What Are The New FHA Loan Limits for Georgia?

Thanks to President Bush's Economic Stimulus Package of 2008 Americans will be getting more than a few hundred dollars of redistributed wealth through the guise of a "tax rebate" but they'll also be able to take advantage, for a few months through the end of the year 2008, of expanded lending criteria for FHA and the GSE companies like Fannie Mae and Freddie Mac.

While there are a lot of blog statements and even a few news reports giving exact numbers no actual facts have yet been presented with the exception that we know the loan limits are increasing.

When the loan limits do increase Georgia home owners and homebuyers will be able to get the information they need directly from Novation Mortgage, Georgia FHA lender of choice for real estate professionals.

Is Sub-Prime Lending Dead?

No it isn't. It is, however, in serious condition. To make it worse it is unstable. Any hope for life-support is essentially non-existent and chances of non-conforming (you call it sub-prime) lending ever soaring above the rest, including FHA home mortgages, is equally so.

The truth is most sub-prime lending needed to go. It was dangerous--even reckless--to the borrower, the lender and the housing economy. When I heard of lenders offering real estate investment (non-owner occupied) loans to borrower with a 620 middle score, no verification of income, no verification of assets and no money down PLUS allowing the seller to contribute 3% to closing costs I knew we were in trouble. While speaking to a national vice-president of that company I asked him point blank, "what are you doing, laundering drug money?"

It was a serious question. His answer? "I don't know and I don't care."

Over the past three years or so I must have said it a hundred times and published it dozens of times: many of these borrowers do not deserve these loans. Someone who has missed payments, has collections on their credit, has had a foreclosure or repossession is a very high credit risk.

At first making non-conforming loans available to these people made a little sense because guidelines were still strict enough just to expand to people who had made payments, could show income and assets, had job stability, and had demonstrated fair risk but maybe had been through a short period of trouble. Then it degenerated quickly.

Adding W2'd employees to the list of people who could state their income in order to get a loan was a bad idea. Of course the Fed's current proposal to completely eliminated stated income, regardless of assets and credit, is far worse--more on that in a separate blog.

The bottom line is, for all major intents and purposes, sub-prime is off the table. Yes, it is still around and still available. No, it probably can't help you if you are upside down, decreasing in income, unstable in employment, or many other scenarios which may preclude you from borrowing at all.

The best remaining solution in many cases is either an FHA Home Loan or an FHA Secure Refinance if you are looking to refinance. The problem, of course, is the limit of FHA secured home loans to far less than the limit of conforming. There is about a $200,000 gap in most areas. So if FHA intends to replace sub-prime the loan limit, if nothing else, needs to be raised to the level of conforming (Fannie Mae, Freddie Mac, etc.) limits.

Copyright(c)2007 Ken Cook. Ken is a real estate investor, trainer, speaker, author and prolific real estate blogger. He is also Director of Operations at Novation Mortgage licensed to provide real estate loans in Georgia and Florida and small commercial loans nationwide.

FHASecure Frequently Asked Questions for Homeowners

FHASecure Frequently Asked Questions for Homeowners

There have been many questions about the FHASecure Refinance--what it may or may not do for you. When first proposed we believed it would require the homeowner to be in default--have missed payments--and we now know that is not accurate. As the details emerged we also learned the existing loans did not have to be FHA insured loans.

Thing that do apply are the FHA lending limits and FHA borrower qualifications. The property can even be refinanced out of foreclosure even if the property is worth less than the existing mortgage payoff. This will require a short payoff from the existing mortgagee or a second loan held until the borrower can pay that off, too.

As with any loan it is impossible for you to fully understand the complete power or limitations of the FHASecure Refinance just by reading a blog posting. I encourage you to call a local FHA Lender (don't be fooled into believing just because you call a bigger more national lender that you'll get better treatment or better pricing--that probably is not true nor likely).

Copyright(c)2007 Ken Cook - Director of Operations for Novation Mortgage - your local Georgia and Florida FHASecure Refinance Lender--Novation Mortgage--at 678-946-0100

You Need To Be In The Rain! Active Rain That Is!

