lenders and require that lenders pay into what are known as Marketing Services Agreements (MSAs). Essentially they are supposed to be agreements where the lender and the real estate office split the costs of advertising and marketing. Think of those postcard mailing campaigns that you’ve glanced at and chucked into the recycling bin or open houses with banners, signs and swag. On its face it seems to make sense, two companies or two sales people go in together to generate business. Of course, in real life, things are rarely so easy.

See, there’s a very important law – RESPA, the Real Estate Settlement Procedures Act of 1974. The relevant part of RESPA is Section (a): the prohibition against kickbacks and unearned fees. This covers “referral” fees and “buying the business.” Essentially the law prohibits any one in the real estate industry from paying other parties for referrals or making payment for services rendered contingent on the closing of a real estate transaction (financing, sales, etc). So your real estate agent can’t get paid for sending you to his “preferred” lender. Ever since the law was passed and with every passing update, clarification and revision the real estate industry has tried to find ways to circumvent the law. MSAs and ABAs (affiliated business arrangements) have been the preferred vehicles for these extralegal gymnastics.

So what happens is that instead of obviously well-spirited advertising campaigns and events, companies set up relationships wherein, for example, a lender “leases” a desk at a real estate brokerage’s office. That lender pays well-above market rates for that “privilege,” say $2500/month for a desk and a chair. That lender, of course, expects something for his/her generosity. They want loans that they can close and make money. This isn’t in the spirit of serving the consumer mind you, this is about the $$$. The real estate office is seeking to either defray it’s rental expenses or generate a profit and the lender is seeking an easy path to deals. Now, paying above-market rent for a desk is questionable but not as questionable as the further perversion of these kinds of arrangements: varying the rent each month and making it dependent on how many deals were sent to the lender. Yes, this is very common. It is not what happened in the linked story but this kind of action gladdens me deeply since I am tired of being approached by crooked real estate agents to set up MSAs and hearing about how other, less scrupulous, lenders are “in-house” or “preferred” with a particular real estate office.

Weekly In-depth Market Analysis: 1/9/2017

Mortgage rates holding steady


A better start today after soft prices last Friday. The volatility continues; last Thursday MBS prices ended +29, Friday -36 and early today +20 bps. The 10 yr this morning prior to the stock market open at 9:30 AM EST 2.37% -5 bps from Friday. There is no US economic data today except this afternoon with Nov consumer credit data; and little until Friday. Two Fed officials today; Eric Rosengren (Boston) at 9:00 AM and Dennis Lockhart (Atlanta) at 12:40. The better start this morning on some increase in the dollar, weaker crude prices and stock indexes prior to the open a little lower.

Boston Fed’s Rosengren saying three rate hikes in 2017 seems “reasonable”. Rosengren will not vote again on FOMC decisions until 2019 and he dissented in favor of a hike at the September meeting, meaning that he is in the hawkish third of all the FOMC participants (voters and nonvoters).

SF Fed’s John Williams in an interview with the Financial Times said that strong hiring and higher wage inflation, confirmed in Friday’s jobs figures, showed “the stars are aligning” in the US labor market as he signaled support for forecasts of three quarter-point interest rate increases this year. He doesn’t believe there is a need for big fiscal spending now that the economy is moving ahead more rapidly. He said economic policy would be best helped by federal action that ensures a sustainable budget deficit and boosts long-term productivity. He also warned Congress against impinging on the Fed’s ability to set rates by imposing audit requirements or policy rules, amid fresh Republican attempts to clip the central bank’s wings. “If you were to ask me three years ago, four years ago, when unemployment was still high and the economy was still digging out of a hole, I would have said, sure, fiscal policy would be great to help expedite getting back to full employment — short-term fiscal stimulus,” said Mr. Williams in an interview. “But today I don’t think we need short-term fiscal stimulus. What we need is really better policies and investments in the long-term health of the economy.”

