I have been a licensed mortgage broker for over (8) years. When I first started, I thought that all mortgage brokers drove Jaguars and had mahogany furniture. Wow, was I surprised when I found out that this echelon of the business was only reserved or should I say "for very few"
What did it take to get into this position? It took knowledge of the mortgage product and a complete knowledge of consumer credit. I found out that the majority of mortgage brokers either had none of these attributes or just one. In, other words, they had to rely on others just to get a loan placed and closed.
The brokers that have survived over the years are those that are continually increasing their knowledge. They do not "farm out" credit issues to credit reporting clinics. They utilize knowledge that they have gained and work with their clients to fully understand their credit issues and how to handle them.
Yes, they even assist on negotiating old debt in order to get the creditors to reflect a favorable entry. When you combine both of these items, you will see a mortgage broker that is continually looking for that product that is best for the client and NOT his commission check.
Now, lets get into the meat of this article. When the housing boom was really peaking, there were a lot of FHA loans placed. Why? Well, when you understand the FHA guidelines and the effort to provide housing for first time buyers, you begin to see another side of the mortgage business unfold.
Under this scenario, some mortgage companies hired loan originators or as I refer to them as "bird dogs" to get loans. Period. GET THE LOAN. Once the loan was on paper, the processor would work the credit requirements of the FHA Underwriting guidelines and lo and behold, thousands of folks were eligible to purchase a home with marginal credit and no money.
Yup, there even emerged a number of non-profits that would assist in the down payment. Now, you figure this one out and tell me if this was not "usury or an advantage" The applicants might need ($4,500) towards their down payment. Now, under FHA guidelines that money could come from a relative as a gift or a certified 501-C3 (non-profit) as a gift.
You and I both know that there are no free lunches ANYWHERE that I know of. But, read on. How can a non-profit provide ($4,500) to a new home buyer without getting that money back? Here is the inside scoop. The builder would simply raise the price of the home, work with the appraisers and take the ($4,500) add another ($1,000) making a total of ($5,500) This would be a donation from the builder to the non-profit, outside of the deal and the non-profit would walk away from the closing table with a check for ($5,500) So, within an hour the non-profit earned ($1,000) for putting up ($4,500). WOW! You tell me whether this was moral or not. Didn't make any difference, it was legal under FHA and HUD guidelines.
Had enough? Read more. FHA would allow not only the origination fee but would also allow the mortgage company/broker to earn sometimes an additional 4.5% in yield spread premiums. This meant that the originator/broker on a (200,000) loan would earn 5.5% or ($11,000) who do you think ended up paying for these outrageous commissions? Yup, those poor folks that didn't know any better but they were getting a roof over their head.
Now, as long as real estate kept creeping up in value, no muss-no fuss. While all of this is going on, the major lenders saw how much business was being generated under FHA guidelines and they were licking their chops. They wanted a piece of this lucrative market. So, they invented portfolio products to mirror FHA guidelines and you had the birth of blended mortgages, arms and others.
Well, we all know what has happened. So, where are we going with this? Well, it seems that now the only window of opportunity in the business is to start writing FHA loans again. Only problem is that when the industry grew so fast, many so called experts didn't have a clue about how to write an FHA loan and now they are either waiting of tables, parking cars or looking for alternative income.
In today's real world, we know what has happened. Can a mortgage broker survive? They have in the past and did well. The answer is get acquainted with the products and get yourself educated about consumer credit. There are so many untruths out there and so many in the industry do not have a clue as to how the credit bureaus truly operate, that they simply throw up their hands and go away.
I'll give you an example of one true story about a loan that was denied by the major lenders because the underwriters wants a judgment paid off. The client had some money but not enough to pay off the judgment and still have the funds for the down payment. Read carefully and if you want more information, contact me.
We looked at the judgment and everything about it was accurate. It was (6) years old. Here in Florida a judgment can be on your credit for twenty years if it gets renewed. So, this poor guy was looking at doomsday and no home. This actually happened and I am going to hold back the actual names because of confidentiality.
We contacted the bank and informed them that the judgment was six years old and that they hadn't seen a dime. The amount awarded was $7,500. We asked the vice-president if he wanted to settle this issue and not go through any more litigation or costs of collecting. He said he agreed and that the bank would accept $3,500 as payment in full. BUT, here is where we got creative. We asked the bank if we got the customer to pay the $3,500 would they agree not to show up in court.
They agreed, signed the settlement agreement, had it notarized and back in the clients hands. The bank got their $3,500 BUT what did they agree to do. They AGREED NOT TO SHOW UP IN COURT. So, the client petitioned the court to vacate the judgment. The clerk of the court called for the bank the day of the hearing and guess what? YUP, the bank did not show up as agreed. The client was awarded a default judgment and had the original judgment vacated.
This went to the credit bureaus, it came off of his credit report and happy to say, he is in his home and is a happy camper. It can be done with knowledge. Interested in learning more. Contact me at regisp@embarqmail.com
Respectfully, Regis Sauger
Regis Sauger is a licensed Mortgage Broker in Florida, an author, lecturer on credit awareness. He have conducted seminars for underwriters, attorneys, mortgage lenders, realtors and the general public.
Article Source: http://EzineArticles.com/?expert=Regis_Sauger
Mr. Sauger,
I think you have made some very good points in your article. The FHA loan is still a wonderful loan for people with slight credit issues or little money for a down payment. The Brokers that were getting 5+ in yield spread were taking advantage of these people by charging a higher interest rate up front. That kind of defeats the purpose of an FHA loan. The only reason the broker didn't put them in a non conforming was purly profit. These kinds of brokers hurt the industry for brokers that really care.
There are good, knowlegeable brokers surviving the industy issues today. You just have to look for them.
Posted by: Connie | April 09, 2008 at 08:22 PM