Lenders Catch On To "Buy & Bail"

A couple years ago, you bought a no-frills home with a yard so small a chihuahua would get claustrophobia if you let the little critter stay out there for too long. You thought $500,000 was such a steal, considering that there were ten other offers on it. Today, it's only worth $350,000.

Over the weekend, you find out that a much larger home down the street is for sale. It's got a yard that could hold a small country, and , and it's got all the upgrades that you could ever wish for. The price tag? $300,000.

"Hmmm," you say, as your mind races a mile a minute. If you're thinking that you could use your good credit to purchase a second home by telling the lender that you're going to rent out your first property and then let it fall into foreclosure once you've purchased the second one, think again. Lenders are on to what's known as the "buy-and-bail" and they've put new guidelines into place to safeguard against "buy-and-bail" situations.

Here are a couple of them:

• The borrower's current property has to have at least 30% equity in it.


• If the borrower has put their current property up for sale, and it does not close prior to the second property closing, the lender will require that the housing payment be included in the qualifying ratios unless one of the following exists: the borrower has a minimum two year history of managing rental properties verified through the most recent two years of tax returns; or provides a copy of the fully executed sales contract and the sale of the current home closes simultaneously with the subject transaction; or if not closing simultaneously, provides a copy of the fully executed sales contract, lenders commitment letter to the buyer of the current home, and verification of post close reserves sufficient to cover 6 months housing payments

Lastly, if you're thinking of getting an FHA loan and having just your spouse be on the new loan so that your debt-to-income ratios meet the lender's guidelines, think again. FHA guidelines require that the non-borrower spouse's debts be included as part of the total debt. The logic behind this is that the additional debt will impact the couple's ability to repay their mortgage.

There are several major changes to Fannie Mae guidelines that have to do with conversion of principal residence to rental property, as well bankruptcy and foreclosure seasoning requirements. If you'd like to get more detailed information about these new Fannie Mae guidelines, holla' at me!

Don't Go Out Looking At Homes Without A Preapproval

One of my Realtor partners, John Carlson, has a personality as big as the state of Texas. I'm sure that's partly why he's always in the top 10% of Santa Clarita's realtors.

It doesn't hurt that he definitely knows his stuff when it comes to buying and selling real estate, of course, but people will always gravitate toward someone who makes them feel immediately at ease and treats them like family.

The first words out of John's mouth when I was first introduced to him were, "You're really tiny." to which all 60 inches of me plus 3 extra inches by way of stilleto heels quipped, "No, I'm aerodynamic. I'm low to the ground."

He may have one joke in his hand and a dozen up his sleeve at all times but the one thing that John doesn't joke about though is a preapproval.

When he tells people time and again, "You're not getting into my car without a preapproval," he means it, and he's not alone. Any realtor worth his or her Open House sign wouldn't touch a prospective buyer with a 10-foot pole without a preapproval either, and why would they?

To be blunt about it, it's bad business to spend your time and energy on buyers who may not even be able to afford the homes that they're looking at. Not when the price of gas is $5/gallon. Not when you don't get paid unless a deal closes.

Unless you're a masochist and get off on having your heart broken, looking at homes when you have no idea how much home you can afford, or if you can afford it at all, is like going into a world-class spa to get the head-to-toe treatment, only to find out you only have enough money to get one brow waxed. You're going to fall in love with a home that you simply can't afford.

So, my advise is, get thee to a loan officer for your preapproval before you ask your Realtor to take you out for a drive.

Top 10 Questions I Ask Borrowers

Let's face it. Lenders don't know us from Adam or Eve, so the only way they can tell how big of a risk we are to them is by measuring us up against a set of guidelines. I call these the 4 C's of Lending.

Here's a list of the top 10 questions I ask my borrowers to determine if they measure up to those guidelines:

1) Do you know what your current credit score is ?
2) Do you have any lates, charge-offs or any kind of delinquencies on your credit cards, auto loans, student loans, etc.
3) Did you co-sign for anyone's loan?
4) How much debt are you carrying right now (especially on your credit cards, auto loans, student loans)?
5) Have you had a bankruptcy or foreclosure?
6) Are there any type of liens against you ?
7) What is your gross annual income ?
8) How much money do you have in a savings/checking account or CD ?
9) If you have a 401k, how much is in it ?
10) If you have stocks or bonds, how much are they currently worth ?

