Loan Servicing Transfer vs. Refinancing

From the Arizona Mortgage Guru mailbag:

Question: Well, we just received a notice that IndyMac, who we have a second mortgage with, closed it’s doors. They kindly sent us a notice that they are working with Wells Fargo to offer help refinancing our loan. My concern is this, if we have to go through a “regular” refinance, there is no way we would qualify with our credit being in the dumps. It’s obvious they aren’t transferring our loan to Wells Fargo, but just offering help to refinance. So I’m concerned. I don’t see how they can do that. When calling the Wells Fargo number they provided, I couldn’t get through to anyone. I’ll try again tomorrow. I would appreciate any advice.

Thanks,

Jen

Dear Jen,

Sorry to hear of the difficult situation you’re facing. Hang in there. Each bank has different rules to an extent on how they are dealing with the current troubles so I can’t comment on exactly what you’re facing. However,  here is what I know:

1. A bank can not force you to refinance in the sense that they can not call back a loan unless you’ve violated some very serious terms. Even then it would have to be pretty bad. This is a rule dating back to the aftermath of the Great Depression. If banks could call back mortgages – in today’s climate – 50-60% of folks would lose their homes – since the vast majority are not in a position to pay back their home loans on short notice without selling the house.

2. Banks can sell the servicing rights – in which case the terms of the loans remain unchanged but only the loan is transferred to a different lender. This doesn’t require you to refinance.

So, with that – I am not sure what exactly Indy is trying to do. I would try to reach someone there and ask them exactly what they are talking about.

I don’t know what else to say really.

Hope that helps. Good luck Jen!

Mortage Loans for Canadians in Arizona Dries Up

Attention Canadian Nationals!

I am very sad to have to announce that as of about 90 days ago, we no longer offer mortgage financing for Canadian Nationals, or any foreign national, for that matter.  We have waited a while before announcing, hoping that perhaps some programs would pop up in the meantime. Sadly, they haven’t. Once we could offer 2nd home and investment property financing to non-Americans who live abroad. As long as you had a good, solid 30-40% down and could prove you had income in your country, we were good to go.

Now…well, things have definitely changed. As so many of our veteran mortgage professionals quip…it is back to lending in the 80s. The basics.  If you are a foreign national, here is what you will need to buy a home here.

  • A valid US Social Security Number
  • A valid, long-term visa
  • Established US credit
  • US income

Essentially, you need to be immigrating.

On a quick side-note. What does established US credit mean? Once you have lived here for at least 6 and ideally, a total of 12 months, and for the entire duration have used 3 credit lines on a consistent, monthly basis…then you will be be good to go. In other words, the agencies will begin reporting a score and your credit is established.  Of course, be sure to make on-time payments and keep those credit card balances to less than 50%, or ideally…less than 30% of the maximum credit limit. This will ensure a top score. Oh…and some examples of credit lines: car loan, credit card, store credit card, note loan, student loan, etc. Remember, power bills, gas, electric and rent DO NOT report to the credit agencies.

To get back to our Foreign National financing, however. If anyone out there does know of ANY lender offering financing to Foreign Nationals, please let us know. We have so enjoyed servicing our Canadian Nationals and would love to do so again in the future! Until then…it is back to the basics.

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Interest Credit Affects Your First Mortgage Payment Due Date

A common question people ask me when I’m working on a loan is the date of their first payment. The way mortgage payments work, you make your payment at the end of the month. This is different than rent, where you pay at the beginning of the month.  Meaning, you pre-pay for the month to come when you pay rent, but when you make your mortgage payment you’re paying for the month that just passed. The difference is that you’re paying interest on money you’ve borrowed when you make your mortgage payment. Naturally you don’t owe the payment until the money has been used and interest is due. This is oftentimes a very confusing concept for borrowers but is important to understand as it affects the date of your first mortgage payment.

You have pre-paid interest as part of your closing costs at the close of escrow. This is essentially your daily interest rated times the number of days remaining in the month. So, if you close in the 16th of the month (in a month with 30 days), you would have 15 days of interest due at the end of that month. Instead of asking you to make a payment that month, lenders will just ask you to pay upfront at close. This results in your first mortgage payment being due the 1st of the following month. So, if you closed on September 16th, your first payment would be due November 1st.

However, there is a feature called interest credit – where if you close within the first seven days (varies from lender to lender), instead of charging pre-paid interest the lender will give you an interest credit back for the number of days in the month. So, if you closed on the 4th – you would get four days of interest credit back at close. This of course results in you having to make your first mortgage payment at the end of the month. So, if you closed on September 4th and you received four days interest credit, your first payment would be due October 1st. A whole month earlier than in the prior example.

Be aware that you do have a choice on whether or not to accept an interest credit – but you need to mention this to the bank. Either way you’re paying – whether it is at close or in the form of a mortgage payment, but you need to be prepared. Purchasing a home entails lots of charges, so its easy to run into a cash flow problem if you are closing at the beginning of the month and your first payment is in a few weeks. The first payment is not one you want to miss – not that you want to miss any payment at all.

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