The Role Of A Mortgage Broker In Buying Your Dream Home

Mortgage brokers work to help make the dreams we have made come true.  Working in conjunction with real estate professionals, mortgage brokers lead home buyers to the perfect home that is well within their budgets, including the hidden costs buyers often find out later that sooner when buying a home.  The following tips will help you to avoid mistakes that you may end up regretting later on.

Budget Carefully:  The goal is to budget the expenses you have with the new home in a way manner that allows you to remain comfortable.  Bigger isn’t always better.  A large home with a mortgage to match isn’t going to bring you the happiness you desire if your lifestyle has to change drastically to afford it.  Plan ahead to avoid hidden fees within a mortgage such as primary mortgage insurance or PMI which is insurance that is paid on top of home owners insurance that guarantees the payment on the mortgage.  In order to avoid this cost it is imperative to save enough money for a large enough down payment.  Most mortgage lenders require twenty percent of the face value of the home loan to be placed down on the home to avoid paying an extra monthly PMI.  

Research Mortgage Brokers or Possible Lenders:  Meet with professionals to discuss what options are available to meet your mortgage needs.  There will be several options that fit your needs but one will fit your needs better than all the rest.  In order to evaluate if you will be able to afford the monthly mortgage payment make a list of all of your current expenses and anticipated costs with moving into the new home.  If you need to make renovations or want to improve the home in any way you must calculate those expenses in to the overall monthly budget to ensure you will be comfortable with the outgoing monthly payments.

Hire a Local Real Estate Agent:  A local agent knows that the area in which you are searching inside and out and therefore can lead you to the best neighborhoods and locations to fit your needs.  They will be able to point you in the direction of recreational areas, schools, hospitals and more.  Your agent should offer you a block of time in which to view the options in housing that fit your needs and work within to your budget.  They will help you throughout the buying process and won’t stop searching until you have found the perfect home.  This process will go a lot smoother with the help of a professional agent verse going it alone.

Once you find a home within the pre-approved amount from your mortgage lender and within your specifications it is time to make an offer on the home.  Don’t try to time the market because while you are waiting for a lower rate another buyer is swooshing in to purchase the home of your dreams.  Your agent, along with help from local mortgage brokers can work with you to decide upon a reasonable offer to make including the items that were found in need of repair within the initial inspection.  

After this is done and the offer is presented negotiations may begin.  Once an offer is accepted the legal procedures are started and this eventually leads to you and home ownership.

 Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Exactly What Is a Mortgage Broker

When you are thinking about buying a home the term mortgage broker is something you are likely to become familiar with.  It isn’t a term most of us completely understand or exactly what they do.  For simplicity’s sake a mortgage broker is a middle man between a borrower and someone who is eligible for a home loan.  Basically a mortgage broker is works with both a lender and a borrower to determine the eligibility of a new purchase or the refinancing of an existing home loan.  The mortgage broker is the go-between that brokers the mortgage on behalf of the individual or business and lenders.

The process usually begins when a borrower contacts a broker initiating a home loan.  The broker collects all of the information a lender will need from the borrower including their income, assets, employment history and credit score.  After this process is completed the mortgage broker works with lenders to determine what options in home loans are the best for the borrower as well as the appropriate amount and the loan to value ratio.  At this point the borrower decides on their own what they can afford with the brokers assistance.  

When a borrower works with a mortgage broker they do not need to deal directly with banks or lenders.  Mortgage brokers make money by charging a fee for their services or offering no cost loans where they utilize a lender credit.  Essentially this means that the interest rate the borrower is paying is a bit higher to cover the cost of their services.  

When you use a mortgage broker they can help you find the best rates on a home loan that are available within the market.  What happens when a borrower looks towards a single bank for a mortgage they are only receiving the rates and loans of a single bank whereas when using a mortgage broker the best home loans are presented and the borrower can choose between them.  Brokers are approved by banks and therefore individually contacted.  Different brokers have a variety of different bank contacts and therefore can offer borrowers a number of different quotes from a variety of different lenders.

When it comes to getting a home loan it is quite possible that a mortgage broker will provide the best guidance out of anyone as they have insight on the industry as a whole.  This is, in fact, what they are paid to do.  Mortgage brokers are more available then home loan lenders at a bank and tend to work on a more personal level with their clientele.  It is also important to note that if a home loan or mortgage is rejected by a bank lender it is done whereas with a broker they lead you to another lending source.  It is more likely to receive a mortgage offer, no matter what your credit status, if you work with a mortgage broker to obtain a home loan.

 Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Using A Broker To Apply For A New Mortgage or Refinancing Continued

Another popular mortgage option is a flexible interest only mortgage.  Unlike an adjustable rate mortgage the interest rate remains the same but the payment can change.  This option allows for the homeowner to make a minimum payment each month that only covers the interest that as accrued on the home loan.  It is up to the homeowner how much more they pay on the mortgage to cover the principal.  Individuals that select this option for their mortgage must be incredibly self-disciplined.

The mortgage payment will be due at the same time each month.  The interest payment will stay the same and is at a very minimum what needs to be paid on the date each month.  With the flexible option it is up to the homeowner how much extra they will pay towards the principle.  This is a great mortgage loan for those working in commission based jobs.  The amount of money brought into the household changes monthly and therefore the payment can be adjusted to match that.  Different amounts can be paid each month with the goal of paying down the principle of the mortgage as quickly as possible.

Another popular option in home loans is a fixed rate mortgage.  With this type of mortgage the interest rate on the loan remains the same throughout the loans lifetime.  This type of loan option represents more than seventy fiver percent of mortgages.  The terms of the loan vary anywhere from ten to thirty year options.  The thirty year fixed interest mortgage loan is the most popular.  It is important to note that the fifteen year fixed mortgage rate option starts to build equity in the home at a much faster rate than the thirty year option.

One of the greatest advantages found in a fixed rate mortgage is that the homeowner knows exactly how much they are paying each month towards the interest of the loan as well as the principal. It is understood that the payment will remain constant for the length of the loan.  This option makes creating a household budget a lot simpler as the interest rate and mortgage payment with interest and principle included will remain constant for the length of the home loan.