You can find great local Marietta, Georgia real estate information on Localism.com Ken "Yes You Can" Cook is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.

How to Shop For and Compare Mortgages

First let me show you how to get burned:

1. Believe the ads you see, hear and read. Especially the "no closing costs" ads or the "it's a racket, it's a rip-off" or "no one else can do what we do" ads.

2. Let someone else such as a real estate agent or builder set up the loan for you or offer some "special incentive" for using "their lender".

3. Refuse or fail to become educated as most people do.

Now let me show you how to compare mortgages to your advantage: 1. Know what you want as an end result. It should be one of the following:

A. Reduce your monthly payment?

B. Get cash out to re-invest or pay unexpected expenses?

C. Purchase a new property?

D. Renovate an existing property?

2. Know your own credit score. You can check your score at any number of locations including from the credit reporting agencies (CRA) directly. A big misunderstanding about credit scores can be heard even among loan officers who really don't know what they are talking about and especially among real estate agents who use the term "FICO score". Each CRA has their own independent score. FICO is exclusive to Experian (I just looked up FICO on a search engine and even a mortgage company misused the term and incorrectly defined it.) TransUnion uses the Empirica score and Equifax uses the Beacon. Lenders who use scores almost exclusively look at the middle score regardless of whether it is the Empirica, Beacon or FICO. Now you know more than a lot of loan officers and real estate agents!

3. Know the terms used (words and phrases). For example ARM loans were completely misused over the last few years and that is a shame. My first home purchase was a Freddy Mac adjustable rate mortgage and I bought the rate down for a 3-2-1 so I could afford not only to purchase the home but to fill it with the furniture I needed. Had that loan not been available I still could have afforded the home but as an FTHB I would have been able to DTI at that LTV without the 3-2-1 3/27 ARM. See what I mean?

4. Know your rights under applicable law. It may be that we are about to have a National Fair Lending Act(FLA) (currently H.R. 3915) which will eliminate some confusion state to state. We already have the RESPA (Real Estate Settlement and Procedures Act). Each law has several different parts some of which will affect your application and transaction and some which will not. Some transactions are not covered by and FLA or RESPA such as a commercial use property purchase or refinance.

5. Know what you are looking FOR and AT when you look at a Good Faith Estimate (GFE) and Truth In Lending (TIL) document. It is pretty easy to listen to some radio talk show host with absolutely no financial training, education or experience giving disinformation which is blindly accepted by the greater listening audience. You, however, are an intelligent caring borrower - I know this by the fact you have read so much to get to this point. It really is best to bottom line closing costs and monthly payments and forget about what some may call a "junk fee". What difference does it make if one company has a "pet care fee for the office dog" of $500 if their overall closing costs are lower than the competitor? Some companies choose to lump fees together and call them an admin fee. So you either get a company like Novation Mortgage which line items costs and some may call them "junk fees" but the bottom line is still less than the national competitors who have just one huge admin fee.

6. For goodness sake ask for a PRICE GUARANTEE! Believe it or not some loan officers do not accurately complete the GFE/TIL. Wow, what a surprise.

A. If you have not submitted correct and verifiable information to the loan officer and the loan officer has not checked your credit there is little likelihood your GFE will be correct.

B. When you get your GFE look for these fees. Chances are your GFE will not necessarily have all of these fees line itemed but ask about them anyway. I have seen too many GFE forms from competitors which have omitted some or most of these fees and did not lump them together:

a. Loan Origination Fee

b. Processing Fee

c. Admin Fee

d. Underwriting Fee

e. Credit Reporting Fee

f. Handling, postage, courier, wire, or other delivery fee(s).

g, Title fee

h. Attorney fee

i. Appraisal Fee

j. Pre-paid interest

k. Flood cert fee

l. State transfer taxes

m. State recording fee

n. Private Mortgage Insurance fee

o. Prepaid Property Taxes (escrows)

p. Prepaid Homeowners insurance (escrows)

q. Mortgage Broker fee

r. Ask about any other fees inadvertently or otherwise omitted

C. When you receive your TIL (Novation NEVER sends a GFE without a TIL) look for the following:

a. Interest rate

b. Terms of the loan (due in number of months)

c. Type of loan (fixed rate, adjustable rate)

d. Length of fixed period before adjustment period if applicable

e. Is this an Interest Only loan?

f. Is there a pre-payment penalty?

g. How and when are late fees assessed to your late payment?

h. What is the Annual Percentage Rate (APR)?

i. Are you required to purchase a life insurance policy?

j. Ask about any other lines you do not understand.

