Unlocking a HELOC Mystery

If you could create a client-facing “tip sheet” for your business, a simple punch list of things to do and not-to-do, what would be on that list? You know, the items that always seem to fly under the radar of public knowledge and wisdom, but the ones that frequently undermine the best-of-intentioned customers? I’m sure all of us have this wealth of “insider knowledge” that we’d love to share with the public and, as a result, save them from the misery and inconvenience of being counted among the unfortunate and unsuspecting.

High on my list would be an explanation of how home equity lines of credit (HELOCs) are treated when a borrower goes to refinance a home. Typically, a borrower would obtain a HELOC one of two ways:

  1. At the time of purchase (as with an 80-10-10 or “piggyback” loan).
  2. At a later date. The borrower would have a first mortgage in place an later add a line of credit in order to do home improvement, consolidate debt, etc.

There’s an important distinction between the two options because in the first case, the funds used from the HELOC are considered “purchase money.” In the second case, well simply, they are not.

For the homeowner who has both a first mortgage and a HELOC, refinancing involves some additional considerations. The borrower may either consolidate the balance on the HELOC with the remaining first mortgage amount, or he may subordinate the HELOC altogether. This second option implies that the HELOC will stay as is, but that the second mortgage lender will agree to a process that allows that lien to stay in second position on the title of the home.

Assuming that we have a borrower who is looking to consolidate a HELOC balance into a single, new mortgage, lenders will first look at the nature of the proposed loan. If it will be a conforming or FHA loan, then any balances that are NOT purchase money, once combined will create a “cash out” refinance — even if the borrower does not get a single red cent back at the time of closing. Again, simply consolidating any balances that were not exclusively used to buy the home (such as with an 80/10/10) mean the new loan will be classified as a cash-out refinance and be priced accordingly — typically with slightly higher rates and more restrictive loan-to-value (LTV) parameters.

If the new loan will be a jumbo mortgage then things get a little more interesting. If the new loan balance will fall above the FHA and conforming limits then many jumbo investors will look at the line of credit itself. Specifically, they will look to see if any draws were taken on the line over the last twelve months. If not, then they will often classify the refinance as “rate and term.” This can be a real benefit to the borrower in the way of lower rates and higher LTVs. Just to clarify, the HELOC in these cases did not need to be purchase money, it just needs to have been recently inactive with respect to its balance increasing. If that holds true, structuring the refinance as a jumbo as opposed to a conforming, if possible, may be a highly beneficial approach and we employ it all the time here in the high-cost environment of the San Francisco Bay Area. But caveat borrower. If you have 11 months of payback on the HELOC that is punctuated by a $1 draw on the line in month 12, you go back to square one or you are looking at a cash-out refinance.

And so this last point is the one I wish I could shout from the rooftops.  If you have a jumbo scenario, and if you have a home equity line of credit that you’re looking to consolidate, try to avoid draws for 12 months before you refinance.

Let me know if any questions any time. We’re here to help you with your jumbo or conforming refinance and we’re here to help unlock a common mystery of the HELOC.

LOC her up, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

What Is an Impound or Escrow Account?

When renters desire to become home buyers, they quickly learn once in the mortgage process that their single rent payment will morph into “PITI” or “principal, interest, taxes and insurance,” or a “total monthly housing payment.” So, yes, there are additional monthly expenses to consider when you become an owner. Historically, ownership has bestowed tax benefit on the buyer and that’s been an offset to the higher cost of ownership and because of this, the “rent vs. own” calculation has been used to more fairly compare the cost of putting a roof over one’s head. Rent may be simpler, but ownership is more comprehensive, if more expensive.

Let’s assume that our buyer has done the comparison and decides to move forward with purchasing a place of his own. At some point, his or her mortgage lender will offer a choice (or maybe not…) about how they will pay their property taxes and homeowner’s insurance. There will be two options:

  1. Waive impounds. The owner foots the property tax bill and insurance premium when due.
  2. Impound or “escrow” taxes and insurance.  The lender creates an account through which the borrower pays 1/12th of the tax and insurance bills along with the principal and interest payment (P&I) each month. When the bills come due, the lender pays them instead of the borrower.

What does this mean, how does it work and which is better? Let’s look at all three in plain language.

