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A Helping Hand In Builder Disputes

 

By Kenneth R. Harney

Saturday, November 18, 2006; F01

 

When home builders behave badly, some of their customers may have an unexpected resource: The federal government's "RESPA police," who say they have become increasingly active in resolving consumer complaints through nonpublic interventions with builders.

 

RESPA stands for the Real Estate Settlement Procedures Act, a consumer protection law that targets kickbacks and other settlement-related abuses. The RESPA police are investigators at the Department of Housing and Urban Development. They are best known for their splashy public settlement agreements with real estate, title insurance and mortgage industry firms, sometimes involving hundreds of thousands of dollars.

 

But with no public fanfare, the RESPA police have begun intervening in complaints brought by individual consumers who say builders are unfairly forcing them to use their affiliated mortgage companies. The affiliates' loan deals, the complaints say, typically are more costly than those available from independent mortgage brokers and lenders.

 

In one case outlined by HUD officials in an interview, a builder canceled a sales contract and seized an $11,845 good-faith deposit when a buyer refused to use the builder's affiliated mortgage company. Under RESPA, builders and others generally are prohibited from requiring the use of a specific lender or title company as a condition of a sale.

 

HUD officials talked about enforcement operations on the condition that their names not be printed because agency policy requires that they remain anonymous when discussing nonpublic investigations.

 

According to the HUD officials, after RESPA investigators contacted the builder and gave the company 15 days to resolve the dispute, the builder -- which the officials also declined to identify because no public action was taken -- not only allowed the buyer to proceed with independent financing, but also paid the buyer's lender to lower the interest rate.

 

In another recent nonpublic intervention, a consumer complained that a builder seized her $10,000 deposit when she refused to accept the loan deal offered by the builder's mortgage affiliate. The affiliate's loan officer "fraudulently altered financial documents," according to HUD, "that would have placed the consumer in a home she could not afford."

 

In other words, the builder's loan officer allegedly was willing to approve the buyer for a mortgage amount and monthly payments that ultimately would cause her to lose the home to foreclosure. After investigators intervened on her behalf, HUD officials said, the buyer was refunded the $10,000 deposit.

 

In a case involving incentives dangled by many builders to attract buyers in soft markets, a prospect was offered a "free" morning room addition to the new house. The builder said the addition was worth about $13,500. The only hitch was that the purchaser would need to use the builder's mortgage subsidiary. The builder assured the buyer that the rates, fees and terms offered by the subsidiary were "very competitive" with outside lenders and brokers, according to the complaint.

 

But when the buyer checked out the competition, he found the subsidiary's fees to be bloated -- a $5,400 "origination" charge, for example -- and far more costly than in the regular market. The buyer complained to investigators at HUD, arguing that the builder was engaged in an intentionally deceptive practice. After investigators hinted at legal action, the builder agreed to waive the $5,400 fee and threw in the $13,500 morning room, too, according to HUD.

 

Investigators actively are pursuing other nonpublic mortgage-related complaints, officials say, including allegations that builders:

 

· Raised the prices of homes when buyers declined to use their mortgage affiliates or subsidiaries.

 

· Required buyers to deposit extra money in escrow accounts if they refused to use the affiliated lender.

 

· Pushed buyers into using a designated lender with the threat of withdrawing a $5,000 "seller's credit" toward closing costs and also adding $10,000 onto the home price.

 

If you find yourself in a builder squeeze involving mortgage, title or other affiliates, HUD has some practical advice for you:

 

· Compare interest rates, loan terms and closing costs of several independent lenders before agreeing to use the builder's affiliate or wholly owned subsidiary. Determine whether the affiliate's rates and total charges are higher than the going market rate and offset any discounts, incentives and upgrades.

 

· If you intend to use a builder's affiliated mortgage company to take advantage of incentives and then refinance the loan to get a lower rate, be sure that the mortgage note does not contain a hefty prepayment penalty designed to discourage early refinancing.

 

· Be suspicious of large discounts or additions that are contingent upon using the builder's loan affiliate. Knowing what comparable homes in the area are selling for may help you determine whether the builder is offering a true discount or is simply raising the price of the home before offering the discount.