7. To avoid confusion on the TIL look at the APR and on the GFE look at the Total Estimated Funds Needed To Close. When you find the Guaranteed Lowest Total Funds AND APR you only need to compare terms to see which is the better loan.

8. Understand Yield Spread Premium (YSP) and what it does. Your government understands YSP but many powerful elected officials who are highly influenced by massively wealthy banking associations and lobbyists are siding with big banks in an effort to steal it away from you. YSP probably should never have been shown because it is only a tool for confusion and has nothing to do with shopping for interest rate or closing costs. Comparing the APR is more important than worrying about the YSP. Banks make a lot of profit "on the back" of every loan. Mortgage brokers make a little profit "on the back" of a loan. Banks never show the consumer how much profit they make but it can be as much as five times more than a mortgage broker makes. Mortgage brokers are required by federal law to fully disclose every penny of profit they earn on every covered loan. Banks are not. So honestly, forget about the very confusing issue of YSP or be concerned about the Service Release Premium earned by banks and direct national lenders because both equally affect your interest rate.

9. Documentation required from you to qualify for the loan. Many states have tried or are trying to outlaw stated income even for self-employed borrowers. Now there is a nice move designed to penalize all you small business owners. But I digress, stated income loans were definitely abused over the last few years in many if not most markets. Still, if you have an interest rate at one lender quoted of 8% and at another lender at 6% I would recommend seeing what type of documentation each is requiring.

10. Down payment amount required from you. When someone calls my office and says "your loan officer quoted a rate of 6.875% but Polly Wants A Cracker loans down the street quoted me 6.250%" my first question is, "How much down payment required at PWAC?" A 90% loan is going to be a little more expensive than an 80% loan.

11. Be honest with yourself about your buying power. Some people may qualify for rates and terms for which others may not. Just because your neighbor qualified for a 30 year fixed mortgage at 6.5% does not mean you will even at the same lender.

12. Know that some costs are associated with the type of property, type of loan (terms), your credit, income and assets, the state in which the property is located, your intended use of the property, and other factors. The GFE and TIL are only as honest as you and the loan officer who prepares the documents. NO LOAN OFFICER CAN SEND AN ACCURATE GFE/TIL UNTIL THEY HAVE EXAMINED YOUR QUALIFICATIONS AND THE PROPERTY QUALIFICATIONS. Until then it is only an ESTIMATE.

To Sum It Up

Examine the Total Estimated Funds Needed To Close on the GFE Examine the APR and Terms on the TIL Ask for clarification on Terms you do not understand Shop around and demand a price guaranty on relevant closing costs. Try creating your own spread sheet or other type of a chart to compare apples to apples.

Unfortunately I cannot tell you what you should expect to pay in fees because I may be accused of price fixing. Just suffice it to say if you use the information in this article you will be a better informed borrower and much more likely to get a better mortgage for your needs.

Ken Cook is Director of Operations and a certified Fraud Detection and Deterrence Officer for Novation Mortgage in Marietta, Georgia. He is also an accomplished author and industry trainer. He may be reached at 678-946-0101 or through http://novationmortgage.com Novation Mortgage uses the DISSCO system from Interthinx on every file submitted for approval.

Why oh Why YSP?

Once upon a time I was a mortgage broker. During those years we fought hard for our clients to insure we were finding the best deal for them and earning enough revenue to pay our employees and keep an office running efficiently. Along came a travel agent turned radio talk show host(1) by the name of Clark Howard who proceeded to cast stones and still does so. Continuously bombarding mortgage brokers as useless middle persons Howard continually urges his growing listening audience to bypass the smaller more local offices and go straight to the lender, where they can be screwed and never know it. The happy ending of this story is to come yet in this article.

