Problems with Your Mortgage Lender? The CFPB Has Your Back!

A government agency that works? Yep. According to a recent Time Magazine article, the Consumer Financial Protection Bureau is a rare thing — a government regulator that actually gets things done and protects those it’s supposed to protect. No wonder banks fought against it as hard as they did.

A Bureau with Teeth

The thing that makes the CFPB unique is that it is not dependent on Congress, whose members are dependent on campaign contributions, for funding. It’s money comes right off the top of the Federal Reserve’s budget. According to its Web site, thousands of consumers file complains each week about problems with financial services, from mortgages to credit card payments to overdrafts, and so far, companies have responded to 437,641 complaints, and they have done so reasonably quickly 98 percent o the time.

Why are companies so much more responsive to customers who complain to the CFPB? Because it scares the bejesus out of them This agency has incredible powers to impose hefty fines and other sanctions, and it has wielded that power with a heavy hand. If you’ve ever just sucked up mistreatment from your financial institution because complaining is too much hassle and “never works anyway,” you don’t have to any more.

Mortgage Lending Complaints

Mortgage lending is a contentious industry. Of the 400,000+ complaints resolved so far, nearly 160,000 were mortgage-related. The graphic below illustrates the breakdown by issue. The highest number of complaints involved foreclosure, collection and modification issues, followed by loan servicing / payment processing problems.

Breakdown of CFPB Complaints by Issue

How to File a Complaint

Filing a complaint with the CFPB is actually really easy. You can get started by clicking HERE. Then, select “Mortgage,” and you’ll be on your way. You can describe what happened and what you want done about it. You can attach files, and you can choose to make your complain public (kind of like a government-sanctioned Yelp) to alert others about the problem and the institution that caused it. Now can you see why lenders fear the CFPB? The Bureau verifies that the complainant (that would be you) has an account with the company, and gives the institution just 15 days to respond. That means things moves along quickly and most issues are quickly resolved.

The next time you catch yourself saying, “Someone should do something” about a company offering financial services, stop talking and start clicking. The person who can do something about your issue is YOU.

Are Today’s Mortgage Lenders Shutting You Out? There’s a Solution

locked door

The mortgage lending world is not kind to those who fall outside established government guidelines – the ones that define so-called “qualified mortgages,” or QM loans. For those of us living and working outside the Beltway, these new rules defy logic. For example, under government guidelines, a buyer can get a loan with a 580 credit score and 3.5 percent down payment (which doesn’t even have to come from the borrower’s own funds), no savings and very little disposable income. On the other hand, a successful, self-employed applicant, with a 760 score and putting 30 percent down, often cannot get a QM loan.

The Bad News

Statistically, the second applicant is less likely to default, but most mortgage lenders prefer the first – in fact, a 2014 Fannie Mae survey found that just 19 percent of mortgage companies indicated that they were willing to pursue non-QM lending. This is because making QM loans provides lenders protection – government or private mortgage insurance covers losses if the borrower doesn’t pay, while a non-QM lender could be forced to buy back a non-performing loan.

The Good News

If you don’t happen to fit into the government’s narrow definition of an acceptable applicant, this is not great news. Fortunately, non-QM lenders are stepping up to meet the needs of folks with oddball sources of income, “just missed” credit scores, high debt-to-income ratios or other issues.  These lenders are not big banks – many are local lenders, mortgage brokers or smaller institutions serving their communities. Anna Cuevas at Lendsure in San Diego, California (licensed to lend in California and Arizona) says that, “There is a pent up demand for alternative financing. It is expected to make up 10 percent of originations in the very near future rising from 50 billion to 600 billion in volume.”

Is a Non-QM Home Loan for You?

If you’re looking for home financing and having a hard time finding it, a non-QM home loan might be your best mortgage option. Non-QM loans are designed to meet the needs of borrowers with these issues:

  • Debt-to-income ratios exceeding 43 percent
  • Credit scores below guidelines, perhaps due to old events or factors having nothing to do with credit-worthiness
  • Self-employed with little taxable income but plenty of money available to make a mortgage payment
  • A short sale, foreclosure or bankruptcy in the last four years
  • A very large loan amount (some non-QM lenders make loans up to $4 million)

Understand that non-QM does not mean sub-prime. Lenders have to verify that you can afford the mortgage. Even non-QM lenders must “make a reasonable, good-faith determination that the consumer is able to repay the loan,” says the Consumer Financial Protection Bureau (CFPB). However, lenders don’t necessarily have to use several years of tax returns and financial statements to do so. They might instead look at your bank statements and see how much money moves through your accounts.

Qualifying for a Non-QM Loan

Non-QM mortgages are not standard products. Every lender and its investors gets to create its own guidelines. However, most of them have a few similar rules.

  • In general, you’ll need a substantial down payment or lots of home equity. The more “skin in the game” you have, the less risk to lenders. However, some programs allow just 15 percent down with no mortgage insurance.
  • Most (but not all) programs require high credit scores. Higher scores mean safer loans for lenders. Some products allow scores are low as 560, however.
  • Most programs allow higher debt-to-income ratios, but your disposable income must be substantial. For example, if your DTI is 50 percent and you earn $2,000 a month, you’ll have just $1,000 a month for food, utilities, taxes and incidentals. That’s risky. On the other hand, if you have a 50 percent DTI but earn $10,000 a month, you’ve got $5,000 a month for incidentals – that’s probably less chancy.

Because non-QM loans are not standard, your search may be more challenging than it would be for a Fannie Mae or FHA home loan. A knowledgeable home lending professional can help you navigate this world and find a program that meets your needs.

Buying a Home: How to Compete with All-cash Buyers

It should be the best time in the world for first-time homebuyers. Bargain-basement home prices coupled with rock-bottom mortgage rates have made home ownership more affordable than it’s been in decades, said the National Association of Realtors (NAR).

However, many in the home-buying trenches are discovering that it’s only a “buyer’s market” if you’re the right kind of buyer – and that’s an investor with a wad of cash. Most first-timers need mortgages, inspections, appraisals and title insurance — which few veteran property flippers want to deal with.

Offer More

Professional investors and real estate agents understand that investors do have the inside track, but there are ways for novice buyers to get more respect. Candy Miles-Crocker at Long and Foster Realtors in Washington, DC says that one way of competing is simply to offer more money. “It is extremely difficult to compete with all cash offers, but there are times when an owner-occupied buyer can make a higher offer because they will renovate over time and don’t have to worry about margins. An investor will only offer so much for a property because they want to make a specific profit when it’s flipped.”

Investor Jean Norton at JeanNorton.com agrees. “Offer a higher price for the property,” she says, “Interest rates are so low that the monthly impact to their budget is negligible.”

