I love insiders. Maybe it’s because I’m a New Yorker, but I always want to find the “insider connection” who will get me the “best deal.”
So I was very excited to interview Carolyn Warren, a former mortgage loan officer who wrote a book explaining the ins and outs of her industry. Warren explains: “I had been working in the industry about 10 years; I think the turning point was when I had lunch with a mortgage broker and he told me he had just closed a loan and made $40,000.”
Disgusted by the greed, she wrote a consumer-friendly book, called “Mortgage Rip-offs and Money Savers” (http://www.askcarolynwarren.com) published by John Wiley. There have been other mortgage insider books, she notes, but she is somewhat unique in that she has been a loan officer and also on the other side of the door doing wholesale lending. So here’s some of her expertise that she was kind enough to share with Alison Rogers, Inman’s Real Estate Rookie:
Rookie: I’m an agent, and I have a mortgage broker who I like — he stays on top of paperwork, and he returns my calls. But is he doing a good job for my clients?
Warren: It can go either way — some people who give the best service give the best pricing. Some people who give the best service give the worst pricing. I can tell you that mortgage trainers teach brokers to chase referrals, because “the trust is already there and you can get an extra point.” So even if you make the referral, you should still tell your clients to shop around.
Rookie: OK, as an agent, are there things I shouldn’t do? Things that drive loan officers crazy?
Warren: Loan officers like real estate agents because they bring them business. But you should trust that mortgage professional. It frustrates loan officers when the real estate agent is trying to steer the client into a certain type of loan, when they might not know all the financial facts. We don’t tell you how to sell the house and negotiate the purchase contract! Trust me to do the financing.
Also, if you as a loan person have a client who you’ve preapproved and then you send them to a real estate agent, and the agent says, “Oh, don’t work with that loan officer” … well, if you do that you’ll never get another referral.
Finally, don’t show someone houses above the amount they’re prequalified for — if they can get a $400K loan, and the agent shows them $499K houses, and gets their heart set on one, then you as a loan officer have to put the client in a 40-year loan or some other product that isn’t the right one for them.
So when a client shows up with a $400K preapproval, ask, is the $400K preapproval hard and fast, or is there wiggle room for price?
Rookie: Let’s talk about credit scores for a minute. I check my credit score once a year, but in your book you talk about the importance of pulling all three credit scores.
Warren: If you are three months away from buying a house, then just get a free credit report [some states allow you to get a free report once a year] and make sure that everything is as good as you can make it. But don’t pull your credit yet.
But if you are close, have your mortgage broker pull your tri-merged credit report — which lists all three credit bureaus’ scores.
For one, there are four different kinds of scoring algorithms. A lot of people pull their score online, and then their mortgage broker pulls it a week later, and it looks like their score went down — that’s because there is a difference between the credit card algorithm, which is lenient, and the mortgage algorithm, which is stiffer.
Also, each credit bureau gives you four reasons, in order of importance, why your score is not higher than it is, and that’s very helpful.
Rookie: August was … August was not a good time. It seems like it’s getting better, but can you say anything about jumbos in the present climate?
Warren: As investors become more comfortable, rates will come down. For the consumer getting that type of loan, there are usually zero points up front, because 1 percent of $2 million is so high. So you want to make sure that the yield spread premium [back-end commission] is disclosed on your Good Faith Estimate.
Some of the most expensive loans I’ve seen have come out of New York. I have a friend in the mortgage business there who blames former Wall Streeters who have gone into the mortgage business and are used to having a high income.
Rookie: What is a reasonable yield spread premium?
Warren: Around 1 percent. Well, it depends on your loan amount. Generally, $2,500 to $3,500 is a good fair commission — you can see the commission by adding the yield spread premium plus the origination fee. Maybe double that for a million-dollar loan.
I do offer a money-saver service — people can send me two Good Faith Estimates, and I’ll analyze their offers for them, point out any junk fees, and give them a script to talk to their loan officer. I tell them they save “double my fee or it’s free.”
The fee is $97, or $67 if they bought the book — 1 out of every 7 people, I tell them, “You have an excellent loan,” and I give their money back. But typically I save people anywhere from $300 to $2,000. I saved one person $8,000; that person was in New York.
Rookie: I’m scared to look at the yield spread premium on my mortgage now.
Warren: People just don’t know the right way to shop for a loan; no one from inside the industry has ever told them.
You can’t blame people because the information’s been kept hidden. And then they get bad advice — “shop deep and wide — ask a lot of people 10 questions” — can you imagine? You will end up with pages of scribbled notes; you won’t know what’s what.
And when you ask 10 questions up front, you will go with the smoothest talker, who is likely to be the biggest liar. Loan sharks, the people who overcharge, love to have somebody ask 10 questions; it gives them a chance to fill their ear with sweet talk, and a lot of time to build rapport.
The way to shop is to make three phone calls and ask just one question, one smart question: Can I get a Good Faith Estimate? Tell them please be sure to include the yield spread premium.
Rookie: I have some clients who make me work harder for my money — how can you tell if they’ll be extra work?
Warren: Subprime borrowers are almost always more work — they have issues that you have to clear to up that don’t appear until halfway through, such as a judgment that might not have showed up on the credit report, but it shows up on the title report, which is tied to their Social Security Number. I’ve had that happen multiple times, and then you can’t close the loan till it’s taken care of. Subprimes also don’t tell you they were self-employed for only 19 months; they say “two years” because they rounded up.
Because you are dealing with surprises midstream, it’s fair to make more money, but there’s a balance between what’s fair and financially raping a person.
Rookie: Last question — since real estate agents are self-employed, are there things we need to know about getting loans for ourselves?
Warren: If you’re self-employed, most lenders want a minimum of 24 months of self-employed history; they want that long to know you’re making it. But they don’t like numbers that trend downward. If you had a great year two years ago, and this year, you are making 25 percent less, they don’t average them. If you think that you’re going to have a year trending downward next year, get a house this year before you do.
Also, keep a paper trail. Deposit your whole check into the same bank account. There are lenders that will take 12 months of your bank statements and count the deposits and count that as income, but if you use three banks they won’t put together all three — put all your checks into one bank account. What you do with the money afterwards is up to you.
Alison Rogers is a licensed salesperson and author of “Diary of a Real Estate Rookie.”