 

If you have a complaint involving high-pressure tactics designed to coerce you into using a builder's affiliate, you can call the RESPA enforcement staff at 202-708-0502. Alternatively, you can e-mail hsg-respa@hud.gov. For background on RESPA, visit http://www.hud.gov/.

 

Kenneth R. Harney's e-mail address isKenHarney@earthlink.net

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Mortgage Documentation Types.

Originally posted by: fla-tan

 

There has been more than one person requesting that there be a post that shows different documentation levels for mortgages. Even though I received the first request probably 2 years ago or more, I am just now getting around to creating and posting it. I hope that this helps to answer a lot of questions.

 

 

The range of documentation types runs the gamut from full documentation to no documentation. Below is listed a brief explanation of each type.

 

1) Full Doc(umentation): This is the most common type of mortgage documentation. With a full doc mortgage you will normally be expected to provide complete proof and documentation of all income sources and asset sources. You can usually be expected to provide at a minimum; your last 2 paystubs, your last 2 years W-2 forms, your last 2-3 months bank statements for each bank account that you have (full statements and not just the first page), your most recent 6 months 401K and/or IRA statements. With many sub-prime lenders, you can substitute your last 12-24 months bank statements in lieu of both pay stubs and W-2s.

 

2) Limited Doc: A limited (lite) doc mortgage generally will use as little as 6 month’s bank statements to prove income. Otherwise it is like a full doc mortgage.

 

3) Stated Income/Verified Asset (SIVA): With a stated income/verified asset mortgage you simply state what your income is, though it has to be reasonable to the type of work. Like the full doc mortgage you will need to

verify your assets with documentation.

 

4) Stated Income/Stated Asset (SISA): With a stated income/stated asset mortgage, you state both your income and what assets you have. These are not verified.

 

5) No Ratio: This mortgage type has no income associated with it. While employment information is required, the income amount is neither shown nor disclosed. The only information that is verified with the employer is that the borrower is employed there and for how long. Assets will normally be verified with this mortgage type.

 

6) No Income No Asset (NINA): With this mortgage type, neither income nor assets are shown. As with a no ratio mortgage, employment is verified.

 

7) No Documentation: A no doc mortgage is just that, there is no documentation required to be approved. This mortgage will be strictly based on the borrower’s credit score and depth of his/her credit history.

 

 

This is simply a brief synopsis of mortgage documentation types. Virtually all mortgages will be one of these types. Lenders may call them by different names, but they will be one of these types anyway.

 

 

fla-tan

Edited by fla-tan
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Another great read originally posted by fla-tan

 

I started this project some time ago and never really got it finished. Before making it visible to the general membership I sent it to the other professionals for their input.

 

Mortgage Abbreviations & Acronyms:

 

BWR: Borrower is the primary applicant on a mortgage application.

 

CBWR: Co-Borrower is the secondary applicant on a mortgage application.

 

Fannie Mae: Federal National Mortgage Association, one of two GSE’s (Government Sponsored Enterprises) created by Congress to increase access to mortgages. Mortgages offered under Fannie Mae guidelines are called “conforming†mortgages since they conform to Fannie Mae guidelines.

 

Freddie Mac: Federal Home Loan Mortgage Corporation, the second of two GSE’s created by Congress to increase access to mortgages. Mortgages offered under Freddie Mac guidelines are also called “conforming†mortgages since they conform to Freddie Mac guidelines.

 

FHA: Federal Housing Administration, the Federal Government Agency that oversees the US Housing market. FHA mortgages are guaranteed by the Federal Government and offered by banks/lenders.

 

VA: Veterans Administration, like FHA, guarantees mortgages for the Federal Government. However, VA mortgages are only available to members of the military, their immediate family, and veterans of military service.

 

USDARHS: United States Department of Agriculture/Rural Housing Services, like FHA these mortgages are guaranteed by the Federal Government.

 

Ginnie Mae: Government National Mortgage Association is the actual guarantee agency for Federally Guaranteed mortgages by VA, FHA, RHS, and PIH. Ginnie Mae’s MBS’s are the only MBS’s that are actually guaranteed by the Federal Government.

