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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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