Bonds and mortgage prices, although holding nice gains today, are very quiet compared to recent intraday volatility; but it is early. Stock trading, the dollar and crude oil will be the focus today. Zero economic data until late today with consumer credit; while we don’t get estimates breaking down credit our main interest is in the revolving sector of credit (credit cards).

The market action (technicals) has a very slight bullish bias, maybe a better way of saying it; not bearish but not with much of a bullish sentiment. No scheduled data in the US and not much occurring in Europe today. Traders looking forward to Donald Trump’s first press conference on Wednesday.

This Week’s Calendar:


3:00 pm Nov consumer credit ($18.5B from $16.0B in Oct)


6:00 am Dec NFIB Small Business Optimism Index (99.6 from 98.4 in Nov)

10:00 am Nov wholesale inventories (+0.9%)

1:00 pm $24B 3 yr note auction


7:00 am weekly MBA mortgage applications

10:30 am weekly crude oil inventories

1:00 pm $20B 10 yr. note auction (9yrs, and 10 months)


8:30 am weekly jobless claims (255K +20K after declining 28K the previous week)

  • Charles Evans (Chicago)
  • Harker (Philadelphia Fed)
  • Dec export and import prices (exports +0.2%; imports +0.7%)

1:00 pm $12B 30 yr bond auction (29 yrs and 10 months)

1:15 pm Bullard (St. Louis Fed)

7:00 pm Janet Yellen hosts a town hall meeting with educators in Washington, D.C.


8:30 am Dec PPI (+0.3%, ex food and energy +0.1%, ex food, energy and services +0.2%)

  • Dec retail sales (+0.7% from +0.1% in Nov; excluding auto sales +0.5% from +0.2% in Nov)

10:00 am U. of Michigan md-month consumer sentiment index (98.6 from 98.2)

  • Nov business inventories (+0.6% from -0.2% in Oct)

Source: TBWS




A Strange Tale from Edgar’s Archives

I was going through old emails and came across one detailing what is still the strangest experience I’d had working in this industry. This was sometime in September of 2004 when I was still a lowly loan officer assistant:


I just had the strangest experience of my career as a loan officer this morning. I don’t mean this in the sense that it is the strangest thing to date, but that it’s the strangest thing that will ever happen to me in this field. We had to verify that a client worked at a particular place and had been calling the business number the whole week. The strange thing is that either the phone would ring 20-25 times without an answer or it would be busy. Usually if it’s a made up number you get a fake voicemail or answering machine. Strange enough that, but wait till you hear what happened when we showed up:


J (another assistant) and I show up at what is obviously a sweatshop. There are large wrought iron gates that are very, very locked. No doorknobs either. We bang on the gates… a large hispanic woman wanders up and asks, rather rudely, what we want. She is wearing two shades of lipstick, one on the lower lip and the other on the upper lip. Only thing is, the one on the upper lip isn’t anywhere near being confined to just the upper lip… it is also all over both cheeks. I think I could do a better job applying makeup than that. She is obviously oblivious to her appearance. We are not. We ask to speak to the owner or manager. We have to negotiate with her for that privilege. We have to explain our situation and reveal our credentials. Finally she fetches what can only be described as the next act in the freak show that is this VOE (verification of employment). A tiny Asian woman comes to the door, yelling to her workers in the oddest Spanish I’ve ever had the dubious pleasure of hearing. She has what appears to be a garter or panties tied around her face. A red lacy piece of fabric is tied in a band all around her head, passing over her upper lip and just under her nose, it has a large flowery (and lacy) knot in back. It is obviously there on purpose. Question is… what purpose? She comes up to the door and demands (in English worse than her Spanish) to know what we want.


Now; keep in mind that we are talking through a wrought iron gate. We once again relate our story and flash our credentials. We tell her that the lender is going to call her number and that we need her to answer the phone and answer all the questions to the best of her ability. She nods her head vigorously, agreeing multiple times… “ok, ok, ok.” I think all is well and call the lender to give them the green light while she is walking away from us and towards the phone. A minute later the phone rings… The phone keeps on ringing, the owner/manager woman and her assistant stare at it. The look like ancient tribespeople seeing and hearing a phone for the first time. It is as if they have never encountered technology before. The phone rings about 10 times, they don’t answer. This despite the fact that J and I are jumping up and down, yelling at them to answer. We are also employing crude sign language that we hope would convey the idea that; “ANSWER THE BLINKING PHONE SO THAT WE CAN LEAVE THIS FREAKSHOW.” Our efforts are in vain.

