I got this announcement in an email from a lender. =>Fannie Mae Guidelines contain some good news and some bad news for marginal credit borrowers. These changes will take effect May 19th

Seems as though Fannie Mae may be getting a little more conservative on their approvals for the High Risk, High LTV/CLTV loans. What does that mean? Quite simply, some high risk loans will be getting approvals with 'Levels' attached. Which means that they will be paying .5% to 1.5% higher rates than a low risk client. I see this as prudent and very fair for the borrowers. These levels have always existed, so that is nothing new. But the higher risk stuff will be getting 'leveled' more often now.

Another announcement, and this is a biggie, is that they do not require collections be paid regardless of amounts. Remember the "collections allowed up to $5,000"? They will now allow unlimited collections that do not affect title. So, the guy who has a 6yr old chargeoff for $5,500 can get into a conforming loan without paying off his collection. Fannie Mae used to require all collection paid if they added up to over $5,000. The presence of collections will still go into the risk analysis of the loan.

I could speculate on why these changes are being made..... but it would only be a guess. Who knows what all goes into their risk analysis thinking. But I suspect that Fannie is learning what we knew all along. Some borrowers with old collections can still pay their mortgages on time. And that an arbitrary $5K limit did not make sense. The net result is going to be a little higher rate for the 100% loans as a result of the Expanded Level Approval. And some folks with great recent credit may be able to get into conforming rates regardless of old collections.

Is your loan officer running EVERY FILE through Automated Underwriting? They should be..... because a lot of these people in subprime loans probably would have qualified for something better..... a Conforming Loan.

Below is an excerpt of the E-book The ARM Factor: The Guide To Understanding and Selling the Pay Option Arm.

I wanted to put this out there so others can get a taste of my writing style (and of course some self promotion). I also have a FREE weekly newsletter called “The Mortgage Mailbag” where I answer questions and give advice, in my own words, on the Pay Option Arm and the mortgage business in general.

So, without further ado, here is the excerpt:

…By working in different areas of our industry and seeing what I saw, mainly the lack of understanding and lack of product knowledge, I was compelled to write about my favorite kind of product.

Right now, you’re probably thinking, “there’s the catch, he’s going to make us believe his ways and beliefs are the best, this is a waste of my time.”

All I have to say is keep reading. The proof is in the pudding.

Great, let’s move on.

The purpose of this book is not to get everyone to drink the Kool-Aid and change to my way of thinking.

The purposes of the book are several:

-To open your eyes and mind to different and creative ideas. -To make you think a bit -To, hopefully, help you develop a more rounded business in this industry of mortgages.

But mainly, the purpose is to give you a better understanding on a mortgage product referred to as the “Option Arm”.

This “Option Arm” thing has several names: I’ve heard the term Power Option; Cash Flow Loan; Pick-a-Payment; MARM; Freedom of Choice Loan, and Interest Only (although this one is an offspring of the subject loan), just to name a few.

But for the purposes of this book, I’m going to call it “The Loan”. Again, I don’t want to use a term that only one particular lender uses. I want to focus on concepts, not lenders.

Why? Because, in my opinion, this is the best product on the planet…period.

I don’t care which lender you use, which index you use, the concepts are mainly the same.

So, don’t get hung up on any particular Lender because there are pro’s and con’s to all of them. This is a PRODUCT based book, not a lender based book.

This book is designed to be an easy read, while giving the reader knowledge his or her competition may not have.

If using techniques and ideas presented, this book should give you a better understanding of how to make more money in this business as a loan originator by utilizing The Loan, which is why we’re here in the first place, right?

Which brings me to another reason I’m writing this book. I’m saying this here and now because there are a few people saying “if he wants to help brokers understand and sell this product, why doesn’t he give his book away?”

There’s a simple answer, but I want you to understand it without me spelling it out for you…

When you write a loan, do you do it for free? Do you charge people a broker fee and/or origination fee? Do you get yield spread? Why don’t you just give them the loan? You want to help people, don’t you?

Keep this in mind, if you’re spending big bucks on marketing yourself or your broker shop, why not invest a bit on knowledge and training as well?

Get my point? Good, let’s move on…

The preceding has been an excerpt from the E-Book The ARM Factor: The Guide to Understanding and Selling the Pay Option Arm. Check out the author’s bio for more info.

In past years in the U.S. there has been a real boom in the mortgage industry. There are now more lenders than ever before and more mortgage options than you can shake a stick at. One thing that people should know before applying for a mortgage is what kind of lender they are dealing with. In the mainstream market there are usually 2 different kinds of mortgage professionals that an individual will come across, the broker and the banker.

Perhaps the best way to discern between the two is to realize that brokers are middlemen. They shop the market for you and present you with an array of mortgage options from different lenders. This is an asset in that as a borrower, your options are less limited. It is always a good idea to get references for a mortgage broker as the practice is still unlicensed in some states. Bankers on the other hand are usually more established and have been in operation for some time. However as a banker is attached to a particular financial institution, their range of mortgage products will also be established. These are typically the bankers that will be located by the broker in their search for mortgages to present you.

No matter who you choose to deal with for your home funding, the most important thing to do is to investigate where the money is coming from. There has been a rash of "shifty" mortgage companies in recent years so a good way to tell if a company is legitimate is longevity. Check how long they have been in business and if there have been any complaints made against them. If so, what was the nature of the grievances? You can never be too careful in deciding how to finance your new home. This is a purchase that has the potential to stay with you for a lifetime, make sure that you make an educated decision.

Tempting Low Payments

Until recently borrowers using option ARMs would face the immediate reality of negative amortization. Starting with their first monthly bill they would be given the option of making a super low mortgage payment, far less than the full amount of interest due. In most cases this low payment option would be less than half of the full amount of interest due on the note. The difference would, of course, be added to the mortgage balance.

