High Priced Mortgage Rule

High cost mortgage loans

Buzzards in Lending Tree

 

Office of Consumer Financial Protection (Bureau) issued the “final rule” to the Dodd-Frank Wall Street Reform and Consumer Protection Act's amendments to the Truth in Lending Act and the Real Estate Settlement Procedures Act with the intention that this would protect consumers from getting bad loans. The final rule expanded the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA).  Consumers who want to move ahead with a high cost mortgages receive information about homeownership counseling providers.

Certain practices were banned with the intention to help borrowers who 1. Didn’t read the disclosures they signed or 2. Couldn’t find a better deal. The rules were supposed to help the individual consumer but in some circumstances the rule harms them. This is exampled in loans under $10000, loans with layered pricing adds and certain high loan to value HARP and HomePath products.

High cost mortgage rules limited the following situations:

• Balloon payments were banned, unless they are for the seasonal or irregular income of the borrower, or part of a short-term bridge loan, or they are made by creditors meeting specified criteria, including operating predominantly in rural or underserved areas.
• Creditors are prohibited from charging prepayment penalties
• Late fees are restricted to 4% of the payment that is past due, fees for providing payoff statements are restricted, and fees for loan modification or payment deferral are banned.
• Creditors originating HELOCs are required to assess consumers' ability to repay.
• (Creditors originating high-cost, closed-end credit transactions are required to assess consumers' ability to repay under 2013 Ability-to-repay. Ability to repay by either tax returns, w-2 forms, or bank deposits?
• Mortgage brokers are prohibited from recommending a consume default on a loan to be refinanced by a high-cost mortgage.
• Before making a high-cost mortgage, creditors are required to obtain confirmation from a federally certified or approved homeownership counselor that the consumer has received counseling on the advisability of the mortgage.

HIGH PRICED MORTGAGE LOANS ARE NOT Saleable to the GSE’s so  a lender who finds the spread exceeds 1.5 percent over the Average Prime Offer Rate must either reduce the costs or eat the loan.

WHAT is the HPML TEST?  DODD FRANK are two guys who don't understand consumers or mortgage banking.

If a current loan scenario is unsellable because it failed the federal HPML test, the lender is stuck. The APR exceeds comparable Average Prime Offer Rate by 1.5% or more (or 2.5 for Super Jumbo).

Based on the date the interest rate is set (locked or re-locked), lenders must compare their APR with the Fed’s APOR index. The loan will be considered a higher-priced mortgage loan if the APR exceeds the APOR index by:

–        1.5 or more percentage points on First Liens

–        2.5 or more percentage points on Jumbo First Liens

–        3.5 or more percentage points on Subordinate Liens

There are several things that may cause a loan interest rate to go above the

APOR:

 Lower loan amounts – the impact of fees on the APR increases as the loan

amount decreases. A $100,000 loan is more likely to trigger an HPML than

a $300,000 loan. Unfortunately there are fixed costs that are the same for a $300000.

mortgage or a $80000. loan

Mortgage insurance on loans over 100% LTV – The loan may have MI over

a longer period of time because the LTV is in excess of 100% (common in

HARP loans).

 Shorter loan terms – APR fees are averaged over the term of a loan, so the

shorter the term the higher the fee (a 20 year loan will have a higher APR

than a 30 year loan).

Certain products such as HOME PATH that has high loan to value and no mortgage insurance

Borrowers who apply for smaller loans with layered risks will hav difficulty finding a lender. For example a borrower with lower FICO score wants to purchase a condo in Laguna Woods as an investment. There are so many pricing adds, that no rate can accommodate the request. Catch 22.

Note on Gate: Beware

Real Estate Brokers

ENTER THIS HOUSE AT YOUR OWN PERIL

Duty to Warn of Risks

A recent state Court of Appeal case has clarified a listing broker’s responsibility. In the case of Hall v. Aurora Loan Services, LLC, 2013 DJDAR 5460 (April 16, 2013), the court ruled that a jury can potentially hold the broker liable for negligence where the broker did not warn all persons about conditions in a listing property. In this situation there was a home inspection report which mentioned an attic ladder as being potentially dangerous. Home inspection reports typically list one hundred suggested repairs. The report did not spell out how or why, but image a fold down wooden ladder that opens from the ceiling and allows access to a finished attic. The ladder appeared sturdier than a tree fort ladder but proved to be unstable.