Homeowners like predictability and that is what is offered when choosing a fixed rate mortgage.  With the rate being agreed upon at the beginning of the loan there is no concern when it comes to changes with market interest rates.  If the interest rate on mortgages does decrease in the future homeowners have the ability to refinance to the lower rate.  The homeowner will be required to pay the closing fees on the new mortgage.  The good thing is that if the rates increase at all, even a significant change, the rate on a fixed rate mortgage does not change.  Homeowners pay a premium to lock in the interest rate as the interest rate on an adjustable mortgage is usually slightly lower however it remains unstable throughout the life of the loan.  There are tradeoffs associated with both of these mortgage options that homeowners need to consider before locking into one over the other.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Using A Broker To Apply For A New Mortgage or Refinancing

Although it is possible to obtain a mortgage online it isn’t necessarily an appropriate option for everyone.  A mortgage broker generally has a wider scope of lenders to work with then what you would find on your own online.  A home loan broker also has insight on special programs that are available specific to your situation and sometimes location that would be impossible to find online.  Processing time is also decreased when using a mortgage broker as they are professionals that are educated in obtaining various mortgages, quickly for their clients.  They know the ins and outs of the industry and are able to maneuver around sticky situations without getting caught in various loop holes. 

When there is urgency in your mortgage request possible because there is a fast approaching closing date or need for a quick refinance a local mortgage broker is the best option in obtaining a new mortgage.  Brokers have advanced tools at their finger tips that allow them to speed up credit checks, income verifications and loan applications.  It is also important when looking for a mortgage that there is a basic understanding of a variety of mortgage options. 

One option is an adjustable rate mortgage.  If this is the mortgage option chosen there are a few things to understand so that when the rate adjusts you are prepared.  It is important to know when the first rate adjustment will happen as well as the amount of the adjustment.  Knowing when the rate will change and by how much can help a plan to be put into place.  It is crucial to understand that with an adjustable rate mortgage that the rate can adjust both higher and lower.

An adjustable rate mortgage fluctuates with the changes in interest rates.  Know the index that the mortgage is associated with in order to fully investigate the current interest rates and future interest rates on your own. 

It is also crucial that refinancing options are known when using an adjustable rate mortgage. If the rate proves to be unbeneficial to homeowners they will have an option to refinance to a fixed rate mortgage.  In order to obtain the best fixed interest rate on a mortgage there needs to be a priority given to watching rates closely.  This will help in the future with refinancing when interest rates begin to vary often and homeowners wish to refinance to a fixed rate mortgage.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Common Mortgage Options Explored

When you don’t work in the mortgage industry the jargon used is not familiar and a bit overwhelming.  Mortgages are complicated; buying a home is complex.  The entire process is intricate and involves a basic understanding of what you should be looking for.  Below you will find a few essential descriptions to better help you throughout the processes of procuring a new home loan.

Interest Only Mortgage Options

A mortgage that is an interest only mortgage is meant to decrease the monthly payment over the first few years of the loan.  This option allows homeowners to pay only on the interest of the mortgage without making any payments to the principle.  This option can be a bit risky.  You are not paying anything on the principle of the loan which leads to a lower payment because you are only making payments on the interest that is accruing.

Eventually though homeowners will be required to begin making payments on both the principle of the loan and the interest.  This option will lead to a higher monthly payment at a specific date set forth in the terms of your mortgage.  It is important to be sure that when it is required that you are able to afford both the interest payment and the principle payment.  An interest only loan option is often used when homeowners have purchased a home that is need of some work.  Homeowners can use the money that would normally be going towards the monthly principle payment on renovations to the home.

Reverse Mortgage Funding

A reverse mortgage is an option that exists to aid homeowners needing extra funds when their homes are fully paid for.  When you take advantage of a reverse mortgage you receive a monthly stipend from the equity within the home.  This option is usually left for elderly homeowners whom have had time to pay off their mortgages and see an increase in equity within their homes.  This option gives homeowners extra money as they age in place in their own homes.  This is an option many older homeowners choose to leave liquid funds available upon their passing.  A reverse mortgage can be set up to pay closing costs and realtor fees upon the sale of the home.  When the homeowner passes the house will be placed for sale thus alleviating the burden that selling the home can cause to heirs.

To find out more about mortgage options that best meet your unique situation contact a local mortgage broker.  Meeting and discussing your unique situation with a mortgage advisor is a sure way to find a mortgage option that meets your need.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Understanding Common Mortgage Terms

It is impossible to become a mortgage expert for most of us.  We don’t really need to be proficient in mortgage lingo if it is not something we handle daily.  Many of us will only deal with applying for a mortgage a few times in our lives.  Some will have experience in refinancing and even fewer in reverse mortgages.  It is important however, to have at least the most basic understanding of the terms used within mortgage contracts.   Even the most technical mortgage terms can be broken down to allow even the most novice mortgage seeker to understand exactly what they are paying for at the end of the day.

On a mortgage application or contract the term administration fee is often used.  This is the fee that is charged by the provider of the mortgage to cover the costs to evaluate and procure the documentation needed for a valid mortgage contract.  This fee is nonrefundable in the event you decide to terminate your mortgage contract.  It is a variable fee that is dependent upon the rate charge by your mortgage provider.

There are two main parts within your actual monthly mortgage payment: the principle and interest.  This means that when you make that one payment monthly you are actually dually paying on your mortgage.  One portion of the amount paid goes directly towards the interest payment on the original loan amount while the other goes to pay down the overall principle loan amount.  Depending on the contract the amount you pay is split up differently in how money is applied.  Some individuals looking to decrease the amount of interest paid overall will opt for a larger down payment or one large lump sum payment on the mortgage principle.

Another term that is often used is owner’s equity.  This refers to the difference between what is owed on the home loan verse what the home would sell for.  Without taking into consideration any increase in the value of the property it comes down to the difference you paid originally minus principle payments made on the home loan.

