Beginning our series "Industry Checks & Balances" - at it's core are reliable credit decisions. In an era where most on the origination side know little about how sound credit decisions are arrived at; due to the advent of credit scores and matrix's of scores vs LTV vs DTI ratios, this issue is critical for the long term survival of individual careers and the industry as a whole. We'll explore most of the necessary 'checks & balances' over the next several months.
Sound credit decisions are based upon the 3 Legged Stool custom - NOT ON A COMPUTERIZED CREDIT SCORE ALONE. Character, Capacity & Collateral - it is just that simple, yet that complex. As in a three legged stool, the stronger each leg is, the more solid and reliable it will be.
 In a nutshell ...
Acceptable Character is basically a detailed analysis of the credit report of an applicant, along with their stability of residence and employment. On balance, there is a scale here - from top-notch gold plated all the way down to lousy. The further away from lousy, the stronger that leg of the stool is. And, this one is considered the most important leg by many long experienced credit grantors (like me BTW).
An applicant's (proven verified long-term historically stable) Capacity to good lending decisions is critical, as it is essential any new customer has the ability to repay their debts. The Character leg's strength tells us their willingness to take care of their obligations in an acceptable manner. This Capacity leg however, measures their capacity - their ability - can they afford it? This leg of the stool needs the support of a likely reliable and steady available future income stream so the customer has the funds to make timely payment.
The Collateral which secures the transaction is the third leg of this three legged stool. Obviously, the more security which collateralizes the loan the better, and the stronger the stool will be. This is thought of by many however, as the least important leg of the stool, as it can lose value and is not always of satisfactory quality/marketability, or accessible, upon default.
With two sturdy legs for our stool, with only one weaker, even though not ideal, is still an adequate formula for a more conservative loan approval. Two of the legs weakened is generally a recipe for disaster. Having all three of the legs fragile at origination, barring a miracle, is most certainly a future loss.
An ingredient missing from the recent training regimen of most employers in our industry, is teaching this concept to all personnel. Sure, processors may get a small bit of it via osmosis; naturally underwriters and institutional investors should all be intimately familiar with this sort of thinking; yet it is our observation far too many of them are not. All too regularly, unfortunately mainstream Loan Officers don't have the first clue what it's all about. They see themselves as sales experts - closers, and regrettably not loan analysts as they should be. Yet those very LOs are the face of our industry to nearly everybody outside the business!
It's time for them and everyone else to understand what a good loan is. Register then tell us what you think on our Discussion Board
Who Do You Think You Are, Anyway?
I want to tell you who I think you are. I think you're a true industry professional looking to improve your own career, with good morals, sound ethics and admirable integrity as you engage in your activities here in the consumer residential real estate mortgage lending industry (or you wouldn't be among the Friends of Secret! University readership). Further, I'm reasonably sure you joined our industry since August 1998.
Given your years in the business, being raised somewhere along the timeline and the environment of the Aug.'98 to Dec.'05 cycle ... that gives you certain characteristics which differ from the people who grew in the cycle before that time - the '88 to '98 one, or those of us who entered the industry well before that (BTW, I hope you saw the September 2007 newsletter, it contains one of the best pieces I feel I have written about my eye-witness account of the last four (4) 'corrections').
Right now, you're enjoying the initial cleansing period, a sort of 'punishment phase' of today's overall cycle - that began in late Dec.'05 until ... (my guess 10 years in length) - the much shorter harsh 'punishment' portion of this new cycle should be over shortly, by the way.
Therefore considering your entry and exposure to both conforming and non-conforming loans during that period, your 'take' on what's needed today by you and others of your industry generation, is far less limited than say, mine.
At Secret! University, we pride ourselves on having a comprehensive mortgage education and training instructional curriculum, where you can Reach Higher because We Do More!
One such method of providing certain mortgage lessons, is via our CDs. Below is a listing of what's available today:
Emerging Mortgage Banker 101
LO Orientation 101, 201 & 301
Working at Home Originators 101
Secret! Resource Guide 101
Commercial Loan Brokerage 101
Advertising 101
Personnel 101 & 201
Going Out on My Own 101 & 201
Subprime 101 & 201
98 Ways to Find Customers 301
Superman's Cape 301
Lesson for the Times 301
We're open to your suggestions, made to order tailored projects, etc. Today I want to ask you to please let us know, which additional CDs do you think we should offer. Are there other topics you feel you and your friends in the business would like to pick up from us, if only they were offered. Register on our Discussion Board and help us expand the CD lessons we offer
DON'T YOU DARE Advise Clients to 'Walk Away'
Fannie Mae Releases Warning To Those Facing Foreclosure
If you are facing foreclosure or planning to walk away from your mortgage obligations, Fannie Mae has a strict warning for you.
Borrowers facing foreclosure will be unable to obtain a loan for up to five years through the mortgage giant, unless there is "documented extenuating circumstances” in which those borrowers would have to wait up to 3 years for a new mortgage, according to a release by Fannie Mae.
If your home does end up in foreclosure, in order to get a new mortgage loan you will need to come up with a 10 percent down payment and your FICO score must be 680 or higher after waiting 3 to 5 years.
With home values decreasing dramatically in certain markets around the country, many homeowners owe more than what their property is worth. This has led to a number of websites claiming that for a small fee they will show you how to stay in your home for 8 months or more without making any mortgage payments.
If you are facing foreclosure there are programs out there such as Project Lifeline, Home Now and FHASecure that the US government has set in place. These programs have helped hundreds of thousands of homeowners save their home from foreclosure.
Fannie Mae wants it to be known that foreclosure should be your last option after you have exhausted all other possibilities ... Freddie is expected to follow suit! Register on our Discussion Board and Give us Your Views on this topic!
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