| Residential real estate loans have evolved into a multi-billion dollar per year industry. The industry has grown significantly over the last ten years and so has the manner in which a buyer obtains a home loan.
For many years obtaining a home loan was a relatively simple operation. The buyer would simply drop by the local savings and loan association or bank to get the process started. Lending was only marginally competitive from branch to branch and a few key lenders provided most of the real estate loans for home sales on the Palos Verdes Peninsula.
De-regulation in the financing arena brought with it a host of additional sources for funds and the few choices a buyer had for a home loan turned into many. Acting as middle men, loan brokers began shopping home loans through entities as diverse as pension funds and overseas investors. Just when it seemed like competition for home loans could not get any more diverse, someone woke up and invented the Internet!
With the Internet in place, home financing became even more competitive. Geography was no longer a serious limitation and if a buyer could shave off another 1/4 point from his home loan by shopping on-line, it was worth the learning curve. The number of home buyers obtaining loans via the Internet is growing.
A good web site to review various lending sources and interest rates is BANK RATE.COM.
Today's borrowers have many other choices. They can still sit down face to face with the local bank, or they can shop for loans by using a Mortgage Broker. Those with the time and tenacity it takes to shop on-line will find the list of choices increasing daily.
Curious about how your credit score is put together? Drop by the MY FICO web site to obtain further information!
For information on Private Mortgage Insurance (PMI) on residential loans there is plenty of good information on PRIVATE MI.COM and MICA NEWS.COM.
This section of the Real Estate Update was designed to help buyers in all of these categories, including: * PALOS VERDES PENINSULA BANKS AND LENDERS* MORTGAGE BROKERS IN THE PENINSULA AREA* ON-LINE LENDERS ON THE INTERNET Looking for general information on loans? The links below offer a lot of good basic information,
plus loan payment information. * GENERAL REAL ESTATE LOAN INFORMATION can help you with a host of basic questions about real estate loans.* CUSTOM MORTGAGE QUOTES is a great place to get information on various loan options and today's interest rates. * E-LOAN'S MONTHLY PAYMENT CALCULATOR is an easy place to figure out monthly payments for new real estate loans. * FREQUENTLY ASKED QUESTIONS (F.A.Q.s) might have just the answer you are looking for on various loan issues. For general financial information feel free to drop by the web site of FOOL.COMSMART MONEY.COM.
P.V. BANKS AND LENDERSNo matter how many companies offer home loans on-line,
there will always be borrowers who want to sit down face to face with the lender they are borrowing from. There are still plenty of local banks on the Peninsula happy to be of service. BANK OF AMERICA - MALAGA COVE PLAZA
Telephone (310) 884-1870.
22 Malaga Cove Plaza, Palos Verdes Estates, California, 90274. BANK OF AMERICA - PENINSULA CENTER
Telephone (310) 798-4467.
27411 Hawthorne Boulevard, Rolling Hills Estates, California, 90274. BAY CITIES NATIONAL BANK
Telephone (310) 541-4518.
395 Silver Spur Road, Rolling Hills Estates, California, 90274. COUNTRYWIDE
Telephone (310) 370-4633.
4340 Redondo Beach Blvd., Torrance, California, 90503. CITI BANK
Telephone (800) 843-2265.
601 Silver Spur Road, Rolling Hills Estates, California, 90274. EAST WEST BANK
Telephone (310) 544-1556.
27421 Hawthorne Boulevard, Rolling Hills Estates, California, 90274. HIGHLAND FEDERAL BANK
Telephone (310) 519-7300.
20 Miraleste Plaza, Rancho Palos Verdes, California, 90274. MALAGA BANK - MALAGA COVE PLAZA
Telephone (310) 375-9000.
2514 Via Tejon, Palos Verdes Estates, California, 90274. MALAGA BANK - PENINSULA CENTER
Telephone (310) 541-3000.
27450 Hawthorne Boulevard, Rolling Hills Estates, California, 90274. UNION BANK OF CALIFORNIA
Telephone (310) 541-2571.
507 Silver Spur Road, Rolling Hills Estates, California, 90274. WASHINGTON MUTUAL
Telephone (310) 544-7331.