This particular case was filed by Real Estate agent Hall who when showing the property to potential buyers opened the ladder drop down. She proceeded to climb the stairs and a hinge gave way. The snapped hinge caused her to fall and break her leg. Hall sued the listing broker, the lender (as the property was a foreclosure where the owner of record was a bank), and just about everyone involved. She has prevailed on appeal.

In the past, when a property is an REO (real estate owned foreclosure) there were contracts that spelled out in legalese that the seller (often a bank or servicing agent) is in no way responsible for the condition of the property. Since the mortgage bank never resided in the home, they have little knowledge of the condition or maintenance of subject. Buyer beware, is the flag they once flew. This case however seems to overturn the responsibility to listing broker and sellers that a waiver of rights is not enforceable. A listing broker will be held to a higher standard of knowledge and due diligence to advise anyone who not only buys the property, but anyone who walks past the curb.

For example, a broker will have to post a list of possible health and safety hazards to open a property for broker preview or for other agents to access through lock box. Will posting on your entry door: Enter at your own peril be enough to advise the visitors? Probably not, as someone who is blind will claim the disclosure was not properly read to them. Anyone can sue over anything.

No language in the listing agreement will relieve the broker of responsibility on health and safety. Will every realtor who borrows the “feed” – uses the photographs and listing information also be held responsible? I think yes. The far reaching concept of this case is to spread any potential liability across all real estate agents and Realtors.

The buyer's agents may also have responsibility for incidents where parties are hurt or killed while viewing property listed for sale. I can see my beautiful friend Hillary Caston in her Lexus folding down the visor of the passenger seat.

“You want me to check my lipstick in the mirror?” Her buyer in front seat asks.

“No I need you to sign this agreement that if you trip and fall in this house you won’t sue.”

Camden Park Sounds Lovely

 $424,000. 00 listed for sale 3 bedroom 2 1/2 bath 1390 square feet

Contemporary styled homes in a lovely landscaped development with mature trees. Resort-style community pool and spa for your enjoyment. Walk to elementary school the award winning Don Juan Avila Elementary Close to parks, Aliso Viejo Town Center, the Edwards Aliso Theater and a variety of restaurants.

This condominium has cathedral ceilings in the living room, a large fireplace, 18" stone tile flooring throughout downstairs level, spacious formal dining room area, bright open kitchen with breakfast bar area. Priced at $424000 – a very desirable hot price in Orange County for entry level homeowners.

Camden Park was developed by Ryland homes in 2000 through 2001. The architecture is a combination of Bay and Gable homes seen in Old Town Toronto with verandahs and little towers reminiscent of popular east coast architecture. 

There were 4 floor plans developed in Camden Park. Each Townhouse includes a 2 car attached garage, central heating and air conditioning and fireplace. Many of the units have a nice distant view of the Hills and city lights. 

 There are nine streets that make up the community of Camden Park: Brisbane Lane, Cupertino Cir, Plumeria Lane, Benchmarke Lane, Kenilworth Lane, Open View Lane, Burlingame Lane, Harvest Point Lane and Warmspring Lane.
Camden Park is serviced by the acclaimed Capistrano Unified Public School District. The grade school is Don Juan Avila, and the middle school is also Don Juan Avila. The upper classes are conducted at Aliso Niguel High School.

BUT here is the problem:

It has been close to ten years since the complex was built out. The Association’s Management Company has filed a lawsuit in Orange County Superior Court alleging that the builder completed shoddy work. It is common for lawsuits to pop up in this time frame, as the calendar for a Builder Developer to be responsible is just at the limit of too long for homeowners to file complaints. The suit was filed in August of 2012 and appears to be on track for trial. In fact there have been 70 filings against Ryland Homes for construction defect.

Camden Park sounds and appears at the price points for homeowners lovely BUT it is impossible to buy with an FHA loan and until the lawsuit is clarified getting a mortgage from GSE sponsored conventional is also going to be difficult. Would the Association have been better off negotiating with the Builder?