The lender calls my cell phone asks what the heck is up. I tell her what happened and tell her to try again in a minute or two.

A minute goes by and the phone rings again. Once more with the jumping, yelling and signing. She finally answers. She talks for less than a minute and hangs up. This worries us because the VOE process should take longer than that…


I call the lender to see if she got what she needed. She is in stitches when I call… I have to wait 30 seconds for her to get her voice back from all the laughing. I ask her, “Did you get what you needed? Are we good to go?”


She replies, “I think so… not really sure. I don’t really know what just happened.” There’s more laughing. “That was the strangest call ever.”


To which my natural reaction, “You should see it from this end.”


More laughter… “Don’t worry it’ll get funded, talk to you later.”

She’s laughing as she hangs up.


I drive home shaking my head and wondering, “Who does that lady’s makeup?”

What to Bring to Your Appointment and Why

Here’s what we need to review for a typical loan pre-qualification:

  • The two most recent federal tax returns you’ve filed. Please include any W-2, K-1 and/or 1099 forms and all schedules related to the filing. We do not need your state filings.
  • Most recent month’s paystubs (We need a complete 30 days)
  • Most recent two months of bank statements and retirement statements(if applicable)
  • Copy of driver’s license and Social Security card.
  • Any applicable bankruptcy filings, divorce filings and VA eligibility paperwork.
  • For a refinance we’ll also need your most recent mortgage statement and homeowner’s insurance policy information


Why do we need all this documentation?

The tax returns verify that the income you are showing is being reported to the IRS and on the up and up.  We also look any losses you might be reporting, whether it be unreimbursed employment expenses on Form 2106, rental losses on Schedule E or self-employment losses on Schedule C. It also shows if you currently own a home, which is relevant to both your first time homebuyer status and to your debt-to-income ratios. The tax returns will also show your history of income so that we can determine the consistentcy and stablity of your income.

The paystubs will show how much you are making now, in case you are making more due to a raise or a promotion. They also show you are still employed!

The bank and retirement statements show where the down payment is coming from on a home purchase. On both a purchase and refinance it can help to show “reserves” – money saved up to cover the housing expense in the event of a emergency. One month’s housing expense (mortgage payment, taxes, insurance, HOA) in a savings account is considered one month’s reserve. The more months you have in reserve the stronger of borrower you are. Some programs require reserves, so knowing what is available can help me tailor the loan program to your situation.

The driver’s license allows us to verify your identity in these days of identity theft and corroborate your personal details.

The Social Security card shows us your legal name. When we run a credit report it has to match the Social Security card exactly; nicknames and missing additional surnames can provide incorrect returns on your credit profile.

The bankruptcy (BK) and divorce filings are not always necessary but when they exist we need to see them in order to anticipate any possible underwriting challenges. We need to see how property was disposed in the BK and which debtors were discharged. From divorce decrees we can see if you are responsible for child support or spousal support, both of which are factored into your debt-to-income ratios. If you are a veteran then Veteran’s Administration (VA) paperwork will let us confirm your VA loan eligibility and the terms thereof.

On a refinance we need the mortgage statement to verify your escrow impounds, your address, the current balance of your loan and the terms thereof. Similarly your homeowner’s insurance lets us verify the coverage and the cost of your insurance (which, you guessed it, factors into your debt-to-income ratio).

How NOT to Shop a Lender

Look, I understand that people want to shop around for a “good deal” and that I don’t have the lowest rates in the market. I deliver excellent service and solid advice and I like to think that I’m worth a little bit more than some nameless drone at some internet bank that doesn’t know what he is doing, doesn’t care about his client and will take 3 months to close a perfectly clean loan. Still, I recognize that it is natural for people to want to know their options and I encourage it. Frankly, comparing me to most other lenders makes me look good!