What Is an Impound Account?

As outlined above, “escrows” or “impounds” are a financial account where your loan’s servicer can collect, hold and disburse your property tax and homeowner’s insurance payments. The servicer maintains this account and documents it on your monthly statement. Escrow accounts are required on government loans, such as FHA and VA, but are elective in many other cases. Here in California, escrow accounts are required on a loan-to-value (LTV) of 90% or greater. Interestingly, in most states across the country, escrow accounts are customary (if not required). But here in CA, it is more common not to have an escrow account. Go figure…

How Does an Impound Account Work?

Escrow (aka, “impound”) accounts are “pre-funded” at the time of purchase and thus can make your settlement more costly. Why is this? Let’s look at California’s property tax year. It runs from July 1 through June 30. Let’s say you close on your home purchase on June 30. You will live in the house from July 1, forward, but you won’t make your first payment on the mortgage until August 1 because unlike rent, mortgage is paid in arrears. Our first installment of taxes is due November 1 and for a six month installment (July through December of the fiscal year). But note that if your mortgage payments start on August 1 and you have to pay your first installment on November 1, you will have only made three payments by the time the tax bill is technically due for six. Unless the servicer “pre funds” at least three months at close, it cannot cover your installment. This is why you’ll see a number of months of taxes and insurance added to your closing when you have a loan with an impound account. It’s important to note that even though your ongoing mortgage payments continue to add a fraction of your total tax and insurance bills each month, your servicer does not pay the county or the insurer monthly. They pay when the bill is due, just like those borrowers who waive an impound account.

Which Is Better, Taking or Waiving Impounds?

As mentioned, some loan types require impounds. Where that happens, buyers must carefully consider and accept the payment requirement. If there is a choice, it comes down to personal preference and budgetary discipline. Those who waive an impound account do have a smaller monthly expense to cover because they are only paying the principal and interest portions of their total monthly housing expense. When their insurance and tax bills inevitably come due, they have to be prepared to pay them in full, and that requires budgetary discipline on their part throughout the year — just as if the loan servicer was requiring allocations for these expenses. So like with most things in the mortgage industry, there are pros and cons but there is no free lunch. No matter how you opt to pay it, your tax and insurance bills will be the same and must be paid in full at the end of the day.

If you have additional questions about escrow accounts for property taxes and homeowner’s insurance, get in touch any time. As you can see, there are instances where using or foregoing an escrow account comes down to a choice. If you’re wrestling with the best fit for your situation, it often helps to remove the myths and emotions from the decision making process. We can help you do that and get the facts and math straight, and from there, the choice to take or waive escrows often becomes so much more clear.

Paid in full, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Lock Watch for the Week of 3/11/2019

Volatility-O-Meter:

A lot of key reports this week and on the heels of the real dud of a jobs number Friday. Could this be an inflection point? We’ll see. Oh, and let’s not forget auctions too.

Economicalendar (all times are Pacific):

  • Mon, 3/11:   Retail Sales (5:30am), Business Inventories (7am), 3-Yr Note Auction (10am).
  • Tues, 3/12:   CPI (5:30am), 10-Yr Note Auction (10am).
  • Weds, 3/13:   Durable Goods and PPI (5:30am), Construction Spending (7am), 30-Yr Bond Auction (10am).
  • Thurs, 3/14:  Jobless Claims and Import/Export Prices (5:30am), New Home Sales (7am). Fed Balance Sheet (1:30pm).
  • Fri, 3/15:    Empire State Mfg Survey (5:30am), Industrial Production (6:15am), Consumer Sentiment and JOLTS (7am).

10-Year Treasury History

  • 2.64%   Market Open
  • 2.74%   One Week Ago
  • 2.63%   One Month Ago
  • 2.87%   One Year Ago

(Need a rate quote for your specific scenario? Click anywhere on this link.)

Marin Ultra Challenge 50K

The weather forecast called for 100% chance of rain. High of 52F, low of 39. A great day to tackle another ultramarathon and my second 50K (31 miles in name, closer to 29 by way of my Garmin), right? The Inside Trail Marin Ultra Challenge started at 6:30am at my favorite House of Horrors, Rodeo Beach. This time, the course would be different than last month’s Coastal Trails 50K, but employ many of the same trails, ascents and descents. Combined again with the muddy conditions, it was shaping up to be one of those days where you would be wise to live by the motto, “Don’t think, just do.”