27525 South Indian Peak Road, Rolling Hills Estates, California, 90274. WELLS FARGO BANK
Telephone (310) 377-5514.
27440 Hawthorne Boulevard, Rolling Hills Estates, California, 90274.
MORTGAGE BROKERS
Mortgage Brokers provide a very valuable service. Although they are local in nature, they offer many sources of funds unavailable at the neighborhood level. These lenders offer funds at various interest rates and terms, depending on the financial market conditions that change daily. Since each loan package is unique, a Mortgage Broker can usually dovetail each individual loan package with the lender offering the best rates for that particular borrower. AMERICAN CAPITAL MORTGAGE
Telephone (310) 640-0100.
Fax (310) 640-0310.
2121 Rosecrans Avenue, Sixth Floor, El Segundo, California, 90245. AMERICAN INVESTMENT MORTGAGE
Telephone (310) 784-8800.
Fax (310) 891-0800.
2601 Airport Drive, Suite 120, Torrance, California, 90505. CAPWEST FINANCIAL
Telephone (310) 378-0126.
Fax (310) 378-0167.
2516 Via Tejon, Suite 119, Palos Verdes Estates, California, 90274. CRESTWOOD MORTGAGE
Telephone (310) 792-9293.
Fax (310) 792-0806
21707 Hawthorne Boulevard, Suite 201, Torrance, California, 90503. CROSSLAND MORTGAGE
Telephone (310) 791-2400.
Fax (310) 791-2406.
23133 Hawthorne Boulevard, Suite 306, Torrance, California, 90503. PACIFIC CAPITAL GROUP
Telephone (310) 372-1999.
Fax (310) 372-0881.
111 North Sepulveda Boulevard, Manhattan Beach California, 90266. PALOS VERDES FUNDING GROUP
Telephone (310) 791-5757.
Fax (310) 791-0944.
2550 Via Tejon, Suite D, Palos Verdes Estates, California, 90274. PENINSULA MORTGAGE
Telephone (310) 791-2297.
Fax (310) 373-5874.
63 Malaga Cove Plaza, Palos Verdes Estates, California, 90274. PROFED MORTGAGE
Telephone (310) 373-9470.
Fax (310) 373-9233.
22805 Hawthorne Boulevard, Torrance, California, 90505. PROGRESSIVE LOAN FUNDING
Telephone (310) 523-8364.
Fax (310) 640-0777.
2041 Rosecrans Avenue, Suite 230, El Segundo, California, 90245. ROCKLAND FINANCIAL
Telephone (310) 798-3888.
Fax (310) 798-3880.
2247 Pacific Coast Highway, Suite 201, Hermosa Beach, California, 90254. TEAM FINANCIAL SERVICES
Telephone (310) 787-8700.
Fax (310) 212-3155.
2377 Crenshaw Boulevard, Suite 155, Torrance, California, 90501. VALUE MORTGAGE
Telephone (310) 316-4039.
Fax (310) 316-2886.
800 West Torrance Boulevard, Redondo Beach, California, 90277. WILLIAM GREGORY MORTGAGE
Telephone (310) 937-7577.
Fax (310) 937-7588.
111 North Sepulveda Boulevard, Suite 240, Manhattan Beach, California, 90266. WORLD CLASS MORTGAGE
Telephone (310) 541-5649.
Fax (310) 541-3153.
580 Silver Spur Road, Rancho Palos Verdes, California, 90275.
ON-LINE LENDERSOn-line lending is in it's infancy, but it is obviously here to stay, and for good reason. Without the high overhead of fancy offices, these lenders can offer very competitive loan rates.The downside is that, at least today, few of these lenders have been around long enough to prove a long-standing track record of good service and customer satisfaction. With many of today's bottom-line oriented borrowers, the lack of personal service is a small price to pay for a great loan rate.
GENERAL REAL ESTATE LOAN INFORMATION In this section of the Real Estate Update, different aspects of real estate financing are explained, such as: LOAN TYPES LOAN REGULATIONS LOAN QUALIFYING LOAN PACKAGING LOAN COSTS LOAN SERVICING
TYPES OF REAL ESTATE LOANS CONFORMING LOANS Conforming loans are loans that are packaged to conform to FNMA (Fannie Mae) and FDMC (Freddie Mac) guidelines, so they can be readily sold in the secondary mortgage market.
