SR at ComputerI’ve heard many of my piers comment that “mortgages have become a commodity”. If that’s true, it’s a shame, or at the very least a misconception. What is a commodity anyway? The official definition states “an article of trade or commerce, especially a product as distinguished from a service”. So, when shopping for a mortgage, are you looking for a product or a service? Hopefully both. But which do you weigh more heavily?

The internet has become one of the most widely used tools for researching, and shopping for products. So understandably, those considering a new mortgage will turn to the internet for general information, current interest rates, and lenders. And if it’s on the internet, it must be true – right? Yeah, right. The internet is a great tool. But ask anyone in the know, and you’ll discover that the computer should be used to educate yourself, but NOT to purchase a mortgage. That is, unless a mortgage is a product. Sure, a 30 yr fixed rate loan is the same, no matter which lender provides it. And, if the rate and fees are the same, then the product is identical. The problem is, when you buy a mortgage, you don’t get it immediately. Someone has to orchestrate a team of real estate professionals to take your mortgage from application to closing. And that’s when this product becomes much more of a service.

Let’s say you’re headed off for a grand vacation in 10 days. And you need a new bathing suit for the trip. You know exactly what you want, so you head to the internet to find the best price. After ordering, the suit doesn’t arrive in time, and you find it sitting on your doorstep upon your return. Now take that disappointment and imagine how much worse it would be if it was YOU sitting on the doorstep. The doorstep of your new house that you DIDN’T purchase today because the low cost lender wasn’t ready. Even though they promised they would close on time, and they now have 100 excuses, they simply can’t close. What in the world? A non-local lender who doesn’t have an interest in the local community, and no real ties to the area? Wouldn’t you have rather worked with someone with a genuine interest in you – with a team of local professionals working on your behalf?

Oh sure, they’ll most likely get you closed in a day or so. But what about the seller who needs to move to his new house? Or, your furniture on the truck. Where is that supposed to go? And now you have to call the utility companies back to reschedule the date for those to be turned on. And I guess maybe check into a hotel, because you’ve already moved out of your old house or apartment. “Well, we tried” says the voice on the other end of 1-800-bestrate. (It happens more than anyone realizes.)

A deal is not a deal, if you don’t get what you’re paying for. And so I ask again: When you’re buying a mortgage, are you buying a product or a service?

Obtaining a mortgage is one of the largest financial decisions you’ll make. Choose local, and from a seasoned professional. (Check the definition of seasoned.) You’ll be glad you worked with someone who answered 100 questions, was there face to face when you needed it, and made the process smooth and stress free.



The Money Is In My Account. Isn’t That Enough?

RactliffeOne of the most common misconceptions while applying for a mortgage involves bank account documentation. I can’t tell you how many times I hear “Can I just send you a screen print showing you my balance?”  And the answer is, “no”.

Lenders must document bank and investment account balances with complete statements, covering a one to two month period. Not only are we required to document that a borrower has sufficient funds to complete the purchase or refinance, but also the source of all deposits into those accounts. This is partially related to the Patriot Act, which guards against illegal money laundering. It is more about fraud detection.  As you might understand, your Realtor (or the property seller) cannot give you money toward your down payment. Unbelievably, a lot of these type shenanigans were uncovered during the past foreclosure crisis. Now, all of us good guys are paying for the sins of a few.

When you supply bank and/or investment account statements to your lender, be prepared to also provide copies of misc checks deposited, and explain why you received them. Payroll that is auto deposited into your account is recognizable. So, no extra documentation needed for them. But if you transfer money from one account to another, you’ll need to also provide the bank statements from the account you transferred from. And the same scrutiny is given to deposits there as well.

Here are a few tips if you will soon be seeking a new mortgage:

  • Do NOT deposit cash into your accounts. If for some reason you’re inclined to hoard cash under the mattress or in your safe deposit box, get this money into your bank account several months ahead of a mortgage application. Cash On Hand is not an acceptable source of funds, and could cause many problems with your loan approval.
  • Limit the transfer of funds from one account to another. I often see transfers back and forth between accounts for no apparent reason. This just makes it difficult to determine the actual documented funds available, and the paper trail more difficult to track.
  • Be prepared to provide a copy of the cancelled check you wrote for your earnest money deposit.
  • If you’re a gambler – professional or amateur, and you withdraw funds from your online gambling account, you’ll need to document where those funds came from. This could involve screen shots of the gambling site, and confirmations of funds transfers to your checking account. (If you don’t need these funds – please don’t do this.)
  • If you receive a bunch of birthday checks, or wedding present checks, deposit them well ahead of a mortgage application. Or hold them until after the mortgage process is complete. You don’t really want to have to get gift letters from all those family members and friends do you?
  • If you plan to share a vacation rental with friends, let them pay for it – and then you can reimburse them for your half. Do you really want to explain why Mary Smith wrote you a $2,400 check for their half of the rental. Too complicated, and potentially unbelievable.