It is important to note that once the mortgage contract is issued it cannot be altered or changed in any way.  The only process in which to decrease the interest rate on the loan or the terms of the mortgage is to refinance.  Refinancing will cost the homeowner additional in administrative fees and such because it is essentially entering into a new mortgage in which you will proceed through each step once again.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Tips To Determine If Refinancing Is Right For You Part Two

In our last installment on home loans we looked into the world of refinancing.  The most obvious reason that homeowners look into new mortgage options is to save money.  Saving money is important to all of us.  Homeowners don’t need to waste money making interest payments when they can refinance their current high interest rates.  The extra money can be put towards paying more towards the principal, paying off high interest credit cars, doing major home renovations, putting a child through school or even something frivolous like taking a family vacation. 

There are a ton of situations that make it necessary to look into refinancing.  In our first installment we looked at several situations in which it makes sense to refinance your current mortgage.  Here are a few more situations where it makes sense to consider refinancing.

If your home value has increased, the equity in your home as also increased.  This is something many homeowners want to take advantage of this “extra” money.  Homeowners may want to put money back into their home with renovations and upgrades.  Others may wish to use that money to pay off higher credit cards rates while some may even want to use the money towards a vacation. 

Some homeowners are stuck in mortgages that have a fee associated with paying your mortgage off early.  It is a fee that basically makes it impossible to make extra payments towards the principal on your homes mortgage.  Homeowners will refinance these loans in favor of reducing the overall size of their mortgage.  They will look for an option that does not have fees associated with extra payments and early payoffs. 

Another option for this situation is to look for a mortgage options that offer a ten to fifteen year payoff putting more monthly towards the principal of the loan.  When you take on a mortgage over this amount of time your payment goes more towards the interest then the principal.  The first years of paying on a thirty year mortgage you will see that you pay like seventy-five percent interest twenty-five percent principal.   Where as a fifteen year mortgage the interest payment may be more around fifty to twenty-five percent of the payment and the rest principal.  This allows you to pay less in interest, saving you money over the lifetime of your mortgage.

No matter what your current situation is it makes sense to refinance your mortgage if it saves you money.  This of course is not the only reason homeowners look to refinance.  Some look to refinancing as an option to lower their monthly payment.  Maybe they have recently taken a decrease in pay.  Homeowners may look into refinancing in order to stretch their mortgage out over a greater period of time which in turn will lower the payment they are currently responsible for.

To see if refinancing is the best option for your situation speak with a local mortgage broker.  They will review your current mortgage, current life situation and present you with a number of options that will help you meet your ultimate refinancing end goal.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Tips To Determine If Refinancing Is Right For You Part One

Why do homeowners choose to remortgage their homes?  This is a tricky question to answer as there are many reasons that people decide the time is appropriate to refinance their current mortgages.  One reason people refinance is to get out of a flexible rate mortgage.  Some refinance looking to take advantage of the equity that has built up. 

The equity money can be used to pay off high debt credit cards, remodeling projects or whatever the homeowner desires.  Also, homeowners looking to lock in a lower fixed rate mortgage will also refinance when the housing market interest rates dropped.  The main objective homeowners have for refinancing is to save money.  Lower interest rates lead to lower payments thus increasing the money you have to save.

If you current mortgage situation is coming to an end you may look to refinancing.  Some mortgages are meant to draw in new homeowners and thus offer low interest rates for an introductory period.  After this period of time your mortgage rate jumps, increasing the payment of your mortgage.  What homeowners do at this point is to refinance their current mortgage. 

The old mortgage is going to try to reap the loss they have taken in offering you the low introductory rate to begin with.  In this situation when homeowners refinance that are looking to get a lower rate then what their current mortgage is going to jump up to.  It is best to start shopping for a new mortgage in this situation about twelve to fourteen weeks before the introductory rate ends.

Another reason that homeowners look to refinance is to get a better rate on their fixed mortgages.  For instance, home mortgages obtained in October of 1981 were around eighteen percent where as today mortgage rates are around three and a half percent for thirty years.  As you can tell this is a huge difference and therefore will save the homeowner thousands of dollars over the course of the home loan. 

Any time interest rates are lowered it is important to look into how much you will save verse how much it will cost to refinance to see if it is something you need to look into more. Also consider any fees that may be added to exit the mortgage you currently have.  The costs to refinance need to be consider as much as the savings.

In our next installment on home mortgages we will look into other ways refinancing helps to save you money over your current mortgage situation.  

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Choosing A Mortgage Broker To Help You Through The Mortgage Process

An age old question that comes with buying a new home or refinancing comes with finding a mortgage broker that will find you the best rate possible.  What do you need to look for in a mortgage broker?  Is it possible to find a better rate on your own working with a credit union or bank?  In many situations a credit union or bank is perfect however getting your mortgage refinanced or a new mortgage for a new home a mortgage broker is more prepared to find a rate offer and lender that match your need.

One of the best things about using a mortgage broker is that they aren’t only in it to help you find a mortgage but also to provide you with support in your overall financial standings.   In order to do this your broker must make sure that they understand your needs, your situation and your future goals.

The first step to accomplish this is to speak with you at length.  They will ask you about your needs and will inquire about your living arrangements currently.  If you are also selling a home they will want to take that into consideration as you will have additional funds that can be used.  If the broker sees an issue with what you want or thinks that it may land you in trouble financially they will guide you in a direction that is more fitting.  They will not allow you to get in over your head with your purchase.

When meeting with a mortgage broker make sure that they are truly in it for you.  Are they speaking your language?  The conversation should only revolve around how they can help you.  While listening to you they should be engaging and asking relevant questions.  This is the sign of a broker who is looking out for you and your interests.  When working with a bank or other financial situation you may be pushed between several different employees.  Where in reality some of them may know nothing about your situation and not understanding what your needs are.  You should be working with one person who is knowledgeable about your condition and working to find you the best rate with your situation in mind.  Using a mortgage broker you have one individual who knows you and all about mortgages to guide you throughout the process.