Normally this shopping process happens at the beginning of the process, before anyone has committed to anything. On a home purchase this normally happens during the pre-qualification process. Typically that means that by the time a buyer finds a home he likes and gets an offer accepted that buyer has settled on a lender (hopefully with my office). This is because once they are in contract the buyers have a deposit on the line and they will be spending money upfront for things like a home inspection and an appraisal.

There are some people that go off the reservation and go about “shopping” the wrong way… and end up hurting themselves because of promises made by a less-than-scrupulous lender. We have a situation like that in the office right now. We’ve been helping this borrower shop for a home for about six months now and he finally got an offer accepted at the beginning of December on the purchase of a short sale. In fact, our office was integral in getting the short sale approved! We got his loan approved very quickly. obtained an appraisal and then, at the beginning of this month, we produced final loan documents for him to sign and close his deal. Through out this whole time we spoke to him regularly and emailed him multiple times a week. Never did he tell us that he was also applying with a different lender. Now that we have documents ready to go and a lock about to expire (I feel it is important to mention that the loan is the exact terms we disclosed/discussed in November, so it’s not like we jacked up the rate or the costs) and we get a call from the listing agent that a new appraiser is trying to see the property. Turns out the other lender has been sitting around for a couple of weeks and is now trying to get the property looked at. The scheduled close is this Friday. The short sale approval is up this Friday. Our lock is up on Monday.

We call the borrower to find out what is going on. He doesn’t answer any calls. Emails to him go unanswered.

Now he is going to lose the sale, his deposit, what he paid for the appraisal, what he paid for the inspection and what he paid for the HOA cert. I think that’s about $6500.00. The sellers won’t grant him an extension since there are loan docs sitting at escrow ready to sign and a lender that performed exactly as promised.

All this could have been prevented if he had simply been straightforward with us. We would have bowed out gracefully and spent our time, energy and money on clients who want to work with us.

I don’t get it… why mislead us about this? I’m sure he expected honesty from us, why wouldn’t he return the same? Why not return our calls? Why not tell us directly?

Happy New Year!

Driving on an empty road towards the setting sun to upcoming 2016 and leaving behind old 2015.

Welcome to 2016!

This year I intend to eat/drink a little healthier and work out a little more regularly. I also intend to continue working on educating people about their financial options; including, but not limited to, their options concerning their home mortgage. What are your New Year resolutions?


California Mortgage Professionals: Join CAMP!

CAMP Logo Higher Res


I finally decided to join the California Association of Mortgage Professionals.

They sold me when they pointed out the obscene amount of money spent by the National Association of Realtors lobbying Legislators. They then correct pointed out that spending the second highest amount of bribes, I mean “political contributions,” resulted in absolutely no new legislation that affected the ability of Realtors to work or make a living. Compare that to the amount of money spent by the Loan Originators lobby. The National Association of Mortgage Bankers (with which CAMP is affiliated) isn’t even on the map when it comes to relative spending and look at how many changes have affected us in the last seven years.

At first I was sickened by how blatantly skewed our political system is by money. It is not ideals or a drive for the common good which guides our elected officials. It is the almighty dollar.

After recovering from my revulsion I realized that in order to play the game I had to get dirty just like everyone else…

TRID! And other ingredients of Alphabet Soup…

This week we are closing our first loans under the new disclosure rule known as TRID. It became effective October 3rd of this year. TRID is the result of the Dodd-Frank Act of 2008 and the creation of the Consumer Financial Protection Bureau (CFPB). It is a result of rule making that called for there to be an integrated disclosure that addressed the regulatory requirements of the Truth-in-Lending Act (TIL , TILA or TILDA) and the Real Estate Settlement Practices Act (aka RESPA). In fact that is what TRID stands for, TILA-REPSA Integrated Disclosure. Gone are Good Faith Estimate (GFE, we sure do love our acronyms in the mortgage industry) and the Truth-in-Lending disclosure. Those are not things any more. The information contained in both those forms has been cleaned up, condensed and polished into the new Loan Estimate (LE) form. A sample of which can be found here.