So up we climbed out of the staging area. Oh, and lest I not be grateful, it was not pouring rain while we waited to get underway. The first miles of an ultra should always be uneventful and traversing Gerbode Valley, I kept my pace in check and focused on not repeating the epic fade that defined last month’s race. At the first aid station, some 5 miles in at Conzelman, I felt zero strain. I pressed on to the Tennessee Valley aid station at mile 10 using the same cautious, at times even absurdly slow, approach. The climb out of Tennessee and down to Pirate’s Cove was also very conservative and the trail here was treacherously slippery. Too early to make mistakes, fall or otherwise get discouraged. As the skies opened I was mostly thinking about my son’s Junior Warriors basketball that I would be missing, and that would be getting underway shortly.

Out of the Cove, we climbed up to the ridge above Muir Beach and then descended to the aid station there. At this point, none of us were protecting our feet any longer. There were too many puddles, too few firm patches of trail and one simply resigns to having their feet soaked. At Muir, we started an out/back on Dias Ridge and were greeted with the day’s worst weather; cold, dark, rainy, ridiculous.

Returning to the Muir Beach aid station, my mindset shifted to the two key climbs required to get me home. First, to ascend out of Muir valley, then once back in Tennessee, to go up and out of there, gain Hill 88 and downhill to the finish. It would work out to be almost another two hours of running and despite the mud at Green Gulch, there was some promise of sun, and it was a promise fulfilled upon gaining the top of the last ridge.

At about this point, I realized I might make a time goal that seemed improbable at the start but within the grasp of reality assuming a strong push and no mistakes. That was a mixed blessing because now I had to work hard and not let up. I would have much rather cruised home while taking in the sweeping coastal vista, but instead I downed another caffeinated energy gel and gave it a go.

I learned a lot last month about what not to do in a 50K. I can be pretty hard-headed, but since I don’t have time to train very much and because I’m playing with fire every time I suit up to run long distance these days, I figured it was a safe bet to apply those new skills and, for the most part, it worked. I felt pretty good upon finishing, got into dry clothes and hung around to cheer others in. Oh, and though still brisk at the beach, the sun smiled and capped a really solid day in the saddle. Next stop, twice the distance, but that’s a bit off and not something to think about right now.

It keeps you runnin’,

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

I Got Another Rate Quote. Can You Beat It?

Talk may be cheap, but money is not. And you can bet your bottom dollar that most consumers seeking to get a mortgage will shop for the best rate quotes through any number of ways; their local bank, the internet, etc. We will often get requests to match or beat rate quotes as a result. Instead of publishing rates and promising that we’re the cheapest and best source for all rate shoppers, which is something that is frowned upon by the regulators of our industry, I instead want to shed some light on some of the governing principles that guide rate quotes from any and all lending sources. Below are three constants that apply in each case and to all shoppers for all programs.

[Too lazy to read the rest? Watch the rockin’ video below for all the information covered in this blog!]

Follow the Regs

With the passage of the Dodd-Frank Wall Street Financial Reform Act, the mortgage industry became subjected to the ‘anti-steering provision’ which prevents a mortgage loan originator from earning any more or less in commission depending on the rate charged to the consumer. In short, whether we provide you with a 3%, a 4% or a 5% rate, our compensation is the same. We have no incentive to put you into a program with a higher rate. In fact, you could argue that we have an incentive not to do this. After all, lower rates give an edge in winning rate competition and they bestow more qualifying power on the borrower. But there is an ugly side to the anti-steering provision — the lender’s inability to leverage their compensation to be more competitive. For example, prior to Dodd-Frank, originators had flexibility with their commission. If they needed to cut it in order to win a deal, they could. But now, our regulators say that if we had the ability to charge less to Consumer A, who does a lot of homework and negotiates strongly, what would prevent us from raising our compensation on unsuspecting Consumer B? The ability for us to negotiate is largely a thing of the past. Sure, we can submit for price exceptions on occasion, but they are just that — the exception. And the rule severely limits a lender’s ability to match or beat.