These are real life examples. Sometimes our financial lives are more complicated than we realize. Just having the money in your account is not enough. And sometimes, it can be too much!  Be wiser my friends! I hope this helps.

2013 – Everybody Likes Roller Coasters


Shrill screams of excitement are often heard as a roller coaster crests the high point and begins its rapid decent down an unbelievably steep track. Those same screams change to a different pitch when the ride enters a dark hole, and the twists and turns are unexpected and startling. That’s often when the terror sets in. And yet, every time, the coaster pops back into the daylight and slows into the station. The riders survive, and most often are ready for another go at it.

The mortgage market in 2013 was not unlike the best of roller coaster rides. But have we reached the station yet?  Last January, with the 2012 holiday season behind us, 2013 began with 30 year fixed rates hovering around 3.375%. With wide smiles, mortgage professionals had never seen rates this low. And borrowers were enjoying the benefits as well. Our roller coaster had been in freefall, and the excitement was at a high point.

 Then, as we made our way from early May to early June, we got a glimpse of things to come. Interest rates had risen from the 3.50% range to nearly 4.00%. And then, with consistent increases, to the 4.75% range by late August.  Smiles waned a bit, and worry set in. We had certainly reached the dark part of the 2013 ride, and nobody knew when and where the next turn was… or if it would be a fun one. The Federal Reserve, which had been behind these historically low rates through the use of its bond and mortgage purchasing stimulus plan, finally came out with convincing comments in September stating that the stimulus would continue for the foreseeable future. Our ride popped back into the daylight, and rates dropped back down into the low 4’s by late November. Even though we’ve seen some recent slight increases in rates, we’re still seeing 30 year rates in the 4.50% range. As we near the end of 2013, with rates essentially 1% higher than January, this annual roller coaster is nearly over.

Nashville home prices have stabilized, and in most areas show signs of good appreciation. Inventories are presently low, which has created bidding wars in many cases. That has pushed home prices higher.  It’s a matter of supply and demand.

 If this past year has shown us anything, it’s a glimpse into the future. While nobody can say for sure, the most likely scenario for the spring of 2014 will be higher interest rates and higher home values. So is it a good time to buy or sell?  Absolutely – either, or both. The spring will bring more inventory, and with it more competition for sellers. And projected increases in rates will raise the cost of financing for buyers. So don’t wait too long. The exhilarating part of the ride is about to begin again. And who knows when the next turn is coming, taking us back into scary uncertainty. Keep your seatbelt on – 2014 should be very interesting!

What Do You Want on the Menu?

Many years ago the menu items available at most restaurants did not have much variety. Let’s consider raw oysters for example. Oysters were not everyone’s cup of tea. But as popularity grew, more and more restaurants began serving raw oysters. And as demand for oysters grew, more oysters needed to be harvested from the sea, and shipped great distances.

Everyone knows we need to be careful about the quality and freshness of something you’re going to eat that hasn’t been cooked. (Something about the months that have an “R” in them.) But we also tend to rely on the restaurant and/or supplier to protect us from bad oysters. And what about the waiter who notices a batch of mollusks that don’t particularly look or smell good? Should he tell his customer not to order them? The other waiters are serving them. The restaurant kept them on the menu. Would he lose his job if he discouraged folks from ordering this popular menu item?

And what about people who bought oysters and other “fresh seafood” from a guy in a truck parked beside the road, or who drove up unsolicited to the house selling “discount oysters”?

Over time, it was discovered that certain people were allergic to oysters. Others, based upon their DNA were susceptible to illness that didn’t show up for several months, or years. Not all oysters caused issues. But many did. And ultimately an oyster illness pandemic broke out. Somebody should do something about this! And so the FDA steps in, with the help of Congress, and regulates the sale of oysters. Absolutely no more oysters are to be sold to the American people.

Whew! Thank goodness the Federal Government stepped in and protected us from this menacing menu item, right?  But what about the oysters that were harvested, shipped, and prepared correctly? And the folks who really liked oysters? I guess the common theory is that it’s better to protect the masses by eliminating these darn things altogether than figure out how to make sure only good ones are served.

