Virginia Mortgage Bulletin

This past weekend, I spoke again with someone who purchased a home which will now, in all probability, end up going back to the bank. At times like this, I wish I had a voodoo doll in the likeness of the loan officer who originated this loan. Here is the story which is the epitome of the mortgage melt-down.

The story begins with a borrower looking for some cashout for improvements to his existing home valued at roughly $300,000 dollars. He chose a loan officer recommended to him who also spoke his native language. This loan officer told the borrower that for the projected refinance payment, he would be able to buy a larger, newer house in a neighboring county. So the borrower pulled the equity out of his primary residence, the loan officer refinanced him into a payment-option ARM to keep his payment low while he sold his house, and they used the down-payment to put a contract on a much larger home through a Realtor referred by the loan officer. So far, not so bad, except for the owner occupied loan on a property the LO knew would be sold. Now the real mischief begins. The borrower’s target payment for the new home was $1200 per month. The sales price of the new home was $575,000. (Hmmm, that’s what I said.) The down-payment of $82,000 was not enough to make the loan work, so instead of finding a lower priced home, the LO also originated a second mortgage of $16,000 on the first home and wrote both a first and second mortgage on the new home with a pay-option ARM as the first loan (at $1400 per month before escrows) and just over $200 per month on the second mortgage. Looking at the HUD-1 settlement statements, these two first mortgages generated $12,000 and $18,000 in commission-able revenue to the mortgage broker, excluding anything made for the second mortgages. (more…)

“A” credit loan – A mortgage for a very stable borrower with excellent employment and credit history. These are sometimes called “vanilla loans” because the meet general mortgage guidelines and are easy to complete. This type of loan/borrower often qualifies for the most attractive rates available. A credit score of 720+ is one of most important criteria in establishing a A rating.A credit is a very loose term that applies to basically just having good credit with a good score. You can have perfect credit, no lates ever, no collections and no derogatory credit ever and still have a low credit score and not be considered “A” credit. There may be many reasons for this low score. You may be maxed out on all of your revolving credit (credit cards and such) and have a lot of inquiries. These two items can negatively affect your score and remove you from the A credit classification. (more…)