Currently there is legislation by Senator Barney Frank (D-MA) in which he seeks to further control the already highly regulated mortgage broker industry. Comments from other leader such as Barrack Obama (D-IL) and Hillary Clinton (D-NY) also mention, most specifically, mortgage brokers and how they have steered the country down a winding staircase into the deep recesses of financial failure. The happy ending to this story, likewise, is yet to come.

Please allow me to introduce your friend and mine, Yield Spread Premium; YSP for short. We are going to take a short journey to the soup aisle at your favorite grocer's on the way to meet Mr. YSP. Go ahead and pick up that can of store-brand chicken noodle and take it with us to the check out stand. Now go ahead and pay the clerk the one dollar and thirty six cents with tax. Let us talk about that soup you just purchased on the way to meet Mr. YSP.

Hold that can in your hand and look at it closely. You can see at least two components and feel the weight of a third component. You can see the can and the label and you believe there is soup inside matching the description on the label. Since there is a can and a label you can also see did you really just buy the soup or did you also buy the can and the label? Obviously you bought it all as one unit but how much did you pay for the can? What about the label how much of the price of the purchase accounted for the label?

The secret is you don't know and you don't care. All you really care about is that you purchased a can of soup and got it for a fair price. The components were not separately priced. Some of the components were listed on the label but they did not include the label and the can. Somewhat of a mystery the cost of the label and the can. Look, we are getting close to Mr. YSP's place.

What possible similarities could their be between a can of soup and a mortgage you are wondering. Only that they are both something you should shop for and understand. You don't care about the price of the can or the label because we are talking about items which ad pennies to the overall cost, right? I mean at the most the can and the label likely didn't add more than three or four cents to the cost. So two percent extra that you aren't told about in the price really doesn't make that much difference because you are talking about pennies.

Do you know the difference between the cost of obtaining a mortgage at a bank or direct lender and obtaining a mortgage through a mortgage broker? Do you know that mortgage brokers have access to something called "wholesale rates"? I bet you didn't know that a mortgage broker, by federal law, is the only one of those three required to tell you about every penny of profit they make on every home loan. It is true. The bank and the direct lender are not subject to the federal law requiring mortgage brokers to disclose the price of the "can" and the "label". So if mortgage brokers are required to disclose every penny they make from your transaction why aren't the banks and direct lenders? We will get to that I assure you but here we are at YSP's place.

Yield Spread Premium meet my pupil. Pupil, Yield Spread is the amount of income a mortgage broker earns from the lender when they find a wholesale mortgage that meets your needs and you accept that mortgage for a market competitive interest rate. Much like the way the car manufacturers pay the car dealer a portion of the retail price when they sell a car. Without YSP the front end fees would be higher and the loan would cost more. While we are on the subject let me remind you of the Columbia University Study which unequivocally demonstrates the cost of doing business with a mortgage broker is less than the cost of going directly to a bank or lender.(2) In fact, a talk show host named Clark Howard recently had to eat some words. Then he forgot again and is making a lot of unfounded accusations.

YSP works like this: If the borrower qualifies for a loan at six percent interest and the mortgage broker gets that same loan for five point seven five percent interest there is a little profit between the "wholesale" rate and the "retail" rate. The wholesale rate is call the "par" rate. Since there is a difference between the wholesale rate and the retail rate the lender will, after the closing, pay the broker a fee for the difference and that fee is called the Yield Spread Premium.

Since the cost of originating a loan has risen to about twenty-five-hundred dollars(3) the mortgage broker, just like the bank or lender, must make a minimum profit just to stay in business. Some costs are based on percentages and not fixed numbers so other loans may cost even more than that to originate. Originate means attract the client, take the application, make all of the necessary steps to get that loan to closing.