Time Is of the Essence

In real estate, we write “time is of the essence” into our contracts and this philosophy holds true with rates too. Just like the stock and bond markets, rates fluctuate every day and sometimes even multiple times when the markets are especially volatile. So it is vitally important that consumers shop for rates on the same day. A common scenario we see will have a borrower apply for a home loan in, say, January. Maybe they will get all the way to the altar with a pre-approval but then not find a property. During that process, the lender likely quotes a specific rate. Now, fast forward a few months and the borrower is working with a different lender and gets a quote that is higher or lower. This does not necessarily mean that the second lender’s rates are organically any better or worse. It might simply mean that the market has changed during the interim. So, collect your rate quotes on the same day if you’re comparing multiple sources. It may be time-consuming but it’s the only way you can truly be accurate.

The WebMD Syndrome

Lastly, when pitting one source of rates against another, make sure they’re all on equal footing in terms of the depth of the quote. Look at it this way. If you wake up one morning with a rash, you can research your symptoms online and get an idea of your condition. Or you can actually visit your doctor who will do a physical exam, perhaps blood work and then give you a diagnosis. Now you have a choice, you can follow the instruction of the doctor or of the internet. You see where I’m going with this. So too in the field of rate quotes, if you have had a lender pull your credit, review your complete application and provide terms for your loan, placing this on equal footing with an online quote could be risky. Rate quotes for jumbo mortgages are most sensitive to the finer qualifying attributes of the applicant and for this reason, I highly advise those in the jumbo market to get a complete credit approval prior to comparing rates.

I have always believed that an educated and informed consumer is our best client. And this applies to rate shopping as well. I similarly feel we always have a very strong chance of earning business based on available rates so long as quotes are on a level playing field, and getting the shopping public up to speed on this is something I’m very happy to do. If we can help you with your next home mortgage, let me know!

No one wants to be defeated, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Will My California Property Taxes Go Up if I Refinance?

I would be willing to bet that each year, good financial benefit gets left on the table by those who want to refinance their mortgages but are afraid that by doing so, they may see their California property taxes go up. Is this concern founded? Can that really happen?

In short, no.  California property taxes are not reassessed when a homeowner refinances his or her mortgage. And the simple reason for this is that there is no transfer of title that would trigger the tax basis to be reassessed by the County Assessor. When an owner of real estate refis the mortgage, the title vesting usually stays the same and the only thing that changes is the lender that encumbers the title with its mortgage.

So for the vast majority, if a refinance makes good financial sense, then there will likely be no ramifications to the amount of property taxes owed. Always ask and always check with your loan professional, and certainly keep these property tax facts in mind here in California:

Property Tax Bill Information and Due Dates

Secured property tax bills are mailed in October and payable in two installments:

  • First installment due date: November 1
  • Second installment due date: February 1

“Now hold on a minute!,” you say. “I was told I could pay in December and April!” Well, technically, you can.  The late dates for the installments are December 10 and April 10, respectively. And what I’ve noticed after a long career in home finance is that most county residents pay just before these late dates. In fact, if you really want to people watch at the post office and you can’t make it on any given April 15, your next best viewing opportunity is very likely December 10. Late penalties are 10% of the installment amount, so it’s not just a slap on the wrist. State law extends the deadlines above to the following Monday if December 10 or April 10 fall on a weekend, but postmark determines the payment date. If you’re late and don’t include the penalty, the county will send back your original payment.

“What If My Lender Pays My Taxes?”

If you have an escrow or impound account through which your mortgage lender pays your taxes, your property tax bill will state, “a copy of this bill was sent to a paying agent at their request.” If you are unsure of whether or not your lender has paid your tax installment, you should clarify this with your servicer. They are the folks who send you your monthly mortgage statement. I always advise my clients to let me know if they need help with this — I just feel it’s a service any good mortgage professional should provide, and we handle the “straightening out” of countless, anxiety-inducing property tax questions throughout the course of any year. Note that if you pay your mortgage in full or refinance during the course of any year, you may become responsible for your tax payments even if you’ve impounded all along. Again, call us if we can assist.

What About Supplemental Tax Bills?