Well, I am a mortgage banker. So this must have a point somewhere. Who is responsible for oysters causing a pandemic and no longer being available? What if oysters were “non conforming specialty loan products”. And the waiter was a loan officer. And the restaurant was your local bank, or mortgage company. Then replace the supplier/harvester with the large lenders, Fannie Mae/Freddie Mac, and bond houses who made this “menu item” available. What if the guy pushing oysters unsolicited up and down the street was the unknown mortgage company sending postcards to you and all your neighbors?

Who is responsible? The many people who bought oysters from someone they didn’t know? Shouldn’t they have known better? The waiter who served something on the menu? The restaurant who was making a menu item available that was highly popular? The supplier/harvester who was keeping up with demand? The answer is yes – and no (and very hard to pinpoint). And, no doubt, there are still those professionals who know how to do things right, and have everyone’s best interest and safety at heart.

The next round of tightening standards for mortgage lending is coming after the first of the year. Government rules will cause some borrowers to be denied loans who would today be approved. And it is very possible that many lenders will remove some products from their menu. (More on this later.)

In the mean time, let’s keep an eye on what we’re being protected from. What’s next? Mahi Mahi? (30 yr fixed rate loans?)  Swordfish? (The ability to purchase a home with less than 20% down?) How far does the pendulum need to swing before we all feel safe?CameraAwesomePhoto

The Shutdown Effect

By now, most everyone should be aware that the stalled budget talks in Washington have created a Government shutdown of many “non-essential” services.  Fannie Mae and Freddie Mac are not affected by the shutdown. And FHA is operational, but with a significantly reduced staff, which could lead to some delays. The most impactful of shuttered government departments is the IRS. The IRS has been closed since Tuesday when this mess began. Since most all lenders require income verification documents from the IRS, this is causing major problems for homebuyers and those trying to refinance. The good news however, is that many lenders (and most that we at Pinnacle deal with) have temporarily waived the requirement for this information from the IRS. So, for now, it’s business as usual.

Now for the BAD news:

The government shutdown will soon take a back seat to the looming October 17th deadline for the debt ceiling. In a US Treasury statement yesterday, “In the event that a debt limit impasse were to lead to a default, it could have catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth – with many private sector analysts believing that is could lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression”.

A related statement yesterday from Nashville’s Congressman Jim Cooper described “the government shutdown as playing with dynamite, but risking default is nitroglycerin”.

So what is the GOOD news?

Those of us in the mortgage industry will often say that “bad news is good news”. And this is no exception. With all of the turmoil in Washington, and no encouraging signs of economic rebound any time soon, mortgage rates have fallen to the lowest levels we’ve seen in months. The Fed tapering off of its current mortgage bond purchases will most likely now be put off even farther into the future.

So, now is definitely the time to take advantage of interest rates before they again resume their march higher.

To Taper, or Not to Taper… that was the question

As a part of the overall Government stimulus programs started back in 2009, the Federal Reserve announced over a year ago that it would purchase Treasury and Mortgage Securities at a pace of $85 Billion per month in order to foster lower long term borrowing rates, and help the housing recovery.

This program has come under scrutiny lately, with several Fed Governors starting to voice concern about how long they could keep this up. Consequently, over the past month or so, it became widely rumored that at their September meeting the Fed would announce a reduction in the level of purchasing (or to begin “tapering” its purchases of Treasuries and Mortgages). The level of tapering was expected to be $10 to $15 Billion monthly. And this fairly quickly caused mortgage rates to rise. Less government demand for mortgages would result in higher rates.

So, leading into the Fed Meeting and press release September 18th, 30 year mortgage rates stood at approximately 4.625%; and poised for extreme volatility if the Fed announced anything different than the expected reduction in bond purchases.

What did the Fed decide? Surprisingly, they decided to keep doing what they’ve been doing. From the statement, “the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago… However, the Committee decided to wait for more evidence that progress will be sustained before adjusting the pace of its purchases.”

Stocks and mortgage markets rallied immediately after this announcement, assuming we’ve got maybe a few more months before the Fed starts to back out of the market. And 30 year mortgage rates have dipped back down into the 4.50% range; obviously good news for home buyers! But this won’t last long. Since Wednesday afternoon, we’ve already seen the mortgage markets giving back some of these gains.

Is now a good time to borrow for a home purchase or refinance?  You bet it is! Higher rates are coming. It’s now just a matter of when.

Nashville and National Mortgage Limit Reduction Considered

Policymakers are considering a reduction in the maximum loan amount Fannie Mae and Freddie Mac will allow. The intent, it seems, is to reduce the government’s role in the mortgage market. But why now? Why would the Federal Housing Finance Agency risk slowing the current housing recovery?