If that can of soup was like a mortgage from a mortgage broker you would individually pay for the carrots, the chicken, the salt, the pepper, the cooking time, the quality control costs, the water, the chicken, the celery, the can, and the label. You wouldn't pay any more for the soup but you would see the cost of each little component on you receipt. Only then your receipt would be called a Housing and Urban Development Settlement Costs document, or HUD-1. However, even though the price would be the same at a bank or direct lender, you would never know the cost of the can because the law does not require the banks and lenders to disclose that cost. Only the broker is required to disclose.

YSP is part of the earnings a mortgage broker makes. The lender still makes a lot more than the broker they just don't have to say. Lenders are paid what is called a Service Relief Premium if they sell the loan or a Servicing Premium if they keep the loan on their books. Usually SRP is anywhere from three percent to ten percent depending on the sale of the loan on the secondary market which has nothing at all to do with the borrower and happens after the closing is done.

Here is the bottom line and why you need to know about YSP but why elected officials like Dodd and Franks are way out of their league and intending to harm you more than help you by singling out mortgage brokers and eliminating this form of commission. Go to a lender directly and get a quote then go to a mortgage broker and get a quote. You will see that they are within a few dollars either way. The broker will have access to many lenders and will be able to shop several lenders and banks with one application. Yes, it has been abuse, but that was because you didn't know the trick. Now you know.

Brokers, like lenders, banks and you at your job, must get paid. Only a small percentage of brokers are abusers of the system. Any further legislation is going to limit you on your choices and deprive you of ever knowing how much anyone makes. Why else would lenders and banks be campaigning against mortgage brokers and funding campaigns for the people who support the elimination of YSP which would effectively shut down the cheaper wholesale mortgage broker industry? Because banks and lenders do not have to disclose their profit like mortgage brokers.

Yield Spread Premium is actually your best friend in the mortgage business.

(1) Clark Howard Biography - http://580wdbo.com/clarkhoward/bio.html
(2) NAMB Report on the Columbia University Study -
http://www.namb.org/Images/namb/documents/PDF/2005-Apr-07_NewStudy.pdf (3) NAMB Update http://www.namb.org

Ken Cook is Director of Operations and a certified Fraud Detection and Deterrence Officer for Novation Mortgage in Marietta, Georgia. He is also an accomplished author and industry trainer. He may be reached at 678-946-0101 or through http://novationmortgage.com Novation Mortgage uses the DISSCO system from Interthinx on every file submitted for approval.

Discount Mortgages - Reality or Myth?

We have all heard the ads, "it's a no brainer", "I pay your closing costs for you", "no closing costs", "no cost refinance". Oddly an estimated five hundred thousand people have believed those ads and closed without ever knowing the truth.

Do you know how mortgage lenders make money? Sure, they make a little from you on origination fees but that's not all. They also make money "on the back" in the form of Service Release Premium (SRP) which is the difference between the amount you pay for the loan and the investor pays for the loan. What does this have to do with you?

Mortgage brokers "buy" money from the lender. The broker sells the loan to you at a price usually 50 to 150 basis points (bips) higher than they get it from the lender. This helps keep your "front end" costs down to a minimum. This is why brokers are called "wholesale mortgage brokers" because they "buy" from the lender at a wholesale rate and "sell" to you at a rate near retail. Truly it is not different than any other product or service. The broker can operate on a lower markup than say WalMart because they don't have inventory. They do, however, have some fairly massive liabilities from licensing to insurance, fraud control to advertising, back office salaries and commission, office space and equipment, and more.

The Mortgage Banker's Association recently released a report that indicates it costs somewhere around $2500 to originate a loan. According to our records this is a fairly accurate number. That's how much it costs us, as a broker, to originate a loan. Originate simply means the process from the first phone call to the closing table.

Generally the borrower will pay about 100 bips (equal to 1 percent) in a fee called the origination fee. On a $185,000 loan that would be $1850. Many loan programs actually allow the seller to contribute up to 600 bips to the closing so this fee is lost in the transaction (go to my website and you'll find where that went).

There are also other fees that some nationally syndicated yet local radio talk hosts with no background in finance like to call junk fees. Truth is he would rather have those fees hidden from you than to have them line itemed so you can see where your money is going. There is a processing fee which goes to the processing company or division which is generally between $400 and $650 depending on your originator. There is often a separate broker fee which goes directly to the broker to offset operating costs - it is separated so there is no commission paid to the originating loan officer which keeps your fees down in actuality. There are also companies who charge doc prep fees, handling and delivery fees and other fees.