Your County issues a supplemental assessment when a change in ownership occurs. This bill reflects the difference between the seller’s basis and your new and ongoing basis and you’ll only receive it in that first year of the purchase. Afterwards, the correct tax amount is entirely reflected on your regular bill. The Assessor’s office provides owners with new, previous and supplemental values and you can always call them for specifics.

Refinancing can make sense in any market and at any time of year. If you’ve harbored a concern that a change in your property taxes could make a refi costly or inefficient, think again and let us know if you have any questions at all.

Read my lips, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Are You a Lender or a Banker or a Broker?

“So are you a broker or a lender?” “Or a banker or a lender?” “Or a broker/banker?” Yes, yes, and yes!

We get this question all the time, but I think it comes from a good place. Naturally, everybody shopping for a home loan wants to get the best rates and terms and some confusion swirls around how the type of mortgage originator one uses has a bearing on the outcome. So when they work with me, who is really behind the curtain?

[Too lazy to read the rest? Watch the video below instead.]

Banker / Broker / Lender

In the post-downturn lending industry, there are really only three primary channels for obtaining a residential home loan; mortgage banker, mortgage broker and mortgage lender. It’s important to know that no matter which you choose there is ALWAYS a “middleman” and that person is called the mortgage loan originator or “MLO.” Now don’t confuse an MLO with a single individual — it could well be a call center with a series of “clerks” that work to get your loan from start to finish. Regardless, there are some distinct characteristics of each channel:

  • Lender: This is usually a single-entity banking institution that will fund your mortgage with their own money (most of the time…). Maybe you have a checking or savings account with this bank already. A lender will have its own specific set of guidelines for a jumbo loan and it may have its own “overlays” for conforming and government loans, like FHA and VA. Overlays are defining characteristics — let’s say a minimum FICO score, for example — that are technically not a guideline of the government-sponsored entities (Fannie Mae and Freddie Mac), but that are adhered to by this individual institution on top of the standard guidelines. So, if you’re going to be a customer of a direct lender, you have to meet their guidelines. If you don’t you won’t qualify with them.
  • Broker: A broker can be seen as the opposite of a lender. A broker has none of its own money to lend, but instead works with many lenders to offer a variety of options to its clients. A broker just may have more flexibility to get some scenarios approved, though when they are in the process of doing so, they turn the control and authority of the file over to the lender.
  • Banker: An independent mortgage banker fits between the lender and the broker and can often offer the services of both. Instead of lending its own money, an “inde” will have warehouse “lines of credit” from lenders and will have authority to fund loans with that money. Thus, an independent mortgage bank has a combination of in-house control over your application and the ability to match a specific profile to a specific lender. Many indes can also broker loans when brokered options prove to be the best fit. Guaranteed Rate is one of the nation’s largest independent mortgage banks, for example.

Who Has the Best Rates?

Great question! But you won’t find the answer here. And you won’t find the answer anywhere but in your own research. As mentioned above, there are many complex factors that go into a consumer’s rate and the entity type alone does not exclusively determine the outcome. Can a broker beat a lender? Yes. Can the opposite be true too? Absolutely. It’s very important to note that many originators advertise exclusively based on rate, but for consumers it’s practically impossible to shop exclusively on rate — there are often too many variables for the scenario, let alone the fact that rates can change every day.

What a Roundabout!

Not really. The purpose of this blog is not to get you to resign to the fact there’s no one option better than another. In fact, by understanding the differences, it may help you get best positioned to optimize your research. For 10+ years, I have worked for an independent and the reason I really enjoy doing so is because we can say “Yes!” to more clients. We have a great variety of choices when it comes to programs, rates and terms and this power, when understood and effectively communicated gives, I feel, our customers the edge in today’s market.

I’m happy to discuss the mortgage industry and what we can do for you today. Get in touch any time and I look forward to being of service!  And of course, you can always begin the pre-approval process, free of cost or obligation, by clicking HERE.

So much better than a, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Finding Harmony in Unison

Ever since the woebegone days of Greenpoint Mortgage’s 400+ page rate sheet (and those who remember are laughing right now…) we in the mortgage lending industry have become accustomed to recognizing that not every borrower and not every scenario will fit exactly in the credit box. That’s just been a reality of the post-Dodd-Frank era. Lending solutions rarely “check all the boxes” and I hear myself reminding clients, not infrequently, to “not let the perfect be the enemy of the good.”