After taking in your financial status, your earnings, investments, expenses and other things the broker will get you an optimized mortgage.  Brokers work with a variety of lenders to find you the best rate and mortgage available based upon your situation.  They will then make recommendations to help guide you throughout the process until you are the proud owners of a new mortgage.  Throughout each and every stage they will be able to answer your questions and clear your mind; this alone simplifies the process.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Ways To Go About Lowering Your Monthly Mortgage Payment

Homeowners are always optimistic when they buy a new home. They find and fall in love with a home that may be slightly out of their reach.  They are convinced that with some decent budgeting, trimming of the fat and future increases in pay the monthly payment will be affordable.  What happens next is life.  We all know what occurs then.  Unforeseen expenses come up and the monthly payment that was barely manageable before turns into a burden.  If you find yourself in this situation keep reading.  This article covers a number of ways homeowners can reduce their mortgage payment.

Property Assessment

If the market has changed in any way a property assessment can help.  If your property’s value has decreased in any way or if you think the original assessment is inaccurate you can file a petition to have it re-evaluated.  Lower evaluations can often lead to substantial savings over the lifetime of your mortgage.

PMI

If you feel that you have more than twenty percent equity into the house you can petition the lender to cancel your private mortgage insurance otherwise known as a PMI.  This could help alleviate the extra payment associated with the monthly expense of private mortgage insurance.

Loan Modification

If you are truly having difficulties a mortgage modification could be the answer to your problems.  This process can lower your balance and make your monthly payments more affordable.  This option is not without ramifications however so before you go this route contact a home loan specialist.

Refinancing

The first few years, your monthly mortgage payment goes mostly to interest instead of the principal of the mortgage.  The effect of the interest payment is significant.  When it comes to refinancing your mortgage you will want to calculate the monthly interest savings verse how much it will costs to refinance the loan.  In theory refinancing is the process of taking out a mortgage on the existing amount owed on the home loan at a lower interest rate.    Often times you can extend the amount of time in which to repay the mortgage as well to lower the monthly payment even more.

If you need assistance with your mortgage in order to decrease the monthly payment meet with your mortgage broker.  They have insight on the lowest interest rates, loan options along with connections within the industry to help lower your monthly mortgage payment.  This in turn lowers the amount you will pay on the overall home loan as well.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

The Difference Between Fixed Rate and Adjustable Rate Mortgages

Most individuals looking to purchase a home start preparing well before they ever meet with a real estate agent.  Buying a home is not something most people can do on a whim.  It takes time to achieve the financial preparations that come along with buying and maintaining a new home.  Most individuals begin the process by saving funds for a down payment while looking to clean up their credit score.  The higher your credit score is the better your chances at qualifying for a lower interest rate mortgage.   Mortgage preapproval is another financial preparation that needs to be secured on the road to homeownership.

A mortgage preapproval gives you a comfortable range in which to start looking for homes.  This preapproval amount is the amount that lenders feel comfortable with you borrowing given your income to debt ratio.  Just because you are preapproved for a certain amount does not mean that this is what you must spend on your new home.  If you are looking at homes more than what you are preapproved for you will need to make up the difference with a large down payment.

As a home buyer it is up to you on what you feel comfortable spending on a new home.  If you feel the amount you are preapproved for is too high consider looking for homes in a price range you feel more comfortable with.  Most sellers require a preapproval when seriously considering offers.  A preapproval is a guarantee that you will be able to secure funds to purchase their home.  Sellers looking to commit to an offer want a sense of security and an offer with a preapproval stands above those without one.

When it comes to obtaining a mortgage there are two basic options to consider: a fixed interest rate mortgage and an adjustable rate mortgage.  Your mortgage broker will be able to assist you in determining which option is best given your financial situation.

In general terms a fixed interest rate mortgage is a home loan in which the interest rate remains constant over the life span of the loan.  The payment is spilt into equal payment over the course of ten, fifteen, twenty or thirty years.  The advantage of this type of loan is that you know exactly what you owe each month.  The main disadvantage is locking in a higher rate than what is offered later on down the road.  In order to take advantage of the lower rate you would need to refinance your current mortgage which has fees associated with it.

An adjustable rate mortgage sports a variable interest rate that allows lenders to raise or lower rate as market conditions change.  Your payment will go up or down according to the changes made by the lender.  This flexibility allows you to take advantage of lower market rates without the fees involved in refinancing.  The one disadvantage of course comes into play if the market conditions take a turn and rates increase.

When looking into the financial preparations before purchasing a home it is advisable to meet with a mortgage broker.  They will help prepare you in the financial aspects of buying a home.  Mortgage brokers layout whether now is a financially good time for you to start looking to buy a home or not before you have wasted valuable time searching for a home.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Applying For A Mortgage As A Recent College Graduate

Being a recent college graduate can be fairly overwhelming.  It is a time where you are paving a new path for yourself; including starting a new career path, buying your first home and taking on the payments of your more real than ever debt.  You are faced with many big decisions, some more daunting than others.   This does not have to be the case when looking to buy your first home.  Once you understand what type of home you can afford the purchase of a home can be in the grasps of most recent college graduates.

The first thing you must consider when buying your first home is the amount of money that you have coming in each month in comparison to the amount of money you have going out.  This calculation is your debt to income ratio.  Once you have a grasp on this it is time to meet with a mortgage broker.

During the initial meeting with a mortgage broker or lender a professional will discuss with you the differences between buying a home in case verse using a mortgage to purchase a home.  In order to receive a mortgage preapproval your credit history will be scrutinized.  This allows lenders to make an educated analysis on your risk.  They need to determine if you have established a history of good credit as this will help them determine an amount they can lend comfortably.  Mortgage companies want to ensure that their investments will be paid back.  This is what your credit history tells them about you.

When you are looking to buy your home, especially as a new college graduate you must consider your future both near and distant.  Are you looking to start a family soon?  Are you looking to return to graduate school?  What exactly does your future look like?  Will you be acquiring additional expenses without additional income?  These are important questions to answer before deciding in actuality what you can comfortably afford in a new home.

If you are likely to move or relocate with your company does it make sense to purchase a home right now?  A lender can discuss current market conditions while a real estate agent can help target homes within your budget that are likely to sell quickly in the future if need be.  A major consideration is if you will get your investment plus equity if you need to sell within five years of your initial purchase.

