6 Warning Signs of A Bad Mortgage Loan

In the world of Real Estate, there are two very important professionals that the client needs to deal with when purchasing a home. A lot of real-estate agents and mortgage originators team up together to help the client with finding a home and financing the home. As a real-estate agent, you should be aware of the 6 signs to a bad mortgage so that you make sure your client is getting offered the best products around. (Especially if you are working with a mortgage professional that you aren’t familiar with)  As a mortgage originator, you should be aware of the 6 signs so that you aren’t putting your client into a bad mortgage or you can advise someone who is about to get into a bad mortgage.

1. Tells the client that they can be “creative” with the financing. Well, if “creative” constitutes falsifying information then there could be jail time, fines and possibly the full note called due at that time. Unfortunately, there has been a lot of press on mortgage professionals and clients falsifying documents to get the transactions done. Be leery of “creative” financing. Find out all the details and make sure nothing is fraudulent.

2. Being pushed into too high of a payment. The client needs to sit down and make a budget. Lenders don’t account for every little bill the client may have when qualifying them for financing. There are certain items not calculated into the debt ratio that may effect whether or not they can actually make that payment. Lenders also use gross income which the client only has net income to cover the bills.

3. Make sure the borrower is given the proper disclosures. A mortgage professional is required by law to give the borrower a copy of the Truth in Lending (which discloses the APR) and a Good Faith Estimate (which is a breakdown of the estimated closing costs). These documents must be given to the borrower within 3 days of application. Make sure the borrower understands these documents and if they don’t make sure they seek out their mortgage professional to explain them in detail to them so they do understand.

4. Be very careful of those professionals who promise one thing and then deliver another just before closing. If you are using an experienced mortgage professional, there should be no surprises just before the signing. Sometimes situations do come up throughout the process of the loan. However, the borrower should be notified immediately of any issues and how their loan will be changed so together they can decide if the mortgage still meets their budget.

5. Asked to sign blank papers. This is NEVER ok. Nobody involved in a financial transaction such as a mortgage should be signing any blank papers. You need to advise the borrower to put an X thru the document and then sign. If that is unacceptable by the mortgage professional then they need to report that person to his/her superior or the MLD.

6. Won’t give copies of signed paperwork. The borrower has a right to have copies of the initial signed paperwork so they can review them at their convenience. These documents are preliminary numbers in the beginning of the transaction. There should be nothing to hide by the mortgage professional and if they won’t give copies of signed papers, the borrower needs to ask “What are they hiding?”.

These are 6 of the most common red flags that come up when people are applying for financing. It is important that professionals in the real-estate industry are aware of these things, in case, it happens to their client. This way we can all protect the consumer from a bad loan. Bad loans only hurt the industry and the consumer in the long run. It is our job as professionals to help stop this from happening when people are trying to finance their dream home. We all want our clients to realize the dream of home ownership now we need to make sure that their dream doesn’t turn into a bad nightmare with the wrong financing.

Realtors and mortgage originators have been plagued with the declining market policies put into place by Fannie Mae over the last several months. It has been frustrating for clients who want to purchase a home in these areas because they have had to put an extra 5% down. They can find a home for a great price but they are required to have a minimum on 10% down due to the area where they are purchasing. This was discouraging potential buyers from buying homes in the areas hardest hit by foreclosures.

It was also very discouraging for those home owners who needed to refinance their home due to ARM’s expiring. With the value of homes declining in the Las Vegas area, many borrowers were finding that in order to refinance their mortgage and stop the interest rate from adjusting that they needed to borrower 95% of the homes value. With the new guidelines in place for declining markets, it was making it impossible for some people to refinance and stop the interest rate and their payments from increasing. As a result, some were losing their homes which creates more foreclosures on the market.

Fannie Mae has changed their requirements after they have been hearing concerns from professionals in all areas of the real estate industry. Effective June 1st, clients can finance up to 95%  for purchase transactions and refinance transactions. This should help spark the purchase market in areas where the foreclosure ratings are high and reinforce the goal of successful home owning again. It will also help those who are in need of refinancing to get out from under their ARM loan before they can’t afford their payment anymore.

Overall, this is a positive move in the lending industry that should help generate new home sales and stop others from losing their homes because of increasing rates and payments. I am looking forward to seeing how this change will effect the Las Vegas real estate market.

Is there still a need for Las Vegas Discount Realtors in this real estate market?  The premise for discount Realtors was to discount their “commissions” to make it more affordable for those sellers that only wanted to pay for certain services.  So instead of providing a full service, discount Realtors only provided the services the seller was willing to pay.

Back in 2004 and 2005 when homes were flying off the market as soon as they were placed for sale, sellers were looking for discount Realtors as they knew their home would sell as soon as they entered it into the Multiple Listing Service.  Even full service real estate brokerages were lowering their commissions in order to satisfy their sellers as they knew the real estate market wasn’t bearing a 6% or 7% commission.  But that is just not the case in this real estate market.  There is way too much inventory and in order to sell a home, it is imperative that a home gets as much exposure as possible to get potential buyers to walk through the door.  Which means, Las Vegas Real Estate Agents need to market their listings, which costs money!