Dodd-Frankly (see what I did there?), I like the new form. It addresses many of the issues I had with the GFE form. I believe the LE to be cleaner, more concise and, most importantly, clearer to the consumer (I also like alliteration). It deemphasizes the hogwash metric of APR which can be manipulated and lacks transparency to the average consumer and focuses on the questions most likely to be asked: Rate, Term, Payment and Cash-to-close. It clearly states the lock status of the loan and breaks down fees in reasonable manner. In fact I only really have three qualms about the form:

  1. It introduces another hogwash metric: Total Interest Percentage (TIP, see what I mean about acronyms?) which shows “The total amount of interest that you will pay over the loan term as a percentage of your loan amount.” This will generally be a very large percentage on a 30 year loan, something in the neighborhood of 60%-80%. While I do believe it is important for a home buyer to understand the cost of financing over a long term I believe that this percentage is somewhat misleading as it makes some very broad and unrealistic assumptions; e.g. that not a single dollar of additional principal is paid, ever, and that the loan is carried to term (that is, never paid off early due to refinance or sale). I’m just guessing here but I don’t believe that those two conditions apply to more than 1/10th of a percent of home buyers nationwide.
  2. In section G it refers to the funding of the escrow (aka impound) account as “Initial Escrow Payment at Closing” which is a seemingly cumbersome manner of labeling it. I believe that the term “Payment” should not be included there as it could be mistaken with the actual “Payment” on the loan. Perhaps, Initial Deposit into Escrow Account would have been clearer.
  3. It highlights whether a given loan has a Prepayment Penalty or a Balloon Payment (both of which are important to know) without allowing for a Negative Amortization feature or an Interest Only feature. In a world of Qualified Mortgages (QM, more on that in a latter post) I know that it is unlikely that we will see those for primary residences (which I have decidedly mixed feelings about) but I think that we might see some variations on those products for Investment Properties but the LE is simply not equipped to deal with such products. This speaks of the narrow mind-set by the rule makers and the general nanny mentality that seems to be prevalent at the CFPB and in legislature. But enough of my opinions…\

TRID also brings us a new closing form, the Closing Disclosure (CD). I will be discussing that in my next post.

If you have any TRID or LE questions, please comment below or on Facebook (see sidebar), otherwise; thanks for reading!

How are credit scores calculated?

Credit Score words on a report card with stamp and number 760 to illustrate creditworthiness of an applicant hoping to borrow money in a loan or mortgage

How credit scores are calculated

FICO® Scores are calculated from many different pieces of credit data in your credit report. This data is grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining how your scores are calculated.

Your score considers both positive and negative information in your credit report. Late payments will lower your scores, but establishing or re-establishing a good track record of making payments on time will raise your score. Credit scores also take into account public records such as bankruptcies, judgements and tax liens.

How a credit score breaks down

Calculate credit score pie chart, how it is calculated.

  • 30% – Amounts Owed
    • Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower with a low score. This look at the proportion of your available credit versus your open credit. Are your credit cards maxed out? Using more than 50% of your available credit suggests a higher risk as borrower and therefore a lower score. Try to keep your usage under 10% or 30% for higher scores.
  • 35% – Payment History
    • The first thing any lender wants to know is whether you’ve paid past credit accounts on time. This is one of the most important factors in a credit score.
  • 10% – New Credit
    • Research shows that opening several credit accounts in a short period of time represents a greater risk – especially for people who don’t have a long credit history.
  • 15% – Length of Credit History
    • In general, a longer credit history will increase your score. However, even people who haven’t been using credit long may have high FICO Scores, depending on how the rest of the credit report looks. It takes into account how long your accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all accounts. It also looks at how long it has been you used certain accounts and how long specific accounts have been open.
  • 10% – Credit Mix
    • FICO Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.