So you can imagine that when we start talking about jumbo loans and lower down payments AND add in the element of a credit blemish or two, things can get really imperfect. How can we achieve just that perfect level of harmony for the buyer? How can we create a mortgage masterpiece for the 10% down payment borrower who may not have a 720+ FICO score? The answer is the Unison program, which was formerly known as FirstREX.

Let’s cover some basics first. Unison is not a loan. It is down payment “enhancement” that typically matches a buyer’s investment. So in the classic example, the borrower will get an 80% mortgage from us, they will bring in a 10% down payment, and Unison will then match their 10% down payment for a total of 20% down. Unison’s investment comes with no monthly payments and does not need to be repaid for 30 years. When you end the Unison agreement, by purchase, refinance or buyout, you agree to pay them their initial investment plus a percentage of the value change. It’s a shift of the paradigm — instead of servicing debt each month, you are partnering with them long-term and with the understanding that sharing a fraction of tomorrow’s value is much better than not owning at all today. And to serve as a stark reminder, “today” means coming up with the full 20% down payment and bringing the credit profile to the stellar levels it would otherwise take to get a competitive loan alternative.

Now of course, the push back on the Unison program has always been, “No way! I don’t want someone else sharing in MY appreciation.” OK, fine. I hear you. But first, let’s accept that YOU don’t have any chance of appreciation if you can’t buy, and YOU are not in a position to buy without Unison’s help. And secondly, recall that I mentioned that Unison was formerly known as REX. I used to drop this line on potential REX candidates: “I understand you do not want FirstREX partnering in your purchase and potentially getting a share of your appreciation, but what if we called FirstREX ‘Uncle Rex’ instead? How would you feel then?” I didn’t usually need to wait for the answer. I could see the expressions on their faces change. It was evident that if a family member could cut them the very same bargain, most would accept. So why the resistance when we supplant a company that has the capital and wherewithal and has diligently structured such a mutually beneficial agreement? Again, it may take a more visionary mind to come to peace with how this program works. True, it’s not DaVinci’s mortgage. It’s very much the product of a new approach to an increasingly high barrier of entry to home ownership in many desirable areas.

So if you find yourself looking to buy a home with a jumbo mortgage and less than 20% down. If you find that your FICO score is 680, 700 or under 720. If you find that desirable homes in your area continue to fall just out of the reach of your buying power, it may be time to find the harmony in Unison. Call me if I can help today.

Cracking the code, 

 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Jumbo Mortgage for the Self-Employed

One thing of which our industry does a terrible job is promoting a sense of optimism among the self-employed.  Whether the one-man-band sole proprietor, or the complex, greater-than-25% owner of a multi-million dollar S-Corp, this long-suffering subset of the borrowing population has traditionally experienced stiff headwind in the mortgage process because the objectives of running one’s own business frequently fly in the face of what it takes to qualify for a jumbo mortgage.  There are a combination of reasons why this has been the case and we’re going to look at those here, along with what the self-employed borrower and business owner can do to stack the deck in his/her favor when it comes to qualifying for any mortgage, but especially one that exceeds the conforming and FHA loan limits.

Choose Your Lender Wisely

I realize the temptation to seek a mortgage at the institution where you have your business checking account may be great, but don’t let convenience trump expertise.  As an industry insider, I can tell you right now that I have known MANY colleagues who cannot decipher a business tax return.  Simply, you very well could find yourself working with a mortgage loan originator who does not know how to accurately calculate your income and give you the benefit of every qualifiable dollar.  Of course, many of the self-employed write off as many expenses as possible in an effort to limit their tax exposure.  But beyond this truth, loan officers who do not know how to distinguish between sole proprietorships, partnerships, S-corps and corporations and the documents each require are definitely going to struggle to give the buyer/borrower the benefit of the qualifying doubt.  This becomes even more evident when jumbo mortgage financing is at stake because here, nuances in how income is qualified will be investor specific and often single-entity retail banks will not have the flexibility to qualify the maximum percentage of all buyers — their guidelines simply do not accommodate enough scenarios.  Inexperienced, uninformed and even lazy loan officers can work at some of the largest banks in the nation.  Don’t let the name and the convenience of your checking account’s home fool you.