Industry experts estimate the conventional loan limits will be adjusted downward from $417,000 to $400,000. The maximum loan amount has been $417,000 since January of 2006, when it was adjusted up from $359,650 the previous year.  Loan amounts above the conventional “conforming” limit are by definition Jumbo Loans. Jumbo loans require larger down payments and historically have also meant higher interest rates.

How does this affect the “average Joe”? Let’s assume a buyer has saved, or has approximately 10% available from the equity in a pending sale. ($40,000 to $50,000) Right now, with the existing $417,000 conventional loan limit, he/she could purchase a home with a $463,000 price tag. If the limit is ratcheted down to $400,000, that maximum price range drops to around $444,000. This while Nashville is seeing approximately 10% year over year appreciation in home values. This creates a “double whammy” in housing affordability.

The Mortgage Bankers Association and National Association of Realtors believe it is too soon to change loan limits, and are working with Congress on mortgage finance reforms that will maintain consumer access to affordable mortgage products.

Stay tuned. Or, if you feel strongly enough, write your congress person.

Scott Ractliffe

Appraisal considerations when buying or selling a home

Scott%20RactliffeThe appraiser has just delivered the appraisal to the lender, and you learn that the reported value came in for at least the sales price. The appraisal hurdle has been crossed, right? Not necessarily. Here is what’s going on with the appraisal process and when lenders are underwriting the collateral…

To improve the quality and consistency of appraisal data for loans delivered to Fannie Mae and Freddie Mac (GSE’s), at the direction of the Federal Housing Finance Agency, they developed the Uniform Appraisal Dataset (UAD), which defines all fields required for an appraisal. And all appraisal data is required to be submitted electronically to Fannie or Freddie before they will purchase the loan. The bottom line is, they are collecting data on every property securing every loan they purchase. And the GSE’s purchase approximately 85% of all home loans.

So how is this affecting those of us financing real estate, and those selling it?

All lenders for Conventional and Govt loans, use either Fannie Mae’s or Freddie Mac’s underwriting engine. Using the electronic property data the GSE’s have been collecting, these respective underwriting engines will report back an “opinion” of the value for the particular property address being considered. Freddie Mac calls this the HVE point value (Home Value Explorer). If the HVE varies too greatly from the actual purchase price negotiated between buyer and seller, an underwriter is required to obtain significant overwhelming evidence that the appraiser is “more correct” than the HVE. In these instances, the appraiser is asked to provide additional comps or additional comments and data to support the value reported. This can be very problematic in cases where comparable sales are limited. Underwriters may also obtain their own independent AVM (Automated Valuation Model). In short, we’re seeing the AVM’s and HVE’s being given more weight than the appraiser who actually visited the house, and knows the area. In some rare cases, an underwriter who feels he/she has not received sufficient evidence may consider “the value not supported”. Scary! It appears that “Big Brother” is attempting to take the collateral valuation process out of the hands of experienced trained appraisers, to instead rely upon electronic formulas; much like credit scores now decide credit quality rather than an experienced underwriter looking at the full credit report and making a decision about someone’s creditworthiness.

Meanwhile, a couple of other things are going on behind the scenes. Lenders, after receiving the appraisal, obtain SSR’s (Submission Summary Report). This report analyzes the appraisal, and gives opinions about each comparable sale used, and whether it is considered acceptable. If there is too much of a difference in square footage, etc., the report will give an error warning. These “errors” must be addressed before the appraisal and SSR are uploaded to Fannie or Freddie. Again, more requests for additional information or changes by the appraiser.

Lastly, as I started with above, UAD standardizes all appraisals.  The condition and quality of the subject property and comparable sales are given condition and quality ratings between C1 and C6, or Q1 and Q6 respectively. If you’re buying or selling a “fixer upper”, be aware. Lenders cannot approve loans on properties with a C5, C6, or Q6 rating. Ratings in this range mean that the property has significant deferred maintenance and/or repairs required, or represent safety and soundness issues.

The bottom line to all this is, the appraisal is not officially “acceptable” until it has been reviewed and approved by the lender’s underwriter. The appraiser “hitting the number” is only the first step in what has recently been (and still evolving into) a burdensome process. Fortunately, I’m only seeing issues with a handful of appraisals. But in all of those cases, the first comment is always “but I don’t understand, the house appraised for the sales price”. Hopefully this information will help you understand there is more than just the appraiser’s opinion being considered.