Many Las Vegas Discount Realtors, not all of them, just place their listings in Multiple Listing Service and wait for another Las Vegas Real Estate Agent to bring them a buyer.  Unfortunately, that is not going to sell a home in this market!  There are way too many homes for sale and now that homeowners have to compete with bank owned and short sale properties, it is imperative that they price their home accordingly and their real estate agent needs to get as much exposure as possible!  So I just don’t see where a discount Realtor can compete with a full service Realtor and provide the same marketing and exposure the home needs to sale.

Not sure if we have hit the “bottom” of the Las Vegas real estate market that everyone keeps asking about.  I know that several of my sellers participating in our Las Vegas For Sale by Owner program are certainly anxious for better news.

Here is what I’m paying attention to from a mortgage originator’s point of view:

With the Las Vegas median home price finally getting back to a range of $235,875 in March 08, according to GLVAR statistics, the price is down 22.7 percent from a year ago.  This impacts many of the residents living and working in the Las Vegas community because they can now afford to purchase a home.

FHA lending limits were recently increased to $400,000 in Clark County.  As one of the few available mortgage programs that still allows for 100% financing, FHA mortgages are opening the doors to home ownership for many new buyers.  Otherwise, a borrower applying for a conventional mortgage loan needs to budget a minimum 10% down payment.  Obviously, there are several other qualifying factors that banks consider for approval, such as income, credit, employment history, and residence status.

In regards to Las Vegas market trends, the housing inventory levels and new contracts have made dramatic  changes in a very positive direction.  In October of 2007, the average days on market (DOM) for a single family residence below $400,000 hit a high of 381.  This means that if no additional inventory was added, it would take 381 days to sell that home.  In March of 2008, as reported by The National Association of Real Estate Investment Advisors, the new (DOM) average has been lowered to 135.  In addition, the number of new contracts has increased from 1994 units in January 2008 to 3921 in March 2008.

We still have another year or so of adjustable rate mortgages coming due that were originated in 2005 and early 2006.  However, most of those home owners have already started making arrangements with their banks or have put their homes on the market as a short sale.

2007 was a difficult year for all of us because the correction hit us so fast.  Now, most sellers are willing to acknowledge that fact that their properties may not be worth what they paid for them during the boom.  With this new level of general market awareness, sellers are making better educated decisions about the true value of their properties.

Once those foreclosures resulting from ARMs are cleared, I believe that there will be a great sense of stability in the Las Vegas real estate market.  As a loan officer, I can tell you that 100% of my 2007 and 2008 closings were 30 year fixed rate mortgages with very low interest rates.  I’ve seen the speculators leave the business, and my current clients are planning on staying a while.

If you have to sell, price and exposure are the two things moving properties right now.  Another option would be to look at a possible refinance to get you out of that ARM or higher interest rate.

Las Vegas Home prices are at levels we haven’t seen since early 2004.

That’s the year when home prices began to increase by 30% – 50% in some areas of the Las Vegas Valley.  I am not sure how much further home prices can drop, but as long as foreclosures continue to be so widespread in Las Vegas there is a chance that prices could keep falling.

What does this mean for potential buyers? 

It means a great deal on a home that just two years ago would have been priced way out of their budget. With interest rates still very low, buyers have an opportunity to get into their dream home with their closing costs paid and with a low interest rate!  Even Las Vegas Home Builders are giving incentives that you would not have seen in 2004 or 2005.  Take advantage of the real estate market in Las Vegas before home prices begin to rebound.

Have you been trying to sell your Las Vegas Home and just can’t seem to get an offer or at least an offer that is close to what you are asking?  Is your home listed with a Las Vegas Real Estate Agent?  Are you wondering if your real estate agent is doing everything they can to get your home sold?  Well, they probably are doing everything they can!

If you are not behind in any payments and actually have equity, you probably can’t offer your home at a price that can compare to bank owned and shortsales in your neighbourhood.  According to Scott Nelson with Stewart Title of Las Vegas, over 95% of the homes in escrow are bank owned or shortsales.  That tells you that unless you can price your home comparable to Las Vegas Bank Owned homes, you will have a very hard time selling your home.

So what do you do?  Rent your Las Vegas Home!  Rental prices are rising and you have a better chance of renting your home than selling it!  So if you can afford to wait until the market becomes a little more favourable to sellers, rent your Las Vegas Home.

Oil executives were summoned to the Senate today to discuss the rise in prices of oil.  The Oil Executives defended prices stating that prices are set based on supply and demand.  They stated that supply was tight and demand is up across the world causing prices to increase.