When there are pending lawsuits of size able nature, and the association may not have sufficient funds to cure or fight the suits it makes it near to impossible to close a mortgage loan in a complex. Owners in Camden Park cannot refinance with today’s low interest rates on conventional loans and Buyers cannot get an FHA loan in this complex.

Physically the main defect is the foam insulation used inside walls and around the window trims. Now after time, heat and moisture the foam is protruding from window wells. The cure would be to pull out the windows, install new sealant and replace, re-plaster and repaint. Each window repair might cost two hundred dollars BUT no telling what dry rot or problems may open up inside each window. The recent lawsuit claims that owners have been unable to track down the real principals of Ryland Homes, but it appears to be a publicly traded company. I believe the sub chapter corporation that built this tract is a separate entity. There are 70 filings against Ryland Homes in Orange County Superior Court.

https://ocapps.occourts.org/civilwebShopping/SearchEntity.do#top/

Larry T. Nicholson, Ryland President did not respond to my inquiry about this complex. He is CEO of Ryland Group. Only comment made was from a receptionist, “we have built 300 homes.”

http://www.ryland.com/

 

Ryland operates as a home builder, mortgage company, title and escrow company in many states.
I read some thirty complaints to the Better Business Bureau and on complaint boards, then I stopped reading... Most appear to be homeowners who found construction problems in their new homes. They contacted the builder and were given the run around or subcontractors who slapped a fix on half the problems. It is impossible to determine if these complaints are resolved or accurate.

http://www.pissedconsumer.com/reviews-by-company/ryland-homes.html/

"I contacted Marc Austin thirty times (Operations Manager) with no resolution."

"HOA has received a settlement with regards to shoddy craftsmanship of our Ryland Built Homes. Obviously, Ryland believes it was easier and cheaper to pay off certain HOA boards than to actually fix the problem. My $250,000.00 house is just now 5 years old. In this time, the driveway has started sinking, the front stoop has started sinking, there is a small sinkhole in my..."

"My tub that has a crack that was disguised to pass inspection by Ryland a shower bottom done the same way a false door that leaks into the wall and now shows mold growth btw insurance will not pay claim ryland says the warranty is out of date"

Types of Mortgage Lenders

Types of Mortgage Lenders

Laguna Beach Red Door Curbside Appeal

Porfolio lenders

A portfolio lender is institution which lends their own money and originates loans in their own name. They are lending for their own portfolio of loans and not worried about being able to immediately sell them on the secondary market. Because of this, they don't have to obey Fannie Mae and Freddie Mac (called GSE’s) guidelines. A portfolio lender can create unique sets of rules for determining the soundness and pricing of a loan.

Often only a portion of their loan programs are "portfolio" product. If they are offering fixed rate loans or government loans, they are certainly engaging in mortgage banking as well as portfolio lending.

Once a borrower has made the payments on a portfolio loan for over a year without any late payments, the loan is considered to be "seasoned." Once a loan has a track history of timely payments it becomes marketable, even if it does not meet Freddie/Fannie guidelines it might be sold in a group to an investor. Or these may be held if the rates are a bit higher, there is a small margin of profitability in holding the servicing. If the lender can sell off loans for a profit (say servicer offers .49% today, they are often grouped into bundles or tranches then sold for a profit to an institutional servicer or investor. The loans are grouped into a Trust that a number of investors may “buy” as a group entity hoping the higher than market rates will not get paid off for a predetermined estimation of time (say they think loans at 5.5% with certain traits: location, FICO, borrower type, age of borrower, just about any set of thousands of details that analysts can rate a bucket).They “guess” the loan will remain in the bucket paying for five more years.

Selling these "seasoned" loans frees up more cash for the "portfolio" lender to make more loans, which is another way that portfolio lenders engage in mortgage banking. If the loans are sold, they are packaged into pools and sold on the secondary market. You will not even know your loan is sold because, quite likely, you will still make your loan payments to the same lender, which has now become your "servicer."

