A different kind of stated income loan
July 2nd, 2008 categories: Mortgage News
A few months back I wrote an article about the possibility of stated income loans becoming extinct and how proposterous I thought of the idea. As it turns out, I was not that far off with my thinking. With the mortgage industry experiencing continued turmoil with rising defaults and increasing negative publicity, it should not be a surprise to see yet again more restrictive lending practices.
Two weeks ago, Chase retired our complete line of stated income loans. What is left is our flagship “reactive SISA” for conforming loans only. Meaning, you do not know if you get a stated income loan until after you submit your complete application and Chase reviews the overall risk. Let me explain further.
SISA refers to Stated Income Stated Assets, a form of stated income loans whereas the borrower states their income and assets without lender verification. It is a form of stated income loans similar to the loans done in the past but due to the reactive nature and unpredictability of the approval, it’s highly unlikely to get abused by loan officers and buyers as in the past.
In today’s world of complex risk based underwriting, the industry has put such a large emphasis on automated underwritng systems that these AUS’s can practically underwrite a file by themselves. Keep in mind that you still need a human being to validate the file and to manually underwrite when unusual circumstances arise.
A reactive SISA is when a loan is submitted into the AUS and the decision engine renders an approval that does not ask to verify any income or assets. SISA approvals can be completely random because the AUS is looking at the overall risk of the file. Common risk factors include are but are not limited to amount of down payment, credit score, length of employment, type of occupancy, remaining assets after close, type of income (self employed, salaried, commission, bonus), etc. Keep in mind that the income will still need to pass a reasonableness test for the applicant’s job title.
I have heard this type of approval called “Paper Saver” and “Fast and Easy” from my competitors. It’s virtually the same type of reactive SISA, just a catchy name attached to it.
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Inflation’s impact on interest rates
June 22nd, 2008 categories: InShallowWaters News
What is Inflation?
There are three different terms used to describe situations of price movement: inflation, disinflation and deflation. Inflation is a sustained increase in the price of goods and services that are produced and sold in the economy. During periods of increased inflation, money loses its power to purchase the same amount of goods and service that it once could.
The other types of price movements are disinflation, which describes a decrease in the rate of inflation, and deflation, which is when the inflation rate falls below zero and the price of goods and services fall over a period of time. Deflation sounds good for the consumer, however, it can lead to rising unemployment and falling production. The price of goods and services generally increases, and a normal amount of inflation is expected in a healthy economy. The Federal Reserve Board actively tries to keep inflation within a target range of 2 to 3 percent annual.
What is inflation’s impact on interest and mortgage rates?
The three main components of interest rates include the real rate interest, inflation rate and risk premium (default and liquidity). Actual or anticipated changes in the inflation rate will have a direct impact to interest rates charged. If inflation increases and the interest rates do not increase by the same amount, then the real rate of return will be lower. All lenders and investors know that inflation will erode the underlying value of money over the long term and will increase the interest rate to compensate for this loss in value. The rise in inflation is the main reason why mortgage, auto and credit card rates nationally have been increasing during the last few weeks. Fears of increased inflation due to higher input costs (fuel, etc.), have caused lenders and investors to demand higher rates to adequately compensate for future inflation levels.
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San Diego Gas Prices…how high will they go?
June 9th, 2008 categories: Local News and Events
This past saturday I had the pleasure of filling up both of our vehicles at the local gas station. Needless to say it was quite an ordeal on the pocketbook. I drive a GMC Yukon XL and my wife drives a European four door compact sedan. After spending $180 and three swipes of the debit card at the pump, both vehicles were topped off and ready to go another week.
Here in San Diego’s north county, regular unleaded gas goes for around $4.49 a gallon and the premium high octane stuff (thanks to my wife’s car) is $4.69 a gallon! There was a time when a gallon of gasoline was less than a gallon of milk. That’s not the case today, as a matter of fact milk prices have increased 28% over the past year and gasoline prices continue to out pace this.
Just today as I arrived home, my beloved gardener asked me if I was okay with him raising his monthly fee by $10 to cover additional operating costs (fuel costs.) What am I to say? No you can’t? Even though 3 days earlier I was complaining about OPEC and Exxon Mobil and all the profits these companies were raking in.
So in the end, this is how I choose to look at things. My SUV costs me 38 cents a mile in fuel costs alone to drive and my wife’s car is 25 cents a mile! You better believe I think twice before I drive anywhere these days.
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Local Del Mar beach to receive a facelift
May 28th, 2008 categories: Local News and Events
One of the many wonderful things about living in Southern California are the beautiful beaches. From Oceanside to Imperial Beach, San Diego County boasts 70 miles of heavenly coastline. What I love about San Diego so much is how active the residents are that live here!
Del Mar is a small exclusive coastal community that offers a beautiful 2.5 miles stretch of sandy beaches. Excellent conditions for surfing, boogie boarding, swimming and just lounging in the sun.
Dara Chantarit, from Windermere Exclusive Properties in Carmel Valley is the President of Keep Del Mar Clean. Keep Del Mar Clean is a non profit 501c3 organization dedicated to keeping Del Mar clean by reducing the amount of litter found on streets, parks, and beaches.
This Saturday, May 31st, bring the whole family and join other volunteers for a beach clean up with Keep Del Mar Clean. The group will meet at the Del Mar Powerhouse Park for the Beach Cleanup & Family Picnic. Please arrive at 9am. Cleanup participants enjoy a post-cleanup Family Picnic with delicious food sponsored by Souplantation, coffee from Java Kai Del Mar, games by Mr. PE who really knows his games, prizes, and boat rides by the Del Mar Lifeguards! You must participate in the cleanup to enjoy the fun, food and games so grab your sunscreen and head on down!
For additional info and to pre-register, visit: http://www.keepdelmarclean.org/ or call: 858-792-9091
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Why a pre-approval is so important
May 27th, 2008 categories: Mortgage News
With investors re-entering the market and multiple offers becoming more common, pre-approval letters are becoming more and more critical.
After talking with an REO listing agent last week about her listings, she mentioned to me that roughly half (50%) of her escrows have fallen out due to financing! This agent represents bank owned foreclosure properties from a number of different banks (not Chase), and the national pull through ratio of these listings have been around 50%. 1 out of 2 pending sales can’t close escrow!
Pre-approval letters are designed to set a limit BEFORE the buyer goes shopping based on usually one of two main factors. How much of a monthly payment the buyer can afford or how much the buyer is willing to spend a month. When a prospective buyer finds the right home an offer is presented and hopefully accepted. Sound pretty simple? It really is!
The issue is not all buyers get pre-approved in the beginning but instead they end up getting pre-qualified. Offers get presented and an approval letter needs to be submitted before the offer is accepted is where a buyer, agent, and lender can encounter issues. Now all of a sudden the approval process has to move at a lightning fast pace in order to comply with the time line.
So, how do maximize your chances of getting your dream home? Get approved before previewing homes and ask and your lender if he/she anticipates any issues arising out of your transaction. Insist the approval letter accompany the actual loan approval with the underwriter’s name and signature. If that’s not possible, ask that the loan officer’s Branch/Sales Manager sign the approval letter instead of the originator. If you know your lender or your lender is a referral from a trusted source, then maybe it’s overkill. You will ultimately have to decide if and when to have that conversation with your loan officer. Let’s hope you never have to!
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