Closing Chicago Real Estate

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Editor’s Note: Thanks to Mike Williams for sitting down with us here at CCRE to discuss what’s happening in mortgage-land these days. Mike’s been a friend and professional colleague for several years now and I’ve worked with him on several residential real estate transactions and a recent post-divorce cashout refinance or two (not always easy when dealing with bickering former spouses). You can reach Mike @ 773.671.5626…for all your mortgage needs, ELB Mortgage Brokers, Inc.

CCRE:
Considering the many lender alternatives (credit unions, local community banks, large, multi-national banks, mortgage brokers) that borrowers have when seeking a mortgage, how/where should a person start?

Mike Williams:
The best place a person can start is by talking to a trusted professional. A lot of the information that is posted online is designed to drive business to a certain company or website. Rates posted online typically would be unavailable if the customer wanted to get that rate today. Loans right now are typically taking 45 days to close, and a lot of rates that are posted on the internet are for 15 day locks. These rates exist, but if you started your mortgage process today, you couldn’t lock that rate, which is why they’s deceptive.

CCRE:
Since you’re a mortgage broker, describe what you do when a new potential client contacts you seeking a mortgage?

Mike Williams:
The first question I want an answer to is ‘what do you want to accomplish?’ Rate is not always the overriding issue, and if someone has income documentation problems, or poor credit, or just needs money, those can be bigger issues than ‘what’s the rate?’ Also, I want to know what sort of urgency the customer has to getting something done. There is no point in talking about rates if someone is not motivated to get the process started.

CCRE:
During the so-called ‘boom years’ mortgage brokers were criticized for steering clients to loan products that benefited the broker at the expenseof the borrower, does this still happen and how can a borrower be confident she’s getting the best deal?

Mike Williams:
Without mortgage brokers if someone who wanted a mortgage wasn’t a plain vanilla, slam dunk deal, their deal probably would not have been funded at the local bank. Brokers helped fill that gap and assist those people in their quest for home ownership which was invaluable to our economy. There is no way to judge a deal as a ‘good’ or ‘bad’ deal. It’s very subjective. Is the deal ‘right’ for you? Does it help you accomplish what you are trying to get accomplished? Are the payments something you can live with? What is your plan for this loan two to three years from now? Those are the questions a customer needs to ask themselves. There is no blanket standard for what makes a good deal as everyone’s situation is unique.

CCRE:
What’s your most popular loan product these days?

Mike Williams:
Plain vanilla 30 year fixed, or FHA 30 year fixed are today’s most popular programs. The days of stated income loans and Option ARM mortgages are gone and the market has little, if any, tolerance for unwanted additional risk.

CCRE:
What options exist for borrowers who can’t afford a 20% down payment?

Mike Williams:
FHA lets a customer put down 3.5%. That 3.5% can be from an immediate family member if the customer doesn’t have it. The days of 100% financing are over for the time being.

CCRE:
What is the maximum loan-to-value available on ‘cash-out’ mortgage refinances today?

Mike Williams:
For FHA the max you can get on a cashout refinance is 85%. I have one lender that will go up to 90% on a cashout refinance, that’s about as much as anyone is doing nowadays. Banks also aren’t into giving people ‘walking around’ money in this market. They want to see that your situation is improved with the refinance either by going from an adjustable rate to a fixed rate, or that your interest rate gets lowered, and your monthly payments go down.

CCRE:
Say I’m thinking of purchasing a home in six months to a year, what steps should I take to be ready for mortgage process?

Mike Williams:
Call a mortgage broker now, and see what your credit score is today. In this market, your score is everything, if it’s low, put yourself on a plan to raise your score in six months to a year. Secondly, pay down your debts, and lastly, start saving your money for a downpayment. 100% financing and easy credit is gone. It’s getting to be like the old days where you have to ‘earn’ the right to own a home, which isn’t such a bad thing, but it’s not easy like it was just three years ago.

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Comments (1) Sep 03 2009

That’s the headline here with a thorough analysis that not only answers the above but included a great overview that really answers the question:  How should you shop for a home mortgage??

The full piece is a must read to better understand how to navigate the mortgage shopping process.

Remember…

Mortgage brokers work for themselves, not for you. They do not provide a personal shopping service and may compare only a handful of lenders on your behalf. If you want to be sure you’re getting the best rate and the lowest costs, the only way to come close to succeeding is to hunt extensively on your own…

Cost?

A study for the Department of Housing and Urban Development published last year examined 7,560 30-year, fixed-rate Federal Housing Administration loans that closed in the middle of 2001. It found that when mortgage brokers were involved, borrowers paid about $300 to $425 more in fees than when consumers worked directly with lenders, other loan characteristics being equal.

Shop around…

Start with a credit union or two. Hit a few community banks. Then try a few big national banks nearby. Give your investment firm a shout and the bank that has your checking account, since they may offer you a deal. And if you’re refinancing, don’t forget your current lender.

Next, call a few mortgage brokers recommended by people you trust. Talking to more than one isn’t a breach of etiquette.

Two questions:

First, ask if they’ll guarantee the rate and costs in the good faith estimate they give you when you apply with a lender. “Good faith estimates are nothing but a sham,” said Mr. Stoffer, who has tried to fix what he sees as an industrywide problem by sticking to his own projections on the costs of the loan. “If I’m wrong on my good faith estimate, then I pay you. We should all have something binding upfront so people can shop.”

Second, ask if they’ll sign a piece of paper agreeing to work solely in your best interest. The legal word for this is “fiduciary, and Senator Charles E. Schumer has been trying to force this standard upon mortgage brokers for a couple of years. Representative Miller agreed that this would be ideal but that it was probably not politically realistic.

Bottom line, get the best deal you can wherever you can. I think that’s where people erred…they thought Mr. Broker was looking at like every lender and then you chose the best deal. Not true.

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Comments (3) Apr 09 2009