Safer mortgage process with the SAFE Act

Since 2007, mortgage lending has evolved with necessary regulatory changes to protect both consumers and lenders.  There is a new change in place that will require mortgage originators to have more training.  These changes balance the educational requirements for mortgage originators, which ensure the consumer is speaking with someone who understands loan programs, lending guidelines, and so on.

What is a Mortgage Loan Originator?

For the purposes of the SAFE Act (see below), a mortgage loan originator (MLO) is defined as:

An individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain. An individual real estate licensee acting within the meaning of Section 10131 (d) or Section 10131.1(b)(1)(c) of the Business and Professions Code (B&P) is a mortgage loan originator with respect to activities involving residential mortgage loans.

In a layperson’s terms, an MLO is the person or institution you work with to get your mortgage financing, such as a mortgage broker or a mortgage banker.

How is the consumer protected?

Consumer protection is a very important aspect to the mortgage originating process.  Ocean Communities FCU and its MLO provide adequate time to make sure you are educated about the products you might qualify for, and how each of them may impact you in their own way.  Generally speaking, most mortgage notes are for 30 years.  That is a long term commitment, so please take the time and ask questions, shy away from impulse decisions, and really think your options through.  Ocean Communities FCU wants what is right for you and your family.

The National Credit Union Administration (NCUA) regulates Credit Unions, and recently the NCUA has adopted the SAFE Act of 2008, which requires all MLOs to be registered with the National Mortgage Licensing System (NMLS).  This system tracks the performance of all registered MLOs and make sure each complies with the regulations set forth in the SAFE Act.  Every loan application taken by a MLO will have to include the MLO’s unique identification number for NMLS tracking purposes.  All MLOs across the country will need to be registered with the NMLS by July 29, 2011.

If you are shopping for a loan after that date, do not hesitate to ask to see this unique identification number to assure yourself you are talking with someone that has the expertise to answer your mortgage questions.  A common place where the unique identification number will be found is on the MLO’s business card.

What are the actual costs in closing costs?

If you have even started thinking about buying a home, there is a good chance you’ve heard the term “closing costs,” but I know that many people have questions about what they are and how they are calculated.

I talked about closings and closing costs in previous posts, but here I’ll talk about what actually makes up the closing costs.

The “closing” on a house is a meeting between the buyer, seller, and lender when the house and money legally change hands.  At your closing, both the buyer and seller may pay closing costs. The Real Estate Settlement Procedures Act (RESPA) of 2010 changed how closing costs are shown.  Therefore, even if you have bought a house and been through a closing before, it’s probably a little different now.  RESPA was passed so that people buying houses could more easily compare “apples to apples” when it came to mortgage brokers by requiring different language and the same definition of terms. 

Below is an explanation of all of the different types of fees and costs that make up your final closing costs and where that money goes.

·         Loan Origination Charge – In short, this is the money to cover everything that the lender does to make sure you close on time and get your mortgage.  This fee is where most of the RESPA changes were made.  Before RESPA, many items listed in this section were shown separately, but today they are clumped under “loan origination fee.”

• Loan origination fee– The origination fee is sometimes shown as a percent (%) of your loan.  It is a tax-deductible cost.  It is the amount of money that you are paying the lender to do all of the work involved in deciding, making, and then supporting a loan.  
• Application fee – This is a fee that you pay to have the lender consider loaning money to you. 
• Processing fees – The processing fees are charged by the lender as a way to cover some of the costs of the work that goes into making a loan.  Lenders may have to make long-distance phone calls to verify your employment and speak with you, create files using office supplies, and maintain these.
• Underwriting fee – Like insurance, mortgages have underwriters.  This fee covers the costs associated with underwriting the loan.
• Funding fee – Typical on VA loans, the funding fee covers administrative costs similar to the processing fee. 

·       
 Title Services Fee – Like the “Loan Origination Charges”, RESPA affected the way these fees are listed as well.  The Title Services Fee is a new way to bundle the following group of fees:  

•      Document preparation fees– When you close on your house you’ll see that you sign a lot of pages of paper!  Three sets of copies are made of these papers, along with other sheets of office notes that you do not have to sign.  The document processing fees cover the costs associated with copying and mailing all paperwork.
•     Title/Abstract search – The title search helps make sure there are no problems with the title (see my previous blog post about titles.
•     Title examination/Title insurance binder– This is insurance that will protect the lender (and owner, if an owner policy is purchased) if anyone brings a lawsuit against the title on the house. 
•      Settlement fee – This covers the cost of the services by the closing agent for the closing.
•      Lender’s and buyer’s attorney – A lawyer typically works behind the scenes on many house closings and mortgages to make sure that everything is following current real estate law.

·         Survey fee – This money pays for someone to come and make sure the land or property you are buying has not been built on or taken over by the neighbors accidentally or on purpose.  This makes sure you know exactly what is yours and what belongs to your neighbor. 

·         Legal and recording fees or transfer fees – This money is sent to the country clerk and state to change the name of the owner (and person who owes money for the taxes) and record the sale price of the home in the official record. 