Understand the Alternatives

At the end of the long, hard workday, some of the self-employed may simply have a really tough profile, one that doesn’t fit neatly into the standard credit box.  For them, a loan originator needs to be well-versed in programs that perhaps allow bank statement or asset-backed qualifying parameters.  While these are not the stated income loans of yesteryear, some of them compare very favorably to “A paper” options and often we find that these loans are a viable alternative.  Once we stop trying to put a square peg into a round hole, the self employed borrower begins to realize how much more in-step these programs are with the way they actually run their business.  For some of these options, no tax returns are required.  And for a partner who may have many K-1 forms, you can imagine the relief they sense when we actually make the documentation process easier rather than the opposite.

Running a business is challenging enough for the self-employed owner.  Getting a mortgage should not be equally as difficult and understanding the lending environment goes a long way towards fostering success.  As a mortgage lender who is fluent in self-employed business entity types, and who has access to an independent mortgage banking platform that provides many options to the business owner, I want business owners to know that they should indeed be optimistic when they go to qualify for a home loan.  Loan agents like me are out there and we want to help.  Let me know if I can be of service today.

Takin’ what they’re givin’, 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960
Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Lock Watch for the Week of 2/11/2019

Volatility-O-Meter:

Amid a backdrop of economic slowdown abroad, the US kicks off the week quietly but then things ought to heat up. And let’s not forget the threat of another government shutdown (Nightmare on Elm St. Part II).

Economicalendar (all times are Pacific):

  • Mon, 2/11:   Quiet.
  • Tues, 2/12:   JOLTS (7am).
  • Weds, 2/13:   CPI (5:30am). Treasury Budget (11am).
  • Thurs, 2/14:  Jobless Claims, PPI, Retail Sales (5:30am). Business Inventories (10am).
  • Fri, 2/15:    Empire State Mfg Survey and Import/Export Prices (5:30am). Consumer Sentiment (7am).

10-Year Treasury History

  • 2.66%   Market Open
  • 2.72%   One Week Ago
  • 2.71%   One Month Ago
  • 2.86%   One Year Ago

Coastal Trails Golden Gate 50K

On Saturday I ran my first “ultramarathon.” The Coastal Trails Golden Gate 50K (that’s 31 miles for us non-metric folk and 33.6 miles for us looking-at-my-Garmin-Fenix5-running-watch-stats folks) was, to cut to the ‘being chased’, a tale of suffering the likes of which I have not felt in some time. Even though I would consider myself a “seasoned” endurance athlete as a result of 14 Ironman triathlon finishes and countless other long distance competitions, not much could have prepared me for the exquisite combination of distance, climbs and descents, cold rain and mud that I experienced on this glorious day. Now, granted, hardcore ultramarathoners will consider my journey here, and 50K itself, a dance among the daffodils, but when career and parenting conspire to allow you to run only 15 to 20 miles a week in training, giving a fat 30 miles a go elevates the term ‘Weekend Warrior’ to a whole ‘nother level.

Anyway, let’s get dirty. The race started at Rodeo Beach and despite the rainy forecast, the day could only muster breaking clear and cold. From sea level, there is nowhere to go but up and that’s exactly what we did, climbing the Coastal Trail past Battery Townsley and up over the ridge to then descend into Tennessee Valley — another awesome place for a nice hike. But again, today was not that day. From TV, we headed up the Fox Trail and then descended into the Pirate’s Cove loop, which is Marin coastal scenery at its best. The weather held nicely and the muddy, uneven steps out of the loop were manageable. By the time we were back on the valley floor we were about 10 miles into our day and ready to tackle the long, steady Marincello ascent towards Wolfback Ridge. I was hanging in on the descent to the Golden Gate Bridge but somewhere along the subsequent climb alongside Conzelman Road I started to feel the fatigue of 16+ miles setting in. But still, not even halfway there.

The Persians have a saying, “The drowning man is not disturbed by the rain,” and oh, did this prove to be true. On the long descent back to Rodeo Beach, the rain set in, the skies grew dark and it got cold. The two, short and steep insulting stretches along the Coastal Trail at the bottom of the descent were mud-choked runnels of Slip-and-Slide fun. And so it was that I returned to the start area again and headed back up the hill for loop two. But not after a very kind volunteer helped me pull a fleece hat out of my running vest and send me off with words of encouragement. One thing I learned while racing long ago? Don’t linger at transition points that come through any start/finish area. The temptation to bail is too great and it makes succumbing to such temptation much easier. In fact, don’t even look at the festivities. Keep moving.

