New RESPA regulations

What a financing nightmare.  Laws designed to help borrowers are really hurting and confusing them.  Don't get me wrong - there were a lot of predatory lenders out there who ruined it for all of us, but it's sure hard to do a loan these days.  Putting the blame on all lenders for the real estate crisis is like saying all investment people are bad because of Bernie Madoff.  They talk about all the money out there and how it needs to be loaned out, but in truth, lenders don't want to lend to borrowers unless they are super perfect, plus they are scared to in case the loan goes bad as they approved it.  The desired minimum credit score now is 720 and up.  75% of borrowers in the US probably don't have a 720 score so it's difficult for them to get loans.  There are still a couple government loan programs out there.  I can go down to a 640 score (FHA) and there is no minimum required score on Guaranteed Rural Housing (GRH) but there are income and credit requirements on the GRH loan.

These new regs are really screwing up pre-approvals.  Basically, we can't pre-approve someone without a property.  Why?  If we were to issue a good faith estimate (note the word estimate?) we have to basically stand by those esitimated figures.  If things change, the lender pays the difference.  Without knowing all the details of the purchase (a firm offer to purchase, sale price, loan amount, closing date) it's not possible to quote costs.  Lenders are not supposed to gather "supporting documentation" which is pay stubs, bank statements, tax returns, until we have an application.  An application consists of these 6 things:  Offer to purchase, loan amount, estimated property value, social security numbers, names, and income.

So basically, we can meet with a buyer who is house shopping, ask them what they make, pull credit, and determine if we think they will qualify.  We can issue a PRE-QUALIFICATION letter, but it would be subject to them finding a property, getting their offer accepted, property appraising, and then the lender verifying they make enough to afford the house, their credit is satisfactory, and they have sufficient funds to close.  Pre-qualified is not a pre-approval.  There is a lot that can go wrong with a loan until we have everything verified, which we can't do till we have an accepted offer to purchase and can proceed with the application.

Please work with a qualified mortgage professional who keeps on top of the changes and has your best interest in mind (me of course).  There are a lot of trustworthy, professional, knowledgeable loan officers out there.  Be sure you're working with one.

NEW RESPA CHANGES GOING INTO EFFECT

OMG - It's going to be a nightmare come January 1st.  I know it's supposed to HELP buyers and save them hundreds, but it's actually going to cost them money.  I don't think our elected officials really understand how these new rules are going to affect things.  I'll be the 1st to say there were a lot of predatory lenders out there and they needed to implement change.  Evil people will always find a way to be evil, don't penalize everyone for their actions.

With these new rules, I, as a lender, will most likely end up paying for things I have no control over.  I have to "estimate" what I think costs will be and there can be little or no change from my estimate to the final closing figures!  I know what MY figures are, but I don't know what a seller's title insurance will cost when I meet with a buyer. 

These changes will result in lenders severely OVER ESTIMATING costs just to make sure they don't end up paying the difference if costs of others involved in the loan come in higher. 

Buyers are supposed to take the estimate from one lender and SHOP with several others.  To effectively shop with a lender we have to know what your credit score is, and each time a lender checks your credit it lowers your score.  The rate you get is dependant on credit score and if people are out checking with several lenders this could, in all reality, cause their score to lower to where they can't get a mortgage. 

What it all boils down to is talk to people, find out who they trust and would refer you to, and DEAL WITH A REPUTABLE LOAN OFFICER who's been in the lending business for years like I have. 

I've seen a lot in 23 years of lending.  I have always quoted people high on closing costs.  One of my pet peeves has always been lenders who will under-estimate the costs to trick borrowers into going with them because their costs are higher.  One thing the new changes will do is stop this.  If they underquote, they pay the difference!

Here's to a challenging and great 2010!