The loan limits for conforming loans are usually increased each year, and are $252,700 for 2000. The annual loan limit increases of conforming loans generally reflect increases in the national inflation rate, in an effort to maintain the number of buyers able utilize the program. Selling these loan packages in the secondary mortgage market allows lenders to continue keep lending new funds for residential purchases or refinances on an ongoing basis. This competitive lending environment has contributed significantly to the relatively stable cost of borrowing money. JUMBO LOANS Jumbo loans are loans that are higher than the conforming loan limit of $240,000. Although these loans are also sold in the open market, the consistency of the loan packages is more diverse, and the pool of buyers for these loans is not as great as those for conventional loans. Because they are not as easily packaged and sold, the interest rates on jumbo loans tend to be higher than the interest rates on conforming loans.
On average, jumbo loans run approximately 3/8% to 1/2% percent higher than conforming loans. FIXED RATE LOANS Fixed rate loans are usually the first choice of buyers when interest rates are low. Most fixed rate residential loans are for a 30 year term, although 15 year fixed rate loans are also popular. Although some lenders offer fixed rate loans for a 40 year term, the slight decrease in monthly payments does not entice a very large percentage of borrowers. Fixed rate loans decline in popularity when interest rates rise, because borrowers find it difficult to qualify for the necessary loan amounts at the higher rates. In the past, when interest rates on fixed rate loans increased into double-digits, the majority of home buyers switched to Adjustable Rate Mortgages (A.R.M.s) to be able to qualify for higher loan amounts. ADJUSTABLE RATE LOANS Some people consider Adjustable Rate Loans (A.R.M.s) a necessary evil in the lending industry. For marginally qualified buyers,
or buyers who do not expect to keep a property more than a few years, A.R.M.s serve an important purpose. Adjustable Rate Mortgages often start out at a very low interest rate (often called the teaser rate), but within 6 months to a year, roll over to the fully indexed rate. This indexed rate is usually the combined total of the spread of the loan added to the interest rate of the index being used (such as the 6 month T-bill rate). This fully indexed rate can be adjusted on a regular basis throughout the course of the loan, and the monthly payment on the loan can adjust as well. NEGATIVE AMORTIZATION LOANS Negative amortization loans have had their share of bad publicity, much of it unwarranted. Negative am loans, as they are called, are Adjustable Rate Loans that offer the borrower the option of paying higher monthly payments when interest rates rise, or to choose a lower interest rate and to let the accrued monthly payment difference be added to the outstanding loan balance.
Tacking on these accrued payment to the loan balance is an acceptable solution for some borrowers, as long as it does not increase the loan balance significantly. Some borrowers got into trouble in years past when the loan balance increased to a level equal to or greater than the value of the property. Can you say "upside down"? When this happens, the buyer's incentive to keep the property can be reduced. For many borrowers, the amount of money added to the loan balance was not substantial and the negative amortization loan allowed these borrowers to purchase properties that might otherwise have been out of their financial reach. FULLY AMORTIZED LOANS Fully amortized loans are principal and interest loans that provide for the loan to be completely paid off by the end of the loan term. The payments on these loans in the early years consist mainly of interest costs, with a nominal amount of the monthly payment going towards the principal balance. As the loan proceeds through the term of the loan,
the amount of the monthly payment that goes towards the principal balance increases each month, while the amount of the payment that goes towards the interest, decreases. Near the end of the loan term, the vast majority of the loan payment is used to pay off the principal, and very little of the monthly payment goes towards interest. When the last payment is made, the loan is paid off in full! BALLOON PAYMENT LOANS Loans that have a principal balance due at the end of the loan term are balloon payment loans. These loans can be loans that are structured as amortized loans that feature due dates prior to the fully amortization term. An example of this type of loan would be a loan amortized over a 30 year term, due and payable in 5 years. Because of the shorter term, the interest rates on these loans can be less than fully amortized 30 year loans. Balloon payment loans can also be interest only loans, where the borrower's monthly payments have gone towards interest payments only and the principal
balance has not declined over the course of the loan. This type of loan is also called a Straight Note. The important thing to remember with balloon payment loans is that they are due in full at the end of their term. Borrowers needing to pay off a loan with balloon payments need to plan in advance. Some of the options include paying off the loan balance with cash, refinancing the loan, or selling the property. Another possibility is to request an extention of the loan term from the lender, but this request should be done well in advance, and the borrower must be prepared to pay off the loan if the lender is unwilling to extend the term of debt. 15 YEAR LOANS Some borrowers love 15 year amortized loans, but there are several issues to consider before applying for a 15 year loan. There are two main advantages to 15 year loans. The interest rates on 15 year loans tend to be less than conventional 30 year loans. The amount of the interest rate can vary from lender to lender,