There are also third party fees that the broker cannot control which include lender fees, underwriting fees, and others. The attorneys, appraisers, title companies, couriers, insurance companies, and government agencies also all want a piece of the pie. So the truth is the total cost of closing a loan (not including taxes, insurance and appraisal) can quickly approach 4% to 5%. If you live in Georgia and you are purchasing a qualifying primary residence your total closing costs are capped at 5% by the State and generally 4.99% by the lenders.

Okay, I'm getting to the point and that point is there is a "back end commission" available to the broker from the lender to be used as they choose. The lender shares a portion of their SRP with the broker in the form of YSP. Keep in mind that the cost to originate a mortgage loan - to the broker - is about $2500 and that is a fairly accurate number. Knowing this it is obvious the broker is going to need to realize a gross revenue of more than $2500 to stay in business - unless they are some rogue operator working out of their kitchen and omitting all the tools to deliver your loan securely and accurately - but I digress. Point is, there is commission and it can be used at the broker's discretion.

What if the broker offered to use the commission to be the only revenue they directly generate from your transaction? Well, some brokers and lenders advertise they pay the closing costs for you. This, my friends, is an absolute lie. Yes, they pay them but it comes from the commission realized on your transaction. Yet, if you knew for sure what was transpiring it may still be a great deal for you. I mean if you have a $400,000 loan and the normal interest rate would be, for example, 7% paying the broker a 1% commission and the broker raised the commission just 50 bips (1/2%) to 7.5% to cover all your closing costs, wouldn't it make sense to do so and you not to have to come out of pocket with any thing at closing? Sure, but is that truly a discount mortgage?

What about this, what if you could use the seller concessions to pay all the third party fees: attorney, title, appraisal, lender (lender and broker are different and you can save money going to a broker over directly to a national lender), etc., and the broker simply waived their front end fees? I mean if the broker left their backend commission markup at 50 bips like it would have been anyway?

That's a true Discount Mortgage! Now in all fairness to the broker you just cannot do this on a $185,000 loan. In fact, remembering that the loan costs about $2500 to originate - yes, even yours - the minimum loan amount just for the broker to break even would be $250,000. But brokers cannot just "break even". So if your loan amount is$300,000 or more, you can fully document your income, the property is your primary residence, the LTV is 80% or less, and (frankly) you are not a pain in the butt to deal with, you should be able to strike this deal with the broker.

Be careful! Just because you are dealing directly with the lender or a banker they will try and convince you they don't have these fees and therefore are already priced better than going through a broker. Nothing could be farther from the truth. They charge the same amount as a broker, or even a bit more, and just keep all the profit. Direct lenders and banks make as much as 8% to 10% of your loan amount as profit. The difference is only brokers are required by law to fully disclose their profits. Banks and direct lenders are exempted from that law. And, to make matters more confusing, there are certain people in a certain non-business friendly political party making a move to illegalize YSP to the broker meaning your choice in mortgages will be eliminated and you will be required to go directly to a big lender or banker because they will, at last and once again, completely monopolize the lending industry.

In a nutshell if you want to make this work ask your lender or broker for a quote on your mortgage. Once you receive that quote ask them for another quote but eliminating their front end fees - not all front end fees, just theirs. If they re-quote with the same interest rate jump on it! Chances are they will increase the interest rate by .375% or more. Keep in mind there just isn't much of a way to make this work on a loan of less than $250,000. Do not be afraid to ask, this could save you as much as $3500 or more. Also, don't expect every loan officer to immediately agree this is a good idea.

Ken Cook is Director of Operations at Novation Mortgage in Marietta, Georgia as well as a seasoned author and trainer. Novation Mortgage is licensed as a direct lender in Georgia and a licensed brokerage in Florida and Alaska. They also broker small business loans and commercial loans nationwide. http://novationmortgage.com 678-946-0100 for media contact for Ken.