Josh Riverside asked:




How do banks and brokers rate mortgage loans? Banks and brokers rate mortgage loans according to collateral, capacity to pay and credit. Collateral is the property that the borrower will pledge to the lender to secure a loan and this will be subject to seizure if terms are not met. Capacity to pay is the brokers ability to pay the loan and can be determined by the borrower’s income or employment. Credit is the borrower’s capacity to obtain good or bad credit. If all three factors are met and the property is of great value, then you will have no problem in getting a loan. If one is unsatisfactory among the three factors, then adjustments and new conditions will be set and these will be subject for approval.

Q. What is the difference between pre-qualifying and pre-approval?

A. Pre-qualification is usually made by a loan officer who has determined the dollar value that you may be approved for. But it is not a real commitment as the loan officer is not in a position to make a final approval. Pre-approval on the other hand is already a foot in the door because this means that your qualifications such as your credit history, employment, and income has been verified, allowing you to close a deal very quickly.

What is amortization?

This is the term used for the regular payments made in periodic installments for the principal and interest of the loan. Currently, loans can be amortized up to a 30-year period.

What are the closing costs?

Upon the closing of the mortgage, the borrower pays settlement costs or closing costs depending on the terms with the bank or the broker. These may involve origination fees, discount points, credit report, attorney services, appraisal, property survey, insurance, and so forth. Be sure that you are clear about these fees from the very beginning.

What documents are normally required for a mortgage?

Minimum requirements include driver’s license or any valid ID, tax returns or W-2 of the past two years, and recent paycheck for W-2 employees.

Ellen

Louie Frias asked:




I’ve been a mortgage banker and real estate broker since 1981 in California and Nevada. If I had to put it to numbers, I’d estimate nearly a billion dollars of business has crossed my desk. Meaning, that’s a lot of customers. I can also state that not ONE has EVER lost their home due to being in any sort of toxic mortgage product. That’s not saying no one has ever lost their home; there have been a handful that have. Unfortunately, divorces, business closing, injuries, etc happen in people’s lives.

I’m buried with calls and emails from friends and friends of friends who all ask the same qquaerion: “Can you help me fix my mortgage because my house is worth only half of what it used to be.”

How do you say “No”? I don’t.

For many years I’ve advocated safe mortgage practices and made some enemies along the way while lobbying for stricter mortgage loan officer pre-licensing and training. Seems as long as politicians or regulators are making money, they simply turn their head when it comes to doing the right thing.

I have no objection to someone who strips at night or bartends or landscapes, in trying to better themselves, BUT, I take GREAT offense to all the idiots who caused this problem by getting in without training or licensing, made a bucket of money, then abandoned the industry when it required skill to get business. Those of us still in business are the professionals. The ONLY ones who deserve to be in business.

I will fight harder than ever to assure the public at large never suffers at the hands of illegitimate charlatans. In the meantime, we are here to help those who need it. That, unfortunately means loan modification.

It’s not difficult to perform, but neither is a root canal or a contested divorce – for a professional. You can’t do either yourself; nor should you try. It takes knowing the laws of lending, underwriting and most importantly; the art of negotiating. Having patience, a LOT of time and established contacts is THE key to successfully performing a permanent loan modification that actually helps the homeowner. Only when a lender, servicer or investor challenges us or says “No”, do we send in the attorney. The attorney function is to submit an extremely complicated litigation proposal that permits us to entangle the opposing party for YEARS if necessary. Imagine how the homeowner feels when we get to do that. We have no fear of litigation nor creating bad press for the 800 pound gorillas threatening the consumer.

Phyllis

Richard Geller asked:




Is a mortgage short sale possible if you have not one mortgage company to deal with, but two?

I am the developer of the Mortgage Relief Formula home study course. In my work I receive hundreds of questions from homeowners who owe more than their house is worth and cannot afford to continue making the payments. They want to avoid foreclosure appearing on their credit and they also want to do the right thing under the circumstances.