Direct Lenders

Lenders are considered to be direct lenders if they fund their own loans. A "direct lender" can range anywhere from the biggest lender to a very tiny one. Banks and savings & loans obviously have deposits they can use to fund loans with, but they usually use "warehouse lines of credit" from which they draw the money to fund the loans. Smaller institutions also have warehouse lines of credit from which they draw money to fund loans. Smaller institutions obviously cannot fund big production lumps that always occur when rates are volatile.

Direct lenders usually fit into the category of mortgage bankers or portfolio lenders, but not always.

One way you used to be able to distinguish a direct lender was from the fact that the loan documents were drawn up in their name, but this is no longer the case. Even the tiniest mortgage broker can make arrangements to fund loans in their own name.

Direct lenders are generally companies that underwrite a loan themselves. There are two types of direct lenders. There are about 3200 lenders who call themselves direct but in fact are too small, and undercapitalized to actually fund much direct

Type One: The difference between a direct lender and any other type of mortgage provider, is that they are more nimble. What makes a direct lender different is the fact that they generally have a very large line of credit with another financial institution which allows them to write large checks for your mortgage. However, once the mortgages closed, they will always sell the loan off to someone else to service the loan and collect payments on the loan.

Type Two Direct Bankers who can both portfolio the loans the close and sell them. There are only 100 super funded institutions that can do this. This group is going to be the survivors and drivers when our Federal Government starts to wind down the GSE’s

 

Bathroom Remodel in Woods Cove, Laguna Beach

Correspondents

Correspondent is usually a term that refers to a company which originates and closes loans in their own name, then instead of selling those loans in pools. They sell them individually to a larger lender, called a sponsor. The sponsor acts as the mortgage banker, re-selling the loan to Ginnie Mae, Fannie Mae, or Freddie Mac as part of a pool, or may hold the loans as they follow market trends.

Mortgage brokers deal with lending institutions that have a wholesale loan department.

It is almost like being a mortgage broker, except that there is usually a relationship between the correspondent and their sponsor.

Credit Unions

Credit Unions sometimes operate as correspondents, although a large one could act as a portfolio lender or a mortgage banker. They often do not sell loans at all.

Bank 

anks and savings & loans usually operate as portfolio lenders, mortgage bankers, or some combination of both. A bank is a highly regulated institution that does a variety of things. They offer auto loans, credit cards, a checking or savings account, and a home loan, among other things. A bank is generally a one-stop shop for all things financial. Bank employees even the loan officers are not licensed and report to the bank. Loan officers as bank employees are part of a bureaucracy that expects them to sell you a checking account, use their insurance division and open the safe deposit box. Loan officers are not required to be licensed.

Banks tend to drop behind the Wizard’s screen when it comes to deciphering how they handle mortgages. That’s because some banks will service your home loan and own the rights to repayments for the life of the loan, while other banks will sell your loan to a third-party after you sign the paperwork. Most financial institutions that offer mortgages sell them to third parties. That said, some banks will both service some loans and sell others to third parties.

Mortgage brokers

Mortgage brokers are companies, or individuals, who have access to a variety of loan programs through various financial institutions. I actually worked as a mortgage broker for a period of time and we could access mortgages through all of the major banks, direct lenders, and any other lending institution nearby, with the exception of credit unions. The benefit of a mortgage broker is that, assuming you trust yours, he can do the shopping for you with all of the financial institutions he works with.

The other disadvantage is that although they have access to many different programs from many different lending institutions, they are a middle man, which means they will charge a fee for their service. There is nothing wrong with this inherently, in fact, the extra shopping a mortgage broker can do for you may get you the best deal on your mortgage; it’s just important to keep in mind that they do charge a fee for their services.

 

Internet lenders
Mortgage lenders have proliferated on the Internet in recent years, offering fast, easy loans at competitive rates. Some are online channels of brick-and-mortar financial institutions or mortgage brokers, others are Internet-based banks or brokers. Sometimes referred to as Consumer Direct. Where consumer does all the work.  Fine for a cookie cutter wage earner refinancing their only one single family house. Not good for self employed, complex, condominiums, larger loans above $417000, not good for a purchase can’t close on time, often rate lock is not honored.