Buying your first home is an exhilarating experience.  As a recent graduate many of these firsts can be overwhelming; buying a home doesn’t have to be.  Take your time making decisions.   There is never a rush when it comes to taking on any size financial commitment.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

The Cliff Note Version Of Obtaining A Mortgage Loan

The real estate market is currently in full bloom.  Mortgage rates had been at an all time low however recently have started to come back up.  This makes people want to buy a home sooner than later.  Everyone is looking to pay the lowest interest rate possible on a new mortgage.  With mortgage rates slowly rising many people find now is the time to buy a home.  The steps below are the cliff notes when it comes to finding a mortgage while the rates are still at record lows.

Get Your Credit Rating Ready

Your credit score is one of the biggest factors when determining if you will get approved for a home loan and if so what type of interest rate you will qualify for.  If you know you are going to be looking for a home and therefore a home loan it is important that you get a copy of your credit report and start working on improving your credit score.  Errors on your credit report, applying for more debt and several other factors can affect your credit score.  This in turn can make a huge difference when working to achieve the lowest interest rate on a new mortgage loan.  It can also be the difference between getting approved and not getting approved.

Improve Your Debt-to-Income Ratio

Take inventory of how much you have going out verse how much money you have coming in.  This is another large consideration when applying for a loan.  It is important to reduce your debt before applying for a mortgage.   This can be done by making larger payments on credit card debt, car loans and outstanding loans to help boost your ratio.

Start Saving For a Down Payment

A large down payment can save you big bucks immediately.  Without a decent down payment you most likely will end up paying a PMI amount each month with your mortgage payment.  This can add up to an extra payment that could be used towards the principal of your mortgage but instead is being wasted on mortgage insurance.   Most mortgages require a down payment that falls between five and twenty percent to get the best possible interest rate and avoid paying mortgage insurance.

Find a Mortgage Lender or Broker

When looking into buying a home an experienced mortgage lender or broker can completely transform your mortgage experience.  Shop around until you find someone you are comfortable working with.  Find someone who is willing to work closely with you and that works to help you understand the complete home loan process.  Find a lender who is straightforward and cuts through the idiosyncrasies of the process to get you the best interest rate available that you qualify for.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Everything there is to know in the Mortgage Process

Shopping for a mortgage and buying a home go together like peanut butter and jelly sandwiches.  It is unlikely you can enjoy the one without the other.  It is the same with buying a home; you can’t do it without shopping for a mortgage.  Shopping for a home loan is easier when you understand what you are doing.  Below are some tips to help with that process.

Know what you can afford

In order to know what you can afford you need to put together a detailed list of your income verse your expenses.  It is crucial to consider the extra costs that come with owning a home.  You are not only looking at an additional monthly mortgage payment but also an increase in utility expenses, insurance and incidentals that occur with home ownership.  Months before you start searching for a home loan it is crucial to get your credit report.  In order to get the lowest interest rate available on a mortgage a high credit score is needed.  This can be achieved by cleaning up any errors in reporting as well as making payment on time and not applying for any new debt.

Compare loan options from lenders and brokers

Shop around for a mortgage.  This is not the same as applying for them.  Shopping around takes time and energy but that is it; it is free to look into what lenders and brokers have to offer.  Not shopping around can actually end up costing you thousands of dollars.  It is essential that you understand the difference between a mortgage lender and a mortgage broker.  A broker arranges mortgage loans with lenders rather than lending money directly as a mortgage lender does.  Brokers sell you a loan from a lender.  Finding the best deal when it comes to a home loan requires work on your end.  Whether you decide in the end that the deal comes from a lender or a broker is up to you and your research.

Find trusted sources to get advice from

Mortgage loans are complicated.  When it comes to the most expensive investment you will most likely ever make it is important to gather advice from trusted sources.  This information can come from educated friends and family or from people you hire such as a real estate attorney.  Have a trusted source to help review all paperwork before you sign them.  This is important in any matters dealing with areas you are not an expert in especially ones with such large financial commitments behind them.

 Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Avoid These Mistakes When Securing a Mortgage

Applying for and securing a mortgage is not as simple as filling out an application, being approves and getting funds for a home.  The mortgage process is complex and a time consuming process.  Preparation is the key element for one of the most significant events of your life; securing a mortgage to secure your American dream.  Here are some pitfalls to be aware of and to avoid when applying for a mortgage for your new home or refinancing an old home.

Not Checking Your Credit Report

Long before you think of actually buying a home you need to know where you stand with your credit report.  A bad credit score will increase your mortgage rate so it is important that this step is taken long before you are actually thinking of applying for a mortgage.  Take steps to fix inaccuracies within the report with each of the three different credit bureaus.  This process can take several months.  It is important to step up and take control of your credit rankings.

Applying For More Credit While Applying For a Mortgage

 Don’t apply for more credit while you are looking to secure a mortgage.  Put off buying a new car or opening any credit cards in the months before and during your home loan search.  The more credit you look like you are trying to secure the higher the greater the credit risk you appear to be.  If you do apply for credit during this process be prepared for the backlash.

Failure to Look At the Total Housing Amount

A common mistake that is made when applying for a mortgage is the failure to look at the total picture.  Not only do you need to consider the mortgage payment but also the interest, the taxes and the insurance.  Also it is important to take into the consideration the amount that your household bills will increase.  Look at your debt to income ratio.  Make sure that you are comfortable with the amount of money coming in verse coming out.  Are you still going to be able to be comfortable with the payment on the home considering all the extra costs that are incurred with homeownership?

Not Seasoning Assets

Another aspect people often forget is that mortgage lenders are looking to see what type of assets are behind the payment.  Having assets in the bank, back up funds is important when trying to secure a mortgage.

Job Hopping

Starting a new job when applying for a new mortgage is not the end all of end alls however showing a steady source of employment and income needs to be accomplished.  Getting a new job in the same field may not be a problem but changing careers all together may be a deal breaker, especially if looking to become self employed.

Not Getting Pre-Approved

If you don’t secure pre-approval you may end up falling in love with a home that is out of your reach.  You never want to start looking for a home without first being pre-approved.  An experienced real estate agent will guide you in this process so that you have a basic understanding of a price point to consider.  It is crucial to remember that just because you are approved for a certain amount doesn’t mean you have to purchase a home at the highest point of pre-approval.  You may not feel comfortable with making that payment along with keeping up with your current lifestyle.