 

PIH: Public and Indian Housing is the Federal Agency that, like FHA, guarantees mortgages.

 

MBS: Mortgage Backed Security. These are the investment instruments that are bundled by Fannie Mae, Freddie Mac, and Ginnie Mae for sale on Wall Street.

 

DU: Desktop Underwriter is the automated underwriting engine developed by Fannie Mae for underwriting Fannie Mae eligible mortgages. DU is also used for underwriting FHA mortgages.

 

LP: Loan Prospector is the automated underwriting engine developed by Freddie Mac for underwriting Freddie Mac eligible mortgages.

 

HUD: Housing and Urban Development is the Cabinet Department of the Federal Government that oversees the US housing market. All laws that are passed by Congress are administered by HUD.

 

LO: Loan Officer is the person that takes the actual application for a mortgage. An LO can be a licensed mortgage broker or they can work for a lender and not be required to be licensed.

 

LTV: Loan-to-Value is the percentage of the mortgage to either the purchase price (when purchasing) or the appraised value (when refinancing an existing mortgage).

 

CLTV: Combined-Loan-to-Value is the total percentage of all mortgages to the value of the property.

 

TLTV: Total-Loan-to-Value is another name for CLTV.

 

PMI: Private Mortgage Insurance is charged on conforming mortgages that are over 80% LTV.

 

MIP: Mortgage Insurance Premium is similar to PMI but is used for FHA mortgages. With FHA mortgages there is an upfront MIP payment as well as a monthly MI payment.

 

LPMI: Lender Paid Mortgage Insurance is mortgage insurance paid by the lender instead of the borrower. This is accomplished by the lender increasing the mortgage interest rate.

 

DTI: Debt to Income is the ratio of the borrower’s gross monthly income to their consumer and/or housing debt.

 

RESPA: Real Estate Settlement Practices Act is the Federal Law that regulates what is allowable and not in the sale/purchase of residential real estate.

 

HUD1: HUD1 is the statement that you receive that details all the costs and expenses involved in the actual closing of a mortgage.

 

NAMB: National Association of Mortgage Brokers is membership organization that represents the mortgage brokerage industry. In addition to the national association there are also about 43 state associations.

 

GFE: Good Faith Estimate is one of the documents that an applicant(s), under RESPA guidelines, is supposed to receive within 3 business days of an application. The GFE is an estimate of what the closing costs of the applicant’s mortgage. The important fee section to look at on a GFE is the 800 series fees as those are lender/broker fees.

 

TIL: Truth in Lending is the other major document that an applicant is to receive within three business days of applying for a mortgage. The TIL shows what the payments are supposed to be and also what the cost of the mortgage will be.

 

API: Annual Percentage Interest is the interest rate the borrower pays for the mortgage. This is the rate that the monthly payments are based on.

 

APR: Annual Percentage Rate calculates the cost to the applicant for the mortgage by taking the total amount borrowed and subtracting certain fees from that amount and then figuring what the interest rate then calculates out to without changing the payment amount. APR is an easily manipulated number which makes it difficult if not impossible to compare different programs and products.

 

ARM: Adjustable Rate Mortgage is a mortgage that will have a fixed rate for a set period of time and then the rate is adjusted. The fixed period can be as short as 1 month or as long as 10 years. The rate will normally be adjusted either once a year or twice a year. There is one type of mortgage where the adjustment period is monthly. All ARM’s are based on an index. The following are the common indexes:

 

1) 1 year Treasury Bill is the index used for all FHA ARM mortgages and many conforming ARMs

 

2) LIBOR: London Interbank Offered Rate is the other major index used on conforming mortgages. It is also the index that all subprime ARMs are based on. Subprime mortgages will use the 6 month LIBOR but conforming ARMs can use anything from the one month LIBOR up to a 1 year LIBOR though they will generally only use either the 6 month LIBOR or the 1 year LIBOR.

 

3) COSI: Cost of Savings Index is based on the 11th District Federal Home Loan Bank in San Francisco. COSI loans are always Option ARM mortgages.

 

4) CODI: Cost of Deposits Index is similar to COSI except it is only offered by World Savings to separate themselves from the other Option ARM lenders.

