The Thomas Team had a great luncheon meeting with our lender partner, Scott Miller of Met Life Home Mortgage, and his team yesterday at their new corporate digs. The focus of the meeting was for our team to get a complete understanding of the new world of home loans and the process from application to funding. To quote an old song from my youth “It Don’t Come Easy” . There are lots of new of steps and lots of different hand offs, gates and gate keepers. “Rushing” any deal these days is all but impossible as the banking industry is still reeling from the sub prime mess.
Mac & Mae
At the end of the day, 90% of all loans come through the federal entities Freddy Mac and Fannie Mae. So even if you are going to get your loan through Acme Savings & Loan or Ginormous National Bank, at the end of the day the money and the thumbs up or down are tied to Mac and Mae. That’s because Acme and Ginormous sell their loans to Freddy and Fannie, and while they once took in any ‘ole kinda loan like a lost puppy, they are now very picky.
We learned that all loan apps go through an automated desktop underwriting system. Using this system, the loan officer can make a determination if the loan has a chance of meeting the guidelines issues by Freddie and Fannie. The answer can be had in as little as 60 seconds. Now this is true IF the borrower has provided the loan officer all the info necessary, and that’s often a big IF.
Knowledge is Powerful Stuff
The Thomas Team now knows the ins and outs (okay, we now have a better understanding) of the new world of loan application, process and approval. We can better advise our Buyers and Sellers as to what they can expect and we can assist our lending partner in meeting and exceeding client’s expectations. At the end of the day, it’s really about doing business with people of integrity and expertise who value you and your clients. We highly recommend Scott Miller (firstname.lastname@example.org) and his team at Met Life (Snoopy).
The procedure for obtaining a loan continues to tighten as the banks, investors, and HUD figure out how best to insure that jumbo mortgages are secure investments. The US Department of Housing and Urban Development (HUD) announced on April 1, 2008 that jumbo mortgages (loans exceeding the conforming loan limit of $417,000) may require 2 appraisals in order for a buyer to obtain a loan commitment. According to the HUD Mortgagee Letter, a 2nd appraisal may be required when 3 requirements are met:
- The loan amount, excluding the upfront mortgage insurance premium, will exceed $417,000, and
- The Loan-to-Value equals or exceeds 95%, and
- The property is determined as being in a declining market. A declining market is determined by either the appraiser or the lender.
Every time I speak with one of our lenders, it seems there are more and more changes that need to be understood and incorporated into the mortgage approval process. However, this is probably a good change… though it could slow down or add additional cost to the process. I find myself counseling our buyers that there is a little bit of a learning curve as everyone becomes more familiar with the sweeping changes that have taken place in the mortgage industry.
As I was reading the Columbus Dispatch on Sunday, a Chase ad for a Home Equity Line of Credit caught my eye. It advertised variable rates on Home Equity loans as low as 4.99%. At first glance, this looks like it could be great, and in certain situations, probably is. However, if you have any plans to sell your home in the next couple of years, I urge you to give it a lot of thought and here’s why. When you take out a home equity loan, you are in essence, taking the profit out of your home early.
Tony and I have come across quite a few real estate situations in New Albany over the past 12 months where a seller’s first mortgage combined with their home equity credit loan barely equaled the current market value of the home. When you layer in the cost to sell your home, it leaves even less. Again, there’s nothing wrong with accessing a home equity line of credit. Sometimes the interest on these loans is deductible where other types of interest are not. It’s just important to remember that when you do take out the loan, you are spending the equity (or profit) that you may have on your home leaving less net proceeds at sales time.