A mortgage short sale beats foreclosure both from the homeowner’s viewpoint and from the perspective of a mortgage lender. If you cannot pay on a mortgage, the bank would rather get partial payment of the mortgage, and not get your house back.

They can in fact deal with getting your house back because they are set up for it. But when they get a house back they must add it to their already bulging inventory. They must insure it. They have to fix it up. They have to put it on the market and sell it. They are selling into the same terrible market that you are facing.

But, a mortgage short sale helps the lender get partial payment on your mortgage and avoid getting your house.

Let’s recap what this type of sale is. It’s when you sell your house for less than the mortgage. The lender approves the sale and the lender collects the proceeds from the buyer, whatever is left at closing after paying closing costs and real estate broker commissions and so forth. They mortgage lender releases the mortgage so the transaction can close.

The mortgage company now has a financial loss. They may pursue you for that financial loss, which they can sometimes do through a civil court proceeding. Sometimes they cannot pursue you at all because state law prevents them from doing so. And sometimes you can negotiate with the home loan lender before the sale goes through, and they will agree in writing not to come after you for their financial losses.

But be that as it may, the question we are addressing is how you can do a sale that yields only partial payment of your first mortgage, if you have a second mortgage and not just a first mortgage?

What people forget is that even if they do a sale of their house, the loans go with the house so if they deed their house to someone else, the loans stay in place. A sale of a house does not affect the loans on that house.

The reason a short sale works is that the lender agrees to release their claim on the house at the closing table. So the new buyer can get the house free from your crushing mortgage. But if you have two mortgages such a sale is much more complicated. The buyer will want to be free of both your first and second mortgage.

That makes it twice as complicated.

Because if the first mortgage lender agrees to the sale even though it will not pay off the first mortgage, that isn’t enough. The house will be sold and still have a second mortgage on it.

A foreclosure sale, on the other hand, wipes out all the loans on the property. The lender who forecloses may get the property back through their “credit bid”. That is, if nobody bids higher than the balance on the loan including all delinquent payments and fees, the lender gets the house back. If someone bids higher, they will get the house.

Either way, all the junior loans are extinguished in the foreclosure sale. A foreclosure sale results in a transfer of title through a trustee’s deed or sherriff’s deed. A trustee’s deed or sheriff’s deed transfers title to either the lender, or the high bidder if there is a party that outbids the lender. And with that foreclosure deed, the junior loans are wiped out. So junior loans are not an issue in a foreclosure and in fact a lot of houses go through foreclosure in order to wipe out the junior loans.

But what if you want to avoid foreclosure through a short sale process, in order to help your credit and the lender? And what if you have junior loans?

There is a way to do it. Actually three ways.

Is the second mortgage a piggyback loan? Sometimes the lenders who made the first mortgage also made the second. Maybe they can allocate the short sale proceeds to release both loans.

Or, you may be able to buy out the second. They are in a position where they will get nothing at this point. If you can offer them a nickel on the dollar of debt, or a dime, maybe they will take it. That assumes you have a bit of cash. But it may not take much. After all they are already prepared to be wiped out. If you do a deal like this, make sure you get the arrangement in writing including how they will report to the credit bureaus (you want to avoid foreclosure appearing there) and also that they will not go after you any more — this is full payment of the second mortgage and forever wipes clean that debt.

And there is a third option for most folks who do not have cash to buy out the second mortgage.

This third option is doing a deal with the second mortgage holder: They will release the second mortgage in order to allow the short sale to go through. In return, you will sign a note for a percentage of that loan.

Such a note is a personal loan, an unsecured loan, and would be dischargeable in bankruptcy. But if you can manage the payments this is a good outcome for all concerned compared to the alternatives. Remember that if they get wiped out, the second mortgage holder can still come after you in civil court but by signing a note you make it cheaper for them and either way, something is better than nothing.

These three options are the best ones to consider if you want to do a short sale and avoid foreclosure, but have a second mortgage on the property. I would always recommend you consult a good lawyer to help you and best of luck.

Angela