 

5) COFI: Cost of Funds Index is similar to COSI and CODI.

 

6) MTA: Monthly Treasury Average is another index that is used strictly by Option ARM lenders

 

HELOC
: Home Equity Line of Credit is a revolving line of credit based on the equity in a property. Generally
HELOC
's are based on Prime rate. If taken out at the time of purchase many
HELOC
's report as a mortgage. If the
HELOC
is taken out subsequent to the purchase they will generally report as a revolving line of credit and will report utilization the same way any other revolving credit line does.

 

SIVA
: Stated Income Verified Asset is a type of reduced documentation mortgage that is more fully explained in another pinned topic, Mortgage Documentation types.

 

SISA
: State Income Stated Asset is another type of reduced documentation mortgage.

 

NIV
: No Income Verification is usually another name for a No Ratio mortgage, another reduced documentation type mortgage.

 

NINA
: No Income No Asset is another type of reduced documentation mortgage.

 

YSP
: Yield Spread Premium is what a lender pays a broker for bringing the mortgage application to them. It will normally be shown as a percentage initially, and then as a dollar amount on the HUD1.

 

SRP
: Service Release Premium is similar to YSP except that SRP is usually not available to brokers but only to direct lenders. In addition, unlike YSP, SRP is not shown on the HUD1.

 

IO
: Interest Only is a payment type where none of the required payment goes towards principal. While the required payment will generally be lower than an amortizing payment since nothing is going towards principal the amount owed does not go down. Like a fully amortizing mortgage a borrower is allowed to pay extra towards principal.

 

O/O
: Owner Occupied is the mortgagor’s principal or primary residence.

 

PR
: Primary Residence

 

NOO
: Non Owner Occupied is a property where the mortgagor does not live in the property and has it as an investment.

 

IP
: Investment Property

 

PPP
: PrePayment Penalty is charged in those states that allow it by subprime lenders and an occasional conforming lender to assure the lender of making a profitable mortgage investment. A PPP can be either hard or soft. A hard PPP means that the borrower will pay a penalty for paying the mortgage off before a specific time period whether they sell or refinance. Most PPP’s are for 3 years or less and with subprime lenders will generally be the same as the fixed period of an ARM mortgage. A soft PPP means that the borrower will have to pay a penalty if they sell or refinance within the first year or refinance within the remainder of the PPP.

 

VOR
: Verification of Rent is a form that is sent to the landlord to verify the timely payment of rent.

 

VOM
: Verification of Mortgage is a form that is sent to a lender to verify the timely payment of the mortgage. This is normally used when a mortgage is not reporting up to date or when it is a private mortgage that doesn’t report at all.

 

VOD
: Verification of Deposit is a form sent to the bank/credit union/savings bank to verify the amount of funds in the account and to provide an average balance over a specified, usually 60 day, period.

 

VOE
: Verification of Employment is a form that is sent to the employer to verify employment. Many times a VOE will be done verbally by the lender just prior to closing.

 

W-2
: W-2’s are tax forms provided by the employer to show total year’s income.

 

NEG AM
: Negative Amortization occurs when the required mortgage payment is not sufficient to cover the interest owed on the payment. Option ARMs are considered to be neg am mortgages because the minimum required payment is less than IO. The unpaid interest is then added to the principal owed on the mortgage causing the mortgage to increase. This is the most dangerous of the “exotic†mortgages available.

 

FTHB
: First Time Home Buyer is a purchaser(s) that has not had an ownership interest in a residence within the previous three years.

 

PITI
: Principal-Interest-Taxes-Insurance is the total housing expense on a monthly basis.
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fla-tan explains Mortgage Terms

 

 

What your mortgage interest rate is based on will depend on which type of mortgage you obtain. For purposes of simplification, I will only explain the major types of mortgages. There are four basic types of mortgages:

 

1. Fixed rate, they can be any length, but will all be based on the same index. Fixed rate mortgages are all based on the 10 year treasury bill

 

2. ARM, these can be 1, 3, 5, 7, 10 or year. ARM�s are generally based on one of two indices. They are the one-year treasury bill or the LIBOR (London Interbank Offered Rate), which can be either 6 month or 1 year.