Whether you are buying a home or refinancing an existing mortgage take your time to find a home loan that works best for you.  Find a lender or mortgage broker that will help you through the process making it as easy as possible for you to secure the best possible mortgage.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Preparations In Applying For Mortgage

When it comes to buying a home and applying for a mortgage a lot of preparation is required.  It is simple not something that is done on a whim.  Mortgage rates are ever fluctuating and as of recent months we have seen some of the lowest rates in a long time; this leads new home owners to pursue their option in refinancing and sparks the interest of first time home buyers.  If you are new to the mortgage industry it is important that you have a basic understanding of what you are embarking on.  The process of securing a mortgage does not happen overnight and requires hands on approach from both the home buyer and the lender.

The first step involved in refinancing or securing a mortgage for a new home purchase is to determine your current credit score.   In order to get the best rate available on a mortgage you need a stellar credit rating.  You want to personally review your credit report and look for areas of inaccuracy.  Make sure your score is where you want it to be before you seek lending.

If upon reviewing your credit report you see inaccuracies it is important that you report them and get them updated.  Disputes need to be addressed with all three credit rating bureaus.  This process may take some time but is a crucial step to assure your credit report accurately reflects your financial situation.  Now is the time to evaluate your debt to income ratio as well.

Your mortgage payment will be one of the main sources of debt that you will acquire in your lifetime.  It is important to research the different home loans, rates and lenders available.  Depending on your situation you may be able to qualify for special financing.  Examples of special financing options available are for veterans, first time home buyers and self employed individuals to name a few.  Before you sign anything or commit to anyone research your entire lending options as well.  You may choose to work with an individual lender or a mortgage broker.  These options are up to you and are a matter of personal preference.

Being pre-approved and knowing what you comfortably can afford are two very different things.  Be realistic in your desire for the American dream.  You may be pre approved for a loan of up to two hundred thousand dollars however might not be comfortable with the monthly payment that comes along with it.  If you not only want to own a home but want to travel and have a life outside of your home take those financial commitments into account when budgeting for a mortgage.

There are several options in regards to the terms of financing available for new home loans and refinancing.  Research your options and determine if you are going to look into a fifteen or thirty year mortgage.  Are you looking for a fixed rate or an adjustable rate?  If you are looking for security and a guaranteed payment a fixed mortgage is your best option where if you believe rates could fluctuate and you want flexibility you may consider an adjustable rate mortgage.

Homeownership is a big step.  Financing it is an even bigger step that is often overlooked.  Be sure you take time to understand the steps involved and ask questions to clarify any and all matters before ever signing on the dotted line.  When working with a reputable lender or mortgage broker this shouldn’t ever be an issue.

Cross Country Mortgage in Brighton, Michigan provide mortgage services for clients including new home loans, refinancing, reversed mortgages, new purchase home mortgages and home equity loans to the entire Livingston County area including Brighton, Howell and Livingston County. Cross Country Mortgage Brighton, MI at http://brightoncrosscountry.com/.

Harmonizing Regulations Can Help Jumpstart the Mortgage Market

There’s no longer any doubt about the effect of overly complicated and burdensome rules on the mortgage market. This entangled web of overlapping regulations is stifling the mortgage markets and is ultimately affecting lenders’ abilities to best serve their customers. Harmonizing regulations can and will help jumpstart today’s sluggish housing market. 

On the federal level alone, every day lenders decipher a complex web of dozens of regulations from six federal regulators.  For my independent bank, I also have to add regulations from 22 different states–imagine if I was operating in all 50 states! Then add requirements by Fannie Mae, Freddie Mac, FHA (Federal Housing Administration) and Veterans Affairs on top of federal and state regulations.  Getting a messy picture?

Let me be clear from the outset. Lenders support following the rules and complying with necessary regulations. We agree that improved regulations were necessary to protect consumers and ensure that the mistakes of the past never happen again.  But there’s a pivot point where regulatory overreaction becomes counterproductive to the ultimate goal of providing the consumer a safe, sound, and AFFORDABLE loan.  Even the U.S. Department of Housing and Urban Development (HUD) Secretary Julian Castro talked about the regulatory pendulum swinging too far to the detriment of consumers at MBA’s Annual Convention last fall. 

A strong marketplace requires balance –  a balance of consumer protection and access to credit for qualified borrowers.  Therefore, matching borrowers with affordable, sustainable loans must be a priority.  On the residential side, MBA’s focus is first-time homebuyers.  For commercial and multifamily, we’re focused on ensuring sufficient liquidity to support a robust commercial and multifamily marketplace.

The Outlook

A strong U.S. economy, job growth, and increasing wages are expected to fuel further expansion in the real estate markets.  But despite this encouraging forecast, a significant gap persists of first-time homebuyers in the marketplace. New generations of potential borrowers who are ready to buy simply can’t, in part because federal regulations keep them on the outside looking in waiting for the perfect loan.

Look at just one growing segment being kept out of the mortgage market – Millennials.  According to a recent story in Barron’s magazine, Millennials are the largest population cohort the U.S. has ever seen and already account for $1.3 trillion of consumer spending annually, or 21 percent of total consumer spending.  Apartment demand is strong around the country thanks largely to this Millennial surge. Effective apartment rent growth reached 5 percent in February, the second time in three months that it reached that significant threshold. Housing could be the next major industry to benefit from this cohort’s size and maturation.  But we have to get the rules right and have a clear path to responsible lending and homeownership.

Cost of Compliance

When that pendulum Secretary Castro mentioned swings too far, the cost of servicing each loan drastically increases. This compliance cost directly impacts the average American family trying to purchase a home.  In 2008, the cost to service one loan was $85.  By 2013, those costs had jumped to $205 per loan–that’s a nearly 250 percent increase!  We’re down a little today, to around $170 per loan, but that’s still more than twice what it was six years ago. 