These ten questions merely scratch the surface. The best way to determine whether you qualify and what you qualify for is to actually talk to a trusted mortgage advisor about your particular situation.

Mortgage Monsters Who Give The Industry A Bad Rep

It's a sad fact that a lot of people think that loan officers and mortgage brokers rank even lower on the respectability totem pole than used car salesmen (no offense to the used car salesmen out there who do their jobs with honesty and integrity).

In my quest to ensure that I give my clients the best service possible, I've hung my real estate license at a few mortgage companies. While I loved hanging my hat with the last one, I felt that working with a company that was Los Angeles-based was important for several reasons. Thus, I began my search for the company with the right fit. In my mind, "right fit" meant a mortgage company that is highly regarded within the community, one that charges fair, reasonable rates and which places a high premium on honesty and integrity.

When I first started working in the mortgage industry, I came upon a website called The Mortgage Professor and in it, Jack Guttentag introduced the concept of the Upfront Mortgage Broker or UMB. Ever since then, the UMB Commitment has been my guiding principle as a mortgage professional and it was important that the company that I hung my license with believed in these same principles.

Luckily, I found that company in First Security Lending. Considering that it had been voted the best mortgage company eight years in a row by the City of Burbank, I couldn't have asked for a better new home.

In my quest for a new mortgage company to move to however, I was reminded of why so many people look down on mortgage professionals. I had responded to this one internet posting and got the following email back from Ryan Z:

thank you for your response to my posting on craigslist. I reviewed your website and do no feel that you would be a good fit with my company. I think your section on "YSPs: The Mortgage Industry's Dirtiest Little Secret" is irritating and obnoxious. not that I condone rate abuse, bate and switch or as you put it leaving the client holding the perverbial bag, but honestly I think your feeling about YSP and charging people to help getting them a loan ridiculous. I bet you are the type of person that goes to an expensive restaurant for dinner, orders her food, eats everything on the plate, goes home and the next morning complains that she was over charged and wants her money back. its people like you that actually feels sorry for the borrower that bought houses that they couldn’t afford 2 years later when their loans turned adjustable. I bet you are the type of person that blames the mortgage industry for the housing crisis! either way I would never hire someone like you to work in my office. I am looking for aggressive, intelligent and successful people not kiss asses!

I wish you the best of luck and im sure there is some lucky broker out there that would be blessed to have someone taking up his/her time not charging people! im sure that brokers enjoys giving away free loans!

get a life

I read his email with bemusement, deliberated on whether I should just hit the 'delete' key or shoot him back a response. I decided to go with the latter, and sent him this reply:

Quite the contrary. I do not blame the mortgage industry for the current housing crisis. I blame irresponsible loan officers who put borrowers in loans that they damn well know these people should never have been given in the first place.

True, there is that argument that the lenders should never have come up with these ridiculously lax loan programs in the first place, but as far as I’m concerned, the buck stops with us. If we do what we’re supposed to as mortgage consultants- which is, educate borrowers (so that they know just how much home they could afford, the pitfalls of loan programs du jour. etc.), and help them make the right choices that would not put them in financial disarray, the mortgage meltdown may not be as bad as it is now.

As for some lucky broker out there being blessed with someone like myself who takes up his/her time NOT charging people and giving away free loans, I don’t do my deals for free, I charge what’s fair, and it’s meant having clients for life. Sure, I’ve been known to do the loans for less than what I should be charging. However, what I lose in heavily discounted fees, I more than make up for in the goodwill and constant stream of referrals that I’ve gotten from my past clients. Plus, I sleep soundly at night.

Knowing what I know about you now, you’re the last person whose company name I’d want on my businesscard as well. Being aggressive, intelligent and successful are traits that are laudable in any loan officer. Being greedy is not.

I have a life- one that’s filled with borrowers who have become good friends.

Now go get yourself some integrity.