but these loans are generally 3/8% less than their 30 year counterpart. The other advantage is the amount of interest paid over the life of the loan. Because of the shorter amortization period, borrowers can save many thousands of dollars when choosing a 15 year loan over a 30 year loan. On the down side, the monthly payments on a 15 year loan are usually several hundred dollars more per month than 30 year loans, because of the shorter amortization period. For those who want the advantage of interest savings over the life of the loan, another option is popular. Borrowers who have 30 year loans often choose to make monthly payments greater than the monthly payment actually due, stipulating that the extra money be used to pay down the principal balance. If used consistently, this payment method can effectively shorten the term of the loan to between 15 and 20 years. The beauty of this method is that the borrower has the option each month of making higher payments, whereas on 15 year loans these payments are mandatory. For further information on paying off a home mortgage early, check out the informative web site of DECISION AIDE ANALYTICS. GOVERNMENT LOANS
Government loans are not commonly used in our area because of the lower loan limits. Still, it is good to be aware of these loans, and what they offer. F.H.A. LOANS
Established under the provisions of the National Housing Act of 1934, the Federal Housing Administration is a system of mortgage loan insurance backed by the U.S. government. Essentially the F.H.A. insures private lender loans against losses. The main advantage of these loans for the borrower is the low down payment, no pre-payment penalty, and the loans are fully assumable to a new buyer. In addition, the F.H.A. allows the buyer's settlement cost to be included in the loan amount, and also allows the seller to pay some of the buyer's closing costs. In 1999 the FHA mortgage range is from $109,032 to $197,620 for single homes and condos. V.A. LOANS
Veteran Administration loans are real estate loans for U.S. Veterans who meet the V.A. guidelines, and who are able to obtain a certificate of eligibility. V.A. Title III loans are managed by 55 regional offices throughout the U.S.,
and are guaranteed by the U.S. Government. The loans are actually funded by various lending entities, such as commercial banks, savings and loans, and mortgage bankers. The V.A. guarantees these lenders against any losses, if the borrower defaults. Interest rates on these loans is no longer set by the V.A., so buyers are free to shop for the best available rates. Qualifying guidelines for V.A. loans are normal for the industry, and the property must also qualify by receiving a Certificate of Reasonable Value, or C.R.V. The C.R.V. is issued by a certified V.A. appraiser, and is valid for 6 months. CAL VET LOANS
Originated in 1921, the California Veterans Farm And Home Purchase Program (Cal-Vet) loans are available to California veterans if they have served at least 90 days of active service in the military, and have met the other Cal Vet guidelines. Unlike F.H.A. and V.A. loans, Cal Vet loans are actually funded by the state via the Department of Veteran Affairs. The advantage of these loans to borrowers include lower down payments. One unique feature of a Cal-Vet loan is that,
even though the borrower owns the property, the full title does not pass to the buyer until the loan has been fully repaid. Additional information on Cal-Vet loans can be obtained by contacting the Cal-Vet Sales Office: Cal-Vet District Office, 2710 Gateway Oaks Drive, Suite 190, North Sacramento, California, 95833. Telephone (916) 263-3515. For more information on loans by the CALIFORNIA HOUSING FINANCE AGENCY check out their web site! A-B-C PAPER Loan applications can be "graded" to indicate the quality of the package. "A" paper loans are loans with the least amount of risk to the lender, "B" loans offer a slightly greater risk, and so on. The lower the grade of the loan application, the higher the interest rates and points the borrower can expect to pay. The higher costs associated with these loans is necessary to offset the higher risk involved with carrying the loan. If you do not make your payments on time for a "C" paper loan, a guy named "Guido" may pay you a visit! HARD MONEY LOANS Hard money loans are generally loans
where the lender places little value on the qualification of the borrower, and places a greater emphasis on the equity in the property. Consequently, the borrower's credit and debt-to-income ratios take a back seat to the actual equity in the subject property. Since equity plays such a large part in hard money loans, the appraisal of the property is critical. Most hard money lenders avoid high loan-to-value ratios, and try to keep the equity position in the property as high as possible. Interest rates and points on these types of loans are not even close to conventional loans. Interest rates can easily run 3 to 5 points higher than a normal loan, and points can range from 8 to 12 or more, depending on the variables of the loan package. Hard money loans are usually short term loans, ranging from 6 months to 2 years, although with a hard money loan, everything is negotiable (for a price)! A good example of a company that lends hard money loans is HOPE 4 LOANS. REVERSE EQUITY LOANS Reverse Equity Loans provide an interesting twist for homeowners. These loans were designed mainly for elderly homeowners who are equity rich but lacking in monthly income.