We can see the same trend in originations.  The average cost for lenders to produce a loan in 2014 was nearly $7,000; in 2009 the cost was nearly half this amount at $3,500.  Add up the costs of origination and servicing and you can clearly see how it’s becoming increasingly difficult for some lenders, particularly smaller independent and community banks, to remain in business.  These costs also get transferred to borrowers, pricing many of them out of the mortgage market or, at a minimum, leaving them sitting on the sidelines much longer saving for that perfect loan. 

Another cost often overlooked is reduced competition in the marketplace. This can lead to fewer choices for consumers.  For example, more and more families and borrowers are looking to their local community banks and independent mortgage banks to get financing to purchase their homes.  In 2013, 42 percent of total purchase originations were generated by independent mortgage banks, a rise of nearly 15 percent since 2008.  But the number of independent banks has fallen over 15 percent since 2008, and one of the likely reasons is thatthey could not operate in today’s heavily regulated marketplace. 

Reshaping Business Models

The current overly complicated regulatory environment is reshaping the way lenders conduct business, but sometimes not for the better.  Various policies have had significant consequences and often unintended ones.  For example, Basel III, Mortgage Servicing Rights guidelines, bank versus non-bank regulations, and other rules affect each business model in very different ways.  The real problem is that regulators disagree about exactly what problems need solving.  Some focus their efforts on protecting community and small banks; some focus their efforts on “too big to fail” banks; others focus on independent mortgage banks and non-depositories; and, finally, let’s not forget about the reinsurance models.

The problem is that this effectively leads to regulators picking winners and losers in the marketplace through public policy.  It also leads to massive confusion in the marketplace by segregating different roles for different business models.  It reduces competition, leading to less liquidity and fewer choices for borrowers. 

Let’s take, for instance, national servicing standards that continue to evolve.  The rule has extensive provisions governing loss mitigation requirements when a consumer is unable to make payments as well as requirements regarding an institution’s response to consumer inquiries and when a consumer must receive certain notices. 

Implementing the servicing rule’s requirements demanded significant system changes and staff training that has been time consuming and costly for the industry. There is also an ongoing effort to obtain guidance and clarification in areas where the rule is unclear.  Additionally, responding to CFPB (Consumer Financial Protection Bureau) investigations, often in conjunction with multiple state examinations, has required a significant resource commitment from servicers.  These federal regulations alone forced some lenders to sell off their servicing business and some servicers left the marketplace entirely.  

Adding to the complication are state regulators who want to instill their own servicing rules and investigations on top of the national standards.  Simply put, there is no need to reinvent the wheel 50 different ways for loan servicing.  Let’s leverage the CFPB and the newly released GSE (Government-Sponsored Enterprise) standards first.  Let them serve as a template so all regulators and lenders, and, most of all, consumers know that everyone should abide by the same rules of the road.  Additionally, the CFPB’s supervision activities should take into account possible parallel state investigations and provide more timely feedback to servicers when examinations have concluded. 

MBA and its members believe every consumer is entitled to quality customer service, timely communication, and a fair hearing if they fall behind on their mortgage payments.  Consumer-facing rules need to hold servicers accountable, but they also need to recognize the complexity of the default servicing business and the need to avoid conflict and confusion where possible.

It’s critically important that state and federal regulators understand the importance of servicing to the mortgage value chain and the risks of overreacting.  Excessive and punitively high capital standards relative to the risk of the asset drive up costs to consumers.  Capital standards that are too high will mean fewer servicers, more concentration, and greater systemic risks. 

As federal and state regulators move forward on new servicing standards, it’s important that they take the time to get it right.  We need uniform standards, not balkanized standards that differ between federal regulators as well as between state and federal regulators.  Capital and liquidity rules should not be punitive. Finally, we need to recognize the benefits of a diversified base of servicers and servicing business models to diversify risk in the system and encourage companies to invest in their servicing platforms.  All of this translates to improved and protected customer service. 

Allow me to address a few other specific rules that impact the mortgage market and would benefit from harmonization:

TILA/RESPA Integration Rule

I would be remiss not to specifically talk about the elephant in the room, CFPB’s rule change and model disclosures that combine and integrate the disclosures under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The final rule was issued on November 20, 2013 and implementation is required on August 1.   This is the most sweeping change to ripple through the home-purchase process in decades. 

The final rule requires the use of new, integrated disclosure forms for consumers at the time of mortgage application and settlement, known as the Loan Estimate and the Closing Disclosure, respectively. In addition to new forms, the rule brings major changes to the mortgage origination and closing process, including changing the definition of “application,” clarifying responsibilities for providing the forms, establishing tighter tolerances or limits on cost increases from application to closing, and installing a three-day period between provision of the Closing Disclosure and consummation of the loan. If a creditor makes certain specific changes between the time the Closing Disclosure form is provided and closing, a new form must be generated and an additional three business days must be allowed before closing.

This rule constitutes a sea change for lenders, settlement service providers, real estate agents, and consumers. Lenders and assignees face significant liability for failures to comply.  Making the changes required by the rule has necessitated considerable expense for systems and business process changes, training, and other needs, and, unfortunately, some of these costs are ultimately borne by consumers.

To date, the CFPB has provided only limited verbal guidance and clarifications on the rule. MBA has urged the CFPB to provide authoritative written guidance–developed with stakeholder input–on difficult implementation issues as they arise. The CFPB also must, once again, resolve conflicts between this federal rule and state law.  If it does not, state laws and practices threaten to add undue complexity and confusion for lenders and borrowers alike.

Lenders and other settlement service providers, including community banks and smaller independent mortgage bankers, rely heavily on vendors to build and maintain systems necessary to comply with regulations. Therefore MBA urges the CFPB to expand its outreach to industry vendors to better enable them to develop tools to facilitate compliance.

SAFE Act

The Secure and Fair Enforcement for Mortgage Licensing  Act of 2008 (SAFE) created two parallel  but asymmetrical regimes for mortgage loan originators (MLOs) that have resulted in uneven consumer protections and an unlevel playing field for mortgage originators.