These percentages are based on the importance of the five categories for the general population. For particular groups—for example, people who have not been using credit long—the relative importance of these categories may be different.


Importance of categories varies per person

Your credit scores are calculated based on these five categories. For some groups, the importance of these categories may vary; for example, people who have not been using credit long will be factored differently than those with a longer credit history.

The importance of any one factor in your credit score calculation depends on the overall information in your credit report. For some people, one factor may have a larger impact that it would for someone with a much different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO® Scores.

Therefore, it’s impossible to measure the exact impact of a single factor in how your credit score is calculated without looking at your entire report. Even the levels of importance shown in the scores chart are for the general population, and will be different for different credit profiles. When I run someone’s credit I have access to a credit simulator that can approximate the effect on your score made by particular actions but it is only an estimate.


Your scores only look at information in your credit report

Your credit score is calculated from your credit report. May accounts you might pay on time every month do not report to the credit bureaus. Things like rent, cell phone and insurance are not counted when calculating your credit score. However, lenders look at many things when making a credit decision such as your income, how long you have worked at your present job and the kind of credit you are requesting.



Do you have a question about what you can do to improve your credit? Give me a call and make an appointment for a no-cost consultation!

What’s this LTV thing?

Mortgage percentage changes concept with house and loan percentage symbol. Illustration isolated on white.

LTV, three letters that mean so much when it comes to applying for a mortgage. What do they mean? Loan-To-Value.

The LTV is the ratio of your loan amount to the value of your property. That means that that if your home is worth $300,000 then a 80% LTV would mean a loan amount of $240,000. Seems straight forward enough, right? Well it is and it isn’t. The math is easy. You simply take your loan amount and divide it by your value and convert the result to a percentage (by moving the decimal two spaces to the right and slapping a % on it). The complicated part is figuring out what LTV limits apply to you. Here the rules get a little more conditional and circumstantial. Quick disclaimer here, by the way: Everything I’m saying here is a broad generality and subject to change.

If the loan is a “Purchase” loan for a home buyer then LTV rules depend on the type of loan product. For the sake of simplicity and time I will limit the discussion to Conventional and FHA financing (these are the most common loan products used to purchase a home). Please note that on a home purchase, LTV is based on the lower of the sales price or the value.

If someone is buying a home with an FHA loan then the maximum LTV is 96.5% (meaning the balance of the purchase price, 3.5%, is the minimum down payment). Buyers can always put more down if they choose. There is a small break on the monthly mortgage insurance (more on that in a latter post) at 95% LTV (5% down). FHA loans are generally limited to properties you occupy as your primary residence.

If someone is buying a home with Conventional financing then things become a little more complicated. 97% LTV is possible but not all buyers are eligible for just 3% down. 95% LTV (5% down) is the general rule for a maximum loan-to-value ratio. If a buyer would to go with an 80% LTV (20% down) then mortgage insurance would be eliminated. These LTVs go down if the property has multiple units and/or it is not a primary residence.

Now if the loan is a “Refinance” for a current homeowner looking for new financing the rules can be a little different. There are two different kinds of refinance (refi) loans: Cash-Out refinances where some of the equity in the property is converted to debt and Rate & Term refinances where the rate and/or the term of the loan are changed.

On an FHA Rate & Term refinance one can generally go up to the original 96.5% max. That can be based on the current value or, if you do a streamline refinance, it can be based on the original purchase price and the borrower saves on the cost of the appraisal. If it is a Cash-Out then the max LTV is limited to 95% LTV. Unless your loan amount is over $417,000. Then the Cash-out limit is 85%.

With a Conventional refinance then you can do a Rate & Term refi up to 95% on a single unit property that you occupy as a primary residence and 80% for a rental property. A Conventional Cash-Out would be limited to 80% LTV for a primary residence and 75% for a rental property.

Is that clear enough?