The Senate’s stance was that Americans were hurting in the pocket book as the average cost to fill up the gas tank is $60 and the big Oil Companies are generating record profits, $36 billion in just the first quarter of this year.

It’s ridiculous that these Oil Companies are generating these type of profits when the average person can barely afford to cover their monthly expenses as the price of gas, food and utilities keep rising!  When will the government step in and demand the Oil Companies make changes to drive down the cost of gas?  When will the government force Saudi Arabia to produce more oil?  Something needs to change and quickly, we just cannot afford to keep paying these prices for gasoline!

Since the mortgage industry is consistently changing their programs, it has been difficult to keep your borrower qualified and get the loan closed. By the time you submit the loan and you schedule a signing, a million things can change and that causes lots of issues for everyone involved in the transaction.

FHA has proven to be a solid program for those who are looking to purchase or refinance. The interest rates are a little better then conventional pricing on a 30 year fixed. There is a 3% minimum down payment requirement that can be a gift of equity or the buyer can use the down payment assistance program. The seller is also allowed to contribute up to 6% seller concessions. This makes it easier for those clients who don’t have a lot of money to bring to the table.

If the home is in rough shape and needs to have repairs that is not a problem for FHA. There is a program that will allow the purchase of a home in need of repairs and not require the repairs to be done prior to closing. They will lend the purchase price and the amount needed up to $35,000 (I will have to double check that figure) for repairs to the home. It is a strong program for those homes that have been let go and the owners don’t want to put the money into the property before they sell it. Especially works well for REO’s.

If you want more information on FHA financing, please don’t hesitate to contact me.

On May 18th, Lou Dobbs, CNN Anchor was the keynote speaker at the 2008 International Council of Shopping Center’s Real Estate Convention being held at the Las Vegas Hilton.  Mr. Dobbs spoke to tens of thousands of real estate professionals about the real estate industry and the economy.  He summed up the U.S. economic situation as “normal business cycle”.

Mr. Dobbs stated he anticipates a stronger national economy by years end and advised real estate professionals to “Hold Tight” until the economy strengthens.  Las Vegas has already shown signs that the local economy is strengthening with the increase in homes sold over the same month last year and the unemployment rate dropped in April compared to March 2008.  All positive signs that Las Vegas might be on a slow path to recovery.

Whose got all the bank owned business in Las Vegas?  It’s the Las Vegas Agents that have developed the relationships with Asset Managers that control the bank owned properties!

It’s not what you know, it’s who you know.

I was looking at the expired list today and there was one name, I will leave nameless, who had numerous expired listings.  This Las Vegas agent has hundreds of bank owned properties, but I never see him marketing his listings any where.  You definitely don’t want to have to do a deal with him either, he never answers his phone and he usually doesn’t return your phone calls for a few days.  So how does he get so many bank owned listings?  I spoke to him a few weeks ago and asked him how he was so successful in getting so many bank owned listings and he said a friend of his was an asset manager so he gets all bank owned listings for Las Vegas.

So like I said, it’s not what you know, it’s who you know.  But isn’t it like that in every industry?

So for those agents that keep trying to develop a relationship with an asset manager, don’t give up, keep forging ahead and eventually your hard work will pay off or you could just become friends with an asset manager 🙂

You would think Trulia is there to help local real estate agents grow their business by giving them cool tools and widgets!  But that is just not the case.  Trulia is your competitor no matter which way you look at it.  Let’s look at my local market and the term “Las Vegas Real Estate” on Google.

Trulia ranks in the top 10 and ironically I am #11 which is on page 2.

Editor Note: Trulia no ranks #3 as of 4/1/2018.

So by placing these widgets and tools on my website, I am in fact helping my competitor by placing one way links to them. 

We all know that Trulia has “no follow” attributes on their website, so they are not sharing any link juice to their so called “trusted partners”. So needless to say, I have no Trulia widgets on my website and I encourage all real estate agents to remove any and all Trulia widgets or banners from their website.

It’s hard enough competing with other local real estate professionals but now you have to worry about a free national website that has a spending budget of millions.

Stop competing against yourself and do not link to Trulia!

The country is in a recession, Las Vegas Casinos are seeing earnings drop from years past, but yet MGM Mirage is still moving forward with their 8 billion dollar project, City Center. Las Vegas continues to reinvent itself even during economic downturns. Project City Center is a project that consists of condos, hotels, casinos and retail district sitting within a 76 acre area.  You can easily say that Project City Center is a city within a city.

According to City Center’s website:

“CityCenter is a cutting-edge destination, with an urban core that will blend world-class residential, hospitality, retail, gaming and entertainment elements into a synergistic hub of distinctive character.  The $8 billion CityCenter – the largest single privately funded development in U.S. history – will catapult Las Vegas to new status among the most sophisticated cities of the world.”

Project City Center will be the ultimate destination in Las Vegas and all future projects will be compared to City Center.

Update:  As of 2015, CityCenter has been re-branded as “Aria”.