I somehow managed to top out without too much pain. I even descended consistently and with gratitude, as for this loop we did not need to retrace the Pirate’s Cove section. Instead, we turned right back up Marincello and repeated the half marathon loop. It was on that descent that I realized my training-deficient legs had the endurance to run only about 24 miles and that the remainder of this day, if I was to complete it, would be a mixed bag of hiking the ascents quickly, running downhill gingerly on my shattered quads and then playing a game of mental poker comprised of the phantasmogoric next hands of psychological milestones I could soon reach before throwing in the proverbial sponge.

Just shy of 6 hours, I brought her in. My wife and son were there in the rain to greet me. Despite the self-inflicted hardships and what the author of this post might otherwise have you believe, this was a profoundly moving experience. And it was also an important step on the path to a larger goal. Like most such endeavors, it didn’t go exactly to plan and it was way bigger than myself. Part of what excites me now is the prospect of figuring out how to do it better. What seems daunting at this moment, will be the skill and ability I will possess later. And I will be better for having stuck with it.

Get there when you get there,

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Time Is of the Essence

There it is in black and white.  Section 29 of the California Association of Realtors’ residential purchase agreement.  “Time is of the essence.”  And in real estate transactions, which are inherently complex, this simply means that every day matters.  To be competitive as a buyer you need time on your side because very likely the seller of the home in which you’re interested knows that the longer things take to get to the closing table, the greater likelihood something might go wrong with the financing you need in order to acquire the home.

“Like what?,” you ask.

Perhaps the borrower/buyer will file his tax return and it will change the qualifying income.  Or gosh, maybe the buyers will inadvertently miss a credit card payment, or their autopay will malfunction and they’ll learn that they’re late on a revolving debt.  Or as we’ve recently seen, the darn government could shut down.  You get the picture.  Things happen.  And more things can happen if you give them more time.

[Too lazy to read the rest?  Watch the video instead.]

What can a buyer do about this short of a mad and stressful rush in their loan process?  There are two key actions that prove to be universally helpful across all buyers, all price points and all markets:

1)  Get your loan underwritten in advance.  Every serious real estate agent will require that you have a valid pre-approval before you begin looking at homes.  But what if you could not only get a pre-approval but also have the certainty that your loan application has been through a complete underwrite?  That way, all you’d need to complete and provide to your lender once having your offer accepted is a fully-ratified purchase contract and a satisfactory appraisal.  Wouldn’t it be great, in advance and free of time constraints of the contract, to not only gain the confidence of a rock-solid approval but also eliminate the time it typically takes to underwrite a file once your offer is accepted?  In fact, we do this all the time.  An “advance underwrite,” a “pre-underwrite” or a “TBD underwrite” is an extension of our pre-approval process for those who have the time and inclination.  Once we have the underwrite complete, it is sometimes possible for the buyer to offer with an exceptionally fast close of escrow (again, without requiring a rush) and even offer without a financing contingency.

2)  Get organized!  All borrowers owe it to themselves to take the homebuying process seriously.  After all, there is a lot at stake.  Simply, get your financial house in order before searching for a house to buy.  Get all of your income, asset and credit documentation in one place.  We’ll typically require two years of tax returns and W-2 forms, 30 days’ worth of paystubs and often a year-end paystub for the last two years.  For bank statements, we’ll want two months — all pages even if blank.  Other items we request?  Driver’s license and/or valid US identification.  Also, letters of explanation for any unique characteristics of your application.  Remember, I may know your story because we’ll talk about it together, but an underwriter will not have the benefit of those conversations.  The more you’re able to concisely convey any specifics of your credit profile, the better you’ll help your cause.

Every year, some home buyers will fall out of contract both because they cannot take the pressure or they cannot meet the deadlines that were spelled out when they got their offers accepted.  Time is of the essence.  And there are two really good ways, above, that help you adhere to, and succeed in, that reality.

Time stand still, 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960
Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283