With Reverse Equity Loans the lender pays the borrower a payment each month, based on the equity in the property. The borrower is usually happy with this arrangement, because they are able to generate an income stream without having to sell the property. The lender is happy because they are generally in a very strong equity position with their loan, and the interest rate they receive is higher than a conventional loan. These loans are usually paid off from the proceeds of the sale of the subject property after the borrower has passed away. For more information on Reverse Mortgage Income, Robert Bruss has a booklet available with all the details. The booklet is $4 and the address is Robert Bruss, 251 Park Road, Burlingame, California, 94010. Or you may call (800) 736-1736 for credit card orders.
LOAN REGULATIONS The government has it's influence on many things, and real estate loans are no exception. Working under the premise of consumer protection, the Federal and State Governments have established several different programs to protect the borrower. CALIFORNIA HOUSING FINANCIAL DISCRIMINATION ACT Enacted in 1977 in an effort to eliminate red-lining, this law makes it
illegal for a lender to deny a loan or to change loan terms for reasons unrelated to the borrower's credit. This law pertains to owner-occupied homes of one to four units, and is enforced by the Business and Transportation Authority. EQUAL CREDIT OPPORTUNITY ACT This law prohibits lenders from discriminating because of sex, marital status, age, race, religion, national origin, or because the applicant is receiving public assistance. FAIR CREDIT REPORTING ACT This law restricts credit reports to those with legitimate needs only. It stipulates that a credit report cannot be made unless it is disclosed to the consumer, and that the consumer has a right to know the information contained in the report. This law also gives the consumer the right to have disputed material investigated, and allows the consumer the right to place a statement of explanation of a dispute in his or her file. REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) This federal loan disclosure act
applies to federally related first mortgages, and was designed to provide consumers with lender settlement costs in a timely fashion on loans for one to four residential units. This regulation requires that the lender provide a good faith estimate of costs within three business days of the loan application. This act also prohibits kickbacks and referral fees from service providers. SOLDIERS AND SAILORS CIVIL RELIEF ACT Designed for persons in military service, this law restricts a lender from foreclosing on a property if the loan was initiated before the borrower entered the Armed Forces. The lender can foreclose, but must wait three months until the borrower has left the service. Most loan applications require that the borrower sign an affidavit indicating that the borrower has not been in military service. TRUTH IN LENDING LAW (REGULATION Z) Designed as part of the Consumer Protection Act of 1968, this law was designed to inform consumers what they are paying for credit in a percentage term (annual percentage rate),
as well as the total finance charges. This law is for ads for residential properties that are owner occupied. Information provided to the consumer must include monthly payments, the term of the loan, and the dollar amount of finance charges. This law makes bait and switch advertising a federal offense. This law features a provision allowing the borrower a three day recession right, and also allows the borrower the right to waive the recession period if the loan is needed immediately.