·         Property taxes– Property taxes are pre-paid by the seller.  When you buy the house, part of the closing cost is a “tax adjustment”.  This basically means that you are paying the seller back the amount of taxes that he or she has pre-paid.      

·         Per Diem interest – At closing, you will need to pay the interest on your loan from the closing date to the date the first payment is due.

·         Flood certification – Before you buy a home, the lender will make sure the home you are buying is not in a flood zone. The flood certification charges cover the costs to have an expert review where the property is located.

Be prepared for closing - and make sure it is done on time!

Buying a home is one of the biggest purchases of your life.  It is exciting – but can also be stressful.  Mortgage Lending as a whole is one of the most regulated types of lending that one will endure.  Much of the regulation is to help protect you, the borrower.  When you get a loan, you will be asked to verify funds to close, and provide payroll information, etc. 

The process behind the scenes (with the lender) is an ongoing detailed process that is generally not finalized until 24 hours prior to closing.  Many professionals work together to make this happen for you: your Realtor, Loan Officer, Underwriter, Appraiser, Title Attorney, and Closing Agent.  Closing on time is one of the most important features Ocean Communities offers to its borrowers, so we are involved as a lender with all parties to do what it takes to get you into your home when you expect to be.

You can be prepared for what you might face at the end of your loan process if you do the following:

Keep your Good Faith Estimate (GFE) close by.

Your GFE is the summary of your estimated closing costs associated with your Mortgage Loan Application.  A GFE is not required to be presented to a borrower until a Purchase & Sale Agreement has been presented to the Lender.  Anytime your loan request changes (increased loan amount, loan program change, and rate change) a new GFE must be delivered to the borrower.  It is important to keep the GFE handy because the costs on this Estimate have to be within a specific range of the costs on HUD Settlement Statement.  (See below)

 “There are three categories in the Comparison Chart (page 3 of the HUD Settlement Statement) Charges that could not increase at settlement, changes that in total could not increase more than 10% and charges that could change.  Compare the charges listed in the GFE column with the charges in the HUD column.  If the charges that cannot increase have increased or the total of the charges that cannot increase more than 10% have exceeded the 10% increase limit, the lender must reimburse you at settlement or within 30 days after settlement.” - From the HUD Settlement Booklet

Understand your costs due at closing.

A HUD Settlement Statement is generally available to a borrower 24 hours prior to closing, which allows time to collect the certified funds check for the amount that is required at closing.  Because a Title Attorney or Closing Department has to prepare such a statement, it is normal not to have an exact amount due at closing until that time, but your Loan Officer should be able to provide you with a rough estimate.  Because Escrow Accounts are regulated by guidelines as well, this is the biggest reason for the Settlement Statements delay.  The one preparing this closing document has to know a date of closing and have collected tax bill, and homeowner’s insurance binder to ensure the Escrow Account has collected enough funds at closing and with the monthly payment to ensure future tax payments and insurance policy renewals get paid on time.

Work with a lender that has a track record for closing on time.

A delay in closing can mean a great deal of inconvenience and additional stress.  There are several credit unions in Maine, including Ocean Communities FCU, that offer a wonderful program called CU Promise.  CU Promise is backed by 3 guarantees that as a buyer should be looking for:

• Guaranteed Same-Day Decision
• Guaranteed Closing Date
• Guaranteed Local Servicing

All about titles

As a specialist in mortgage lending I often get asked by friends and family, “Do I really need to get a title search?”  While my answer varies based on the type of property being purchased, I’ve found that most people struggle with the legal language surrounding the title search and title insurance process.  I thought I’d try to explain some of these items in layperson terms in my post this week.  


What is a real estate title?

A title is like a deed on a car. The title for your house is simply the document that shows what the property and everything on it are and what you can and can’t do with it.  An important thing to know about titles is that the title holder is often the owner (but not always!).  

What is a title search?
A title search is a process that is performed primarily to determine the answer to three questions:

1.      Does the seller really own the house and is he or she able to sell it legally?

2.      What can the owner or other people (like neighbors) legally do with the land: can they have businesses? Build fences? Walk on it with their dog? Leave a snowmobile in the front yard? 

3.      Is any money owed on the property for past taxes, mortgages, or is the property part of a deal between a previous owner and someone else? 

A title search may uncover a number of possible problems such as:

Real covenants – a legal promise to do or not to do something with the land.  Examples are having a business on it or building a fence, etc. If a covenant is broken then the person who breaks it may owe the person they promised money.

 

Easements – meaning someone other than the owner of a piece of property is allowed to use it. 

Servitudes – this is when there are rules made by a homeowners’ association, subdivision developer, or community about what you can and can’t do with the land.

Liens – the property is acting as protection against someone not paying a loan.

What can I do if I’m nervous about a title?

Purchase title insurance.  Title insurance will protect and pay back the owner if anyone brings a lawsuit against the title on their house (if someone is owed money or use of your property by another owner and it is tied to your land or house).