 

3. 2/28 or 3/27, these are also ARM�s, though they are generally only available for those in the sub-prime marketplace. These are also based generally on the LIBOR

 

4. COFI, this index is generally reserved for what are called �negative amortization� loans. COFI stands for Cost of Funds Index and is based on the 12 District Federal Home Loan Bank in San Francisco.

 

This is somewhat simplifying the explanation, but will be a good starting point for discussions. There are also derivations for some of the types of mortgages mentioned.

 

 

fla-tan

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  • 4 years later...

We hear of some confusion on the types of lenders and loans out there.... And some terms get used wrong from time to time.

 

I will spell out a few here and might come back to add more later. Another moderator may come along to opine or clarify as needed.

 

 

What is?: (in no particular order)

 

Bank = Think Brick & Mortar(Wells Fargo, BofA, Chase, ect). You can walk in and deposit a paycheck or open a checking account. You can also get a mortgage.

Pros: Exceptions can be made as this is the end of the road, where the loan is serviced. Many banks can go down to the lowest FICO scores.

Cons: Realtors are telling me that these banks are taking up to 90 days to get a loan from application to close. While a lot of these banks have professional loan officers working for them, they also have the 'order taker' type of Junior Loan Officers who don't know a lot about guidelines and report to a Senior Loan Officer or Processor who answers all of your questions. This go between person just ads another layer of bureacracy to the process.

 

Banker = This is an institution that does nothing but originate home loans. They have in house processing and underwriting. They close the loan in their own name using their own funds(application to keys in your hand with the same people). Most have closing attorneys inside their office.

Pros: The file is done in house.... The file isn't mailed or scanned to another institution for underwriting. Exceptions are easier. The loan officers are often some of the best in the market. Many are migrating to servicing their own loans and selling direct to Fannie Mae or Freddie Mac.... Bypassing the 'Guideline Overlays' from the usual lender they sell to.... Like Citi, Chase, Wells Fargo, BofA, ect. Bankers enjoy some of the shortest turn times in underwriting.

Cons: Some are limited to inhouse programs and do not broker out weird scenarios much.

 

Broker = This institution is solely in the business of originating home loans. They have in house processing and may or may not have inhouse underwriting(called delegated underwriting). This means that they are trusted to underwrite the loans for the bank they sell to if they have established that relationship. They may or may not close the loan in their own name.

Pros: The loan officers are some of the best in the market. They have the ability to shop your loan to different lenders to satisfy that weird/quirky little requirement your file might have. Some of the best rates.

Cons: Bound by another institution's turn times. Harder to get exceptions. Weird deals take a lot longer.

 

Credit Unions & Community Banks = Like a bank, but not overburdened with red tape.

Pros: This is the place for weird deals. While they can write FHA & Conforming loans.... They can also(usually) write inhouse programs as they are lending their depositor money which is not subject to FHA/Conventional guidelines. Can do 'make sense' loans. Portfolio lending. They have some good FTHB programs.

Cons: Not always the best rates. Have been known to deny files that fit at banks/bankers/brokers

 

 

 

All of the above will have comparable rates/fees. So while you might get .125% better at one lender, is it worth it if that loan officer has only done 2 loans before YOU apply?!?!

 

 

Agency Loans = Mainstream loans sold on the market. Sold to the GSEs(Governemt Sponsored Entities, Fannie/Freddie) and serviced by the big servicing banks(Citi/Chase/Wells Fargo/BofA/ect) Agency Loans can be:

FHA: Sold to Fannie/Freddie and insured by HUD.
VA: As above, insured by VA

USDA: As above, insured by Department of Agriculture to promote rural loans.

Conventional Conforming: Conventional financing up to $417K(except in high cost areas). Sold to Fannie Mae. Uses 'Private' Mortgage Insurance.

Conventional Non-Conforming: AS above, but outside of the $417K limit except in high cost areas.

 

Non-Agency Loans = These are 'Portfolio Loans'... Which means that the lender holds the note and services(takes payments) the loan. These are mostly done by Credit Unions and Small Community Banks.

 

 

 

 

 

 

 

 

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The last post in this topic was posted 4403 days ago. 

 

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