But wait, there’s more! There’s break points to consider, especially as it pertains to pricing out an interest rate for a given loan. As the LTV increases, the risk that the loan will default increases (this is borne out by statistics). A 90% LTV loan is more likely to go into foreclosure than a 70% LTV loan, all other variables being equal. So, with that in mind banks generally assign higher pricing to higher LTV loans. Here’s where break points come into play. The industry, by and large, puts things into buckets (and not just LTVs). LTVs tend to be seen in buckets that span a 5% range.  So LTVs between 90.01% and 95% all fall into the same 95% bucket. An 83% loan is priced the same as a 81% or 85% loan. That means for every 5% you put down you’ll likely get a pricing improvement. Exactly how much changes from day to day and situation to situation. This general rule holds until about 60%, everything lower tends to fall into the same, <60%, bucket.

This important for borrowers to know so that they can gauge the magnitude of the effect of additional down payment when buying a home or how much of their equity then can borrower against when refinance.

Confused? Have questions? Please post a comment or on my Facebook page (see right sidebar) and I will answer to the best of my ability.



Saturday Appointments, A.K.A. Russian Roulette

The word "SATURDAY" written in vintage wooden letterpress type.

So, I am available  by appointment on Saturdays. I realize that people’s weeks are busy and it is simply easier for some to meet on the weekend.

Every time I set one I cringe. Not because I am coming in on a Saturday. That isn’t a big deal. I cringe because I know that there is an even chance that I’ll be stood up. I’ve been burned in the past so I take steps to protect myself. I confirm the appointment the day before. I give them my cell number and ask that they please let me know if they can’t make it.

I’ll even call the morning of the appointment to confirm that they have the address/directions. I know that if they don’t answer or call back I’ll be sitting in the office waiting it out.

It boggles my mind.

The best times are when I have a 10am appointment and I hang around the office until about noon. I’ll get a call at 2pm because the client is outside my office wondering why the door is locked. When I tell them I waited two hours and they didn’t answer when I called; so I moved on with my day they get in a huff. It doesn’t matter because I don’t want to work with people like that but it still puzzles the heck out of me. What do they think I mean by “appointment only?” What happened to courtesy?

Well, let’s see what’s in the chamber today…

Loan Mods and other things that sound too good to be true…

Loan Modification.

Two words that have haunted my career since 2008.

When they first arrived on the scene they were flashy, like Pink in her Mercedes Benz. Everyone was abuzz and aflutter about getting to lower their payments without refinancing and despite being upside down on their mortgages. It seemed like a great way to help clients. The office I was in at the time signed up with a modification firm that allowed us to get a small fee for referring loan mod clients. The company was started and promoted by a very prominent name in the industry. A top salesperson who did training seminars and hosted weekly training calls. I’d been to this guy’s house for an industry mixer. He was smart, sharp and successful.

I did one. A cousin of one of my best clients (RIP, Charles) paid her fee to the company and I was happy to see the look of hope enter her eyes.

A month later, she was being ignored and she wasn’t getting help. I tried calling the company myself and no one would answer. I emailed the industry guy directly, he promised me he’d look into it. I didn’t hear back. I never got paid. I’d field calls from the client a few times a week that went from sad to hostile. When the hostility started they involved threats of level action at first and then it escalated to her “friends from the ‘hood” coming by my office. She didn’t believe I was never paid and that the company was ignoring my calls.

A few months later I started at the California Department of Real Estate as a Deputy Commissioner. First week there I over heard them talking about the company that I had referred this poor client to… I volunteered that I was familiar with the company and had a previous client who was victimized by what appeared to be loan mod fraud. I was interviewed and had to prepare my first statement for the state. I ended up going along to serve legal documents to the smart, sharp and successful guy. Turns out he wasn’t too smart, he called the state offices and left a very threatening voicemail for the deputy heading the case. Mr. Tops Salesman then got a visit from State Law Enforcement – they don’t take kindly to threats on public servants. It also turns out he was in business with the wrong guy. His business partner absconded with all the money and left a shell of a company that didn’t accomplish much for anyone but him.

Two years of loan mod cases were my penance for sending my client to the wolves.

