R.E.A.L. TrainingR.E.A.L. Training

Real Estate Agent Loan Training

Purpose of ClassPurpose of Class

Changing Times – Credit standards tighter– Difficulties with Underwriting

Education is Vital for Clients– Understand basic loan concepts– Learn questions to ask– Grasp value of enhanced team concept

Crazy StatisticsCrazy Statistics

During Boom (2002- 2006)

2005 ARM’s accounted for 31% of all loans originated

# of Interest Only loans shot up from 1.5% in 2001 to 31% in 2004

Mortgage Brokers originated 70% of Sub-prime loans

Sub-prime loans totaled 26% of the loans in 2005

After Boom (2007-Present)

Conventional loans account for 61% of the originations in 2007

Sub-prime loans dropped by 17% from 2006 to 2007

Sub-prime ARM defaults are 20x higher than fixed rate prime

Sub-prime MBS issuance down from $465B in ’05 to $2B YTD ‘08

Loan Options Loan Options

Conventional (Fannie Mae, Freddie Mac)– Loan Limits, Programs

Jumbo, ARM’s– Caps, Margin, Index

FHA, HUD $100, VA– DTI, Down Payment, Credit Score, Gifts

General Consumer Profiles:General Consumer Profiles:Where do they fit?Where do they fit?

FTHB – First Time Home Buyers

Move-Up Buyers

Self-Employed Borrowers

Working Professionals

Pre-Qualification vs. Pre-ApprovalPre-Qualification vs. Pre-Approval

Directly or indirectly provide potential buyer with a few lender options.– For Example:

Have you spoken with a lender regarding the price range of home you can afford?

Do you know your credit qualifications?

These questions are very important in starting the process.

Prior to “Credit Crisis and Market Crunch” not as important.

Pre-Qualification Pre-Qualification

Lender Covers Basics – Income (Salaried, W-2, Hourly, Bonus, Commission)– Debts (Car Loans, Student Loans, CC, etc.)– Assets (Checking, Savings, MMA’s, etc.)– Credit

late payments, high credit balances, deferred loans

What you get?– Rough estimate of house price range and payment– No LSR

(Difficult to get approval without LSR on short sales and REO properties)

Pre-ApprovalPre-Approval

Three C’s (Collateral, Credit Reputation, and Capacity)– Collateral

House Value (appraisal), Down Payment, Property Type– Capacity

Income, Debt, Assets/Cash Reserves are to be verified– Credit Reputation

Order Credit Report (tri-merge for Equifax, Experian, TransUnion)

AUS– Automated Underwriting System – used to give rating to file for

approval processes. What you get?

– Fully executed LSR– Actual amount of approval for purchase price

Income vs. DebtIncome vs. Debt

Income– Payment Stream

Hourly Bi-weekly Salary W-2 Self-Employed Bonus/Commission/OT

– Monthly Gross Amount you make before

taxes

Debt– Three Kinds

Mortgage– Loan on current

residence– HELOC/ Term 2nd

Installment– Car Loans– Student Loans

Revolving– Credit Cards

Other

DTI Ratios DTI Ratios (Debt to Income)(Debt to Income)

Standard Ratios are 28/36 (Conventional Financing)

– 28 = Front end ratio (Housing expense)– 36 = Back end ratio (Total monthly expenses)

Calculating Ratios– Total Debt divided by Monthly Gross Income

Example: $25 C/C, $325 I, $125 C/C, proposed mortgage $1375 / $5500 Income) = 33.6% DTI back end ratio.

FHA Ratios = 31/43 (Front End/Back End)

Assets and Down PaymentAssets and Down Payment

Verify Checking/Savings/MMA – Proves DP and CC requirement will be met– Seasoning Requirements

Minimum Down Payment in this market– 3% with FHA (min. cash contribution)

Gift Funds– No more Ameridream and Nehemiah– Can receive gifts from…

Non-profit organizations (Church, Charity, etc.) Family and Relatives Employer

Credit MattersCredit Matters

Make payments on time Balance on Credit Cards should not exceed 30-35% of

available balance Pay-off debt – don’t move it around Don’t close unused cards and don’t open new cards not needed # of Inquiries (too many…too often) Scoring Model

35% = payment history 30% = amount you owe 15% = length of credit history 10% = type of credit (i.e. installment, mortgage, revolving) 10% = new credit recently obtained

Risk Based Pricing and RatesRisk Based Pricing and Rates

FNMA and FHLMC – introduced this model in late April 2008.– Basics

Negatives (High LTV, Low Credit Score) Positives (Low LTV, High Credit Score)

Rates– Constantly changing– Rate Shoppers (request GFE within the same hour or so

from all lenders you are shopping)– Variable factors now with RBP.

Things to ConsiderThings to Consider

Timeline– Pre-Qualification (5-10 Minutes)– Pre-Approval (0-1 Days)– Application and Closing ( 10-60 Days)

Underwriting– Goal: Present a clean file to the UW’s– Tighter standards = strange requests.

What Should I Know?What Should I Know?

Five Questions to Ask Potential Clients– 1) What do you do for a living? How long have you

been __________?– 2) Are you renting or do you need to sell your current

home before you move? How long have you lived there?

– 3) Most loan programs require a Down Payment on the purchase. What were you considering?

– 4) As far as you know, how’s your credit?– 5) What is your time frame?

What should I expect from my What should I expect from my Mortgage Consultant?Mortgage Consultant?

CommunicationProfessionalismTimelinessHonestyIntegrityWork for you and your client

References and ResourcesReferences and Resources

www.emurriettalending.blogspot.com

http://epic.org/privacy/creditscoring/

http://www.freddiemac.com/

http://www.mortgageratesreport.com/