Inherent Risk

Some borrowers used this program responsibly and paid up the growing deficit from time to time, or simply let the balance grow knowing that they had the resources to face the consequences when the time came. In truth, the vast majority of borrowers that financed their home with option ARMs never paid more than the minimum payment. Over the last decade, as home prices increased consistently, a growing mortgage balance had little or no impact. Florida home prices tripled during this period of time. Other parts of the county matched or exceeded this growth rate. Many smart borrowers rode this wave and used these programs as a way to have a tiny payment while enjoying dramatically growing equity.

The Beginning of the End

But times change. In June of 2004 the Federal Reserve begin raising rates, an effort that would not stop until June of 2006 after seventeen rate increases. The impact on option ARM borrowers was dramatic. The obvious impact appeared each month on their mortgage statement as they watched the index, which controls the underlying cost of their mortgage and hence the amount of negative amortization, increase month after month. But the real impact was initially less visible.

Real Estate Values Fall

As the Federal Reserve continued to increase interest rates real estate prices, which for over a decade had done nothing but go up, now stalled. Over the next two years all upward movement in home values vanished and the worse case scenario began to come true. Real estate values began to decline. Home owners with negative amortization home loans suddenly found themselves with growing mortgage balances and shrinking home values.

Tough Choices

This insidious situation was compounded by the absence of a clear choice for these borrowers. Our Florida mortgage customers facing the red hot real estate market of the last decade often selected these loans as the only feasible means of purchasing homes with an affordable payment. To refinance into a fixed rate mortgage could easily double their payments. For many it was far easier to ignore the situation, perhaps hoping that home values would recover. This hope, no doubt, will eventually bear fruit and home values will stabilize, both in Florida and elsewhere, and begin again to climb. But for the moment many of these option ARM borrowers are looking for more immediate solutions. A new option ARM has appeared that many borrowers are selecting as a feasible refinance choice.

The New Fixed Rate Option ARM

This new product offers two unique and attractive features that add considerably to the security of this otherwise volatile home loan. Whereas old versions of the program required an increase in the monthly minimum payment each twelve months, this new product allows you to make the initial minimum payment for up to ten years or until you reach your negative amortization cap. In other words you can continue making the initial tiny payment until your loan balance grows to a predetermined limit, which is usually twenty to twenty-five percent above your original loan amount.

Predetermined Balance Growth

The second new feature provides an additional dramatic selling point. Old versions of option ARMs had no caps whatsoever on the underlying interest rate that would determine the amount of negative amortization that could accumulate. This new program fixes the underlying interest rate for a period of time that matches the fixed minimum payment that I described above. This means that, although your mortgage balance will still grow, you will always know exactly by how much. In other words, for the period of time you select for your minimum payment privilege, this is not an adjustable rate mortgage!

Your Choice

This new product is still a sophisticated mortgage that is best suited for responsible borrowers that full understand how it works. As Florida mortgage brokers we are vigilant in assuring that our customers fully grasp the details. This is simply not the right program for the many retired borrowers that we service. Negative amortization will still accumulate, although at a predetermined pace, and this must be understood. But for the right person the new features build into this program provide an exciting way to enjoy a diminutive payment with out the uncertainty built into previous incarnations of negative amortization loans.

If you are a homeowner who is considering a new mortgage loan, refinancing can save you money if you avoid costly mistakes. One such mistake is paying Yield Spread Premium, a mistake that will cost homeowners in the United States almost sixteen billion dollars this year alone. Here are several tips recognize and avoid paying Yield Spread Premium when mortgage refinancing.

Yield Spread Premium is a percentage of your mortgage loan resulting from locking at mortgage rates that are higher than the current market rate. Suppose you’re refinancing your mortgage for $200,000 and you close at 6.5%. What your loan officer isn’t telling you is that the wholesale lender approved you for a 6.0% mortgage rate. The difference between the mortgage rate that you could have had and the rate you close is Yield Spread Premium. Because your loan officer overcharged you they’ll pocket an additional 2% as a bonus from the lender.

Yield Spread Premium may sound confusing; however, it’s better for the lender when you overpay. Mortgage lenders make most of their profits selling loans to investors on the secondary market, and loans with higher than market interest rates bring a premium profit. In the example above your loan officer pockets $4,000 for overcharging you in addition to the $2,000 you paid in origination fees. You get stuck paying thousands of dollars in unnecessary mortgage interest and the loan officer lines their pockets at your expense.

The good news is that paying Yield Spread Premium is a mistake you can avoid. Homeowners who learn to recognize Yield Spread Premium can negotiate not to pay it when mortgage refinancing. You can learn more about avoiding Yield Spread Premium and other costly mistakes when refinancing with a free video tutorial.

If you are self employed there is no reason why you should not apply for a mortgage loan to purchase property. The banks or money lenders will require you to produce certified bank statements to prove what your monthly or annual income was since you were in business. They will also want a written plan of your intended development in the near future. The amount of people you employ will also give them an indication of how big your business is. They will assess all this information and if they find that you are operating a stable business you will be given a loan.

Many applicants who have a bad credit history might be apprehensive to apply for a loan to purchase property as they think that this factor will count against them. Banks and lenders are not entirely unsympathetic towards these applicants as the loan is secured against the home and they will be able to sell it at any stage that you did not pay off the loan every month.

Shop around before you decide who you will give your business to. Compare interest rates and loan charges. The loan charges on this loan are quite high so see if there are any lenders who are willing to negotiate these rates. Check online for lenders who advertise their interest rates. There are banks that periodically advertise a reduced interest rate for a short period of time in the local newspapers. Watch out for these as this could be a huge benefit if you could cash in on a discount.