LOAN QUALIFYING Even though the property is being used as collateral for the loan, most lenders do not want to reach the stage where they have to consider taking back a property. Lenders are in the business of lending money, lenders are not in the business of turning over properties to recapture delinquent loans. Qualifying for loans is an extremely important part of the home lending process. The qualifying guidelines for real estate loans can vary from very strict to very lenient.
The interest rates on these loans is generally tied to the buyer's qualifications. Loans with the best rates and terms tend to be the hardest to qualify for. The lenders want to see all of the proper financial data; including a low debt to income ratio, significant down payment, low outstanding debt, high cash reserves, high FICA credit scores, stable employment, and any other financial data that will help to establish the buyer as a low risk factor. Most lenders like to see the buyer's total monthly housing costs at or below 32% of the buyer's gross monthly income, although higher ratios are commonly accepted. This is called the buyer's "front-end ratio". Lenders come in many shapes and sizes and there are other loan plans available for buyers with marginal income, low down payments, high debt to income ratios, bad credit, and short term employment. Obviously these loan packages offer greater risk, so the loan points and interest rates for these risky loans are higher than those of the "A" paper borrowers. Borrowers looking for easier qualifying guidelines often look for lenders who "portfolio" some of their loans. This is a term for lenders
who choose to keep either some or all of their loans in house, rather than selling them in the secondary mortgage market, thereby allowing them to be more flexible with the loan qualifying process. For more information on PRIVATE MORTGAGE INSURANCE required by most lenders when you have a small down payment, drop by this web site for more information.
LOAN PACKAGING Unlike the financial markets of the 70's and 80's, completed real estate loans are rarely held by the originating lender. Lenders today usually package real estate loans to sell to the secondary mortgage market, to create new cash to lend on new real estate loans. These loans are usually bundled in groups of loans, and are often sold several times throughout the term of the loan. These loans may or may not continue to be serviced by the originating lender. Understanding this process might help relieve some of the anxiety present during the loan application process. Many borrowers today are frustrated by the amount of documentation required by their lender during the course of the loan approval process. Just when it seems like you have given the lender every
conceivable piece of personal information possible, they come back and ask for another obscure piece of paper. This is commonly called over-documentation, and is done in an effort to put together the best possible loan package to sell to the secondary mortgate market. Lenders who keep their loans and who do not sell them in the secondary marketplace are called portfolio lenders. These loans are generally packaged with less restrictive guidelines.
LOAN COSTS There can be many costs associated with procuring real estate loans, however, most of them are fairly predictable. This alphabetical list represents many of the potential costs associated with obtaining a loan. Competition in the lending marketplace has helped keep most of these costs reasonable, although some lenders will attempt to include additional "garbage fees" in an effort to increase the total profit of a loan package.* Application fee ($0 to $350) * Appraisal fee ($300 - $600)* Credit report ($25 - $75)* Document fee ($100 - $300)
* Notary fee ($35 - $45)* Loan points ($0 - $!!!!)* Processing fee ($100 - $400)* Recording fee ($35 - $45)* Tax service ($75 - $100)* Underwriting fee ($300 - $400)Except for points, most of these lender fees are not tax deductable. In addition to the above costs, borrowers can expect to pay a fee for escrow services and title insurance, the cost of both being tied to the sales price or refinance amount.
LOAN SERVICING For many years the lender who lent the money to the borrower was also the entity that serviced the loan. Each month, when the loan statement showed up in the mailbox, you were pretty certain that your payment would be made to the original lender, and that the original lender still held the note. Today, things are very different. Real estate loans are packaged and bundled by the thousands each month and then sold to the secondary mortgage market. It is possible that a loan funded 2 months ago is already in the hands of a different institution,
or it could happen many months or years later. Since the loan may or may not continue to be serviced by the original lender after it is sold, it may not be obvious to the borrower if a change has taken place. Problems can develop when the lender who purchased the loan does not happen to be as conscientious as the original packaging lender. Stories of improper billing statements from the new lender are not uncommon, and it can take a significant degree of effort on the part of the borrower to straighten things out. In all fairness to the lending industry, most loans that are sold do not experience these types of problems. However, it is a good idea to understand that this process does take place with an increasing number of real estate loans, and to keep a casual watch on mortgage statement bills as one progresses through the loan term. |