I then moved to Freddie Mac. Shiny offices and a travel budget. I thought I had served out my sentence and been returned to civilization. I was wrong. Loan mod cases awaited me there. Cases with the same names I had seen while working for the state.  It was Sisyphean labor. No matter how many cases I closed, more appeared. There seemed no end to the ranks of people had, taken, gotten, defrauded, hoodwinked, swindled, victimized, bamboozled, beguiled, shafted and taken to the cleaners by a motley crew of realtors, lenders, attorneys, paralegals and other, less-credentialed, crooks.

You might ask why people would pay anyone when a borrower can simply apply for a modification directly from their bank. A valid question. An astute question, even. The answer, as is often the case, is a complex one that I’ll attempt to condense:

  • Banks don’t want to do loan mods. They require staff that needs training and pay. This staff wouldn’t be making the bank money… instead they’d be making it so that the banks would get less money from the assets they already had. The only reason a lot of banks did any mods at all is because the federal government had them by the proverbial short and curlies and browbeat them into offering mods.
  • Finance paperwork is complex. Many individuals are intimidated by having to complete applications and submit documentation. These folks saw loan mod firms as a convenience and a professional guiding hand.
  • Foreclosure was faster and cleaner for the banks’ balance sheets.
  • Government involvement. Once it came to light how dirty the loan mod system was new rules came in place. Rules came with enforcers, fees and compliance concerns. That meant more money for banks to spend on mods.
  • Low success rate. I don’t remember the exact statistics ( Here’s an article) but a lot of modified loans go belly up anyway. This is a topic that I could spend another hour on… but suffice to say that the institutional side of the industry did not have a lot of faith in loan mods.

Three years of this I endured. Finally, in my final year there, the flood seemed to finally flag. Could it be that I would be free of those two haunting words?

It is now 2014… I almost lost a deal a couple of months ago because a client had previously modified his loan. Turns out that a lot of banks won’t let you refinance a loan that you modified. That seems less than fair. You can buy another house two years after having a modified loan on your credit but it’s very difficult to refinanced the same house.

Today I received a call from a family member of a previous employee who was referred to me because she just got a loan modification that she feels she can’t afford. She is going to have to sell her home of 31 years.

When will it end?


Man in Hawaiian shirt and white straw hat walking on Orient Beach in Saint Martin.
Where my mind wanders on Fridays…

Fridays are exciting for a number of reasons:

  1. Casual Attire. Or maybe I should say, even more casual attire. My daily self-imposed uniform during the work week are polo shirts and khakis, like Jake from State Farm. It’s comfortable and doesn’t make me melt in my seat like a long sleeve shirt does. On Fridays, however, I switch to jeans! Sometimes I’ll even wear an Aloha shirt to remind myself there are places with sun and sand where the phone doesn’t ring every few minutes.
  2. Saturday is coming. Need I say more?
  3. Gym. I can usually find time on Fridays to hit the gym, which is rare enough to be celebrated.
  4. Atmosphere. Everyone tends to be a little more laid back on Friday, it makes for more pleasant interactions all day.

Hello world!

Hey there, I’m Edgar and I’ve been bouncing around the mortgage industry for going on 12 years now. I started as an assistant to a loan officer, then became a loan officer. A few years later, during the height of the “crisis” I went to work for the California Department of Real Estate, where I helped regulate Real Estate Agents and Mortgage Brokers all over Southern California. After a couple of years of that I was offered a position with Freddie Mac (the Federal Home Loan Mortgage Corporation) as a Senior Fraud Investigator. There I investigated appraisers, mortgage brokers, real estate agents, banks, loan officers, escrow officers, borrowers, attorneys, fraudsters, sovereign citizens and other colorful characters. Now I’m back on the front lines of the industry – I’m the Operations Manager of a branch and I still take on a few personal clients.

So why I am writing this blog? Well, I got a lot of thoughts and things to say about this business and I think it’s time that I share it with the world – even if it is from a tiny corner of the internet that few are likely to visit. So, follow me down the rabbit hole as I try to tell everyone what it is like to sit on this side of the desk.