The SAFE Act created three serious issues:

1)   The absence of a national testing requirement deprives consumers of the assurance that they are served in all cases by MLOs who have demonstrated minimum standards of competency via a comprehensive examination;

2)   An uneven playing field where banks and bank affiliate lenders can recruit MLOs who don’t have to withstand the rigors of testing. Pass rates on the SAFE Act test demonstrate that exams are rigorous; only about two-thirds of MLOs pass on the first try; and

3) Depository lenders and affiliates could be exposed to adverse selection by MLOs that cannot pass the test. In addition, state licensing of MLOs can be a slow and burdensome process, which creates a disincentive for MLOs who are already employed at bank and bank affiliated lenders from moving to non-bank lenders.

Congress should amend the SAFE Act to require uniform testing standards for all MLOs regardless of the business model for which they work; require the states to provide for speedy licensure of qualified MLOs moving from a bank or bank affiliate lender to a non-bank lender; and require that, if a state is unable to grant a license within seven business days, it would be required to provide a transitional license to its MLOs. 

Together these steps would ensure for consumers that all MLOs have met minimum standards of competency, prevent adverse selection of MLOs at banks, and ensure non-bank lenders can fairly compete for talented MLOs.

Ability to Repay/Qualified Mortgage Rule

The Ability to Repay/Qualified Mortgage (ATR/QM) rule must be improved to ensure that more qualified borrowers can access safe and sustainable credit.  For a loan to qualify as a QM and meet the ATR requirement, it may not contain certain “risky” features, such as interest-only or negative amortization terms, and it must meet specified underwriting standards.  These standards also include a debt-to-income (DTI) ratio cap of no more than 43 percent, or, in the alternative, eligibility for the GSEs’, FHA, or other government programs (the so-called “QM patch”). 

Considering the significant potential liability and litigation expenses for an ATR violation, many lenders have limited themselves to making only QM loans generally and QM safe harbor loans in particular. As a result, some categories of borrowers that should qualify for a QM are have trouble gaining access to safe, sustainable, affordable credit. MBA believes that the ATR/QM rule must be revised to ensure that as many qualified borrowers as possible have access to safe and sustainable mortgage credit.  Specifically, we’re working to expand the safe harbor, increase the small loan definition, broaden the right to cure for DTI, replace the patch and the default QM, and revise the points and fees definition.  Accomplishing these goals will allow more qualified borrowers to obtain the access to credit they need for the homes that suit them best.

Basel III – Treatment of Mortgage Servicing Rights

The punitive treatment of mortgage servicing rights under the Basel III risk-based capital standards threatens to undermine the value of this important asset with adverse implications for the entire mortgage finance chain.  Performance, capacity, and service should be the primary drivers of who gets market share in servicing, not excessively high capital standards on one segment of the industry. The new Basel III rule increases the risk-weighting of mortgage servicing rights (MSRs) held by banks from 100 percent to 250 percent. The unnecessarily punitive treatment of MSRs makes them one of the most costly asset classes in the entire Basel III framework.

In significant part, due the new Basel rules, banks of all sizes are shedding MSR assets at a record pace, and moving these assets to banks with smaller MSR exposures and to non-bank servicers.  Many of these transfers are driven by Basel-related issues, not necessarily by the core competencies of the parties involved.  As a result, many banks that are good at servicing and want to remain in the business are forced to dramatically increase capital levels or shed the asset.

U.S. bank regulators should reject the Basel III limits on MSRs.  MSR capital treatment should continue under the current capital framework without imposing a 10 percent cap or a 250 percent risk-weighting under Basel III.  If bank regulators insist on moving forward with the Basel III treatment of MSRs, they should change the risk-weighting back to 100 percent, increase the 10 percent cap, and exclude MSRs from the 15 percent cap.

Basel III – High-Volatility Commercial Real Estate

While we’re on the subject of Basel III, let’s not forget about compliance and regulations that affect commercial real estate.  Basel III is a global regulatory framework for bank capital adequacy, stress testing, and market liquidity risk agreed to by the Basel Committee on Banking Supervision, an international body in Basel, Switzerland. The Basel III High-Volatility Commercial Real Estate (HVCRE) Rule became effective January 1.

Under the HVCRE rule, acquisition, construction, and development loans that do not meet certain underwriting criteria are considered “HVCRE exposures.” This includes loans with a loan-to-value ratio of less than 80 percent or contributed capital to the project through cash or unencumbered readily marketable assets of less than 15 percent of the real estate’s appraised “as completed” value among other things.

For HVCRE exposures, the risk weight is 150 percent compared to 100 percent risk weight for commercial and industrial loans, resulting in higher capital requirements. For risk-based capital reporting purposes, banks will be required to determine the HVCRE status for each of their acquisition, construction, and development loans for the first quarter.

To comply, commercial lenders need to modify their regulatory reporting systems to evaluate the HVCRE status for each loan in their acquisition, construction, and development portfolio.  MBA identified several issue areas that require clarification, including the 15 percent equity requirement measured under the Basel III HVCRE rule; how to satisfy the unencumbered readily-marketable assets/sources of 15 percent contributed capital; reclassifying HVCRE to Non-HVCRE; permitted withdrawals; credit facilities that should be characterized as HVCRE Exposure if they meet the HVCRE criteria; and repo loan facilities and loan facilities secured by HVCRE loans. This change in systems costs time and money, but nothing can happen without clarifications to the HVCRE rule.

The Solution

We have a bright future ahead with the rise in household formation and an improving economy and job market.  The housing market desperately needs a good jumpstart to continue supporting growing communities and businesses.  As compliance professionals, MBA needs your input and first-hand knowledge on the direct impacts to business models, access to credit, and costs to businesses and consumers. Join our advocacy efforts and lend your voice to help clarify and streamline state and federal regulations so lenders of all sizes can continue providing quality customer service. 

We have two choices. We can continue searching for the “perfect loan,” allowing real estate finance to be a drag on the economy, or regulators can fix the rules and return real estate finance to be the driving force of the American economy.  The layered regulations state-to–state, federal-to–state, and among federal agencies continue to stifle mortgage market growth.  If they are going to regulate us, regulators have a duty to harmonize the regulations and remove unneeded bureaucracy that does nothing to further protect consumers and only serves to limit their options. 

Original Source: http://www.mortgagecompliancemagazine.com/featured/harmonizing-regulations-can-help-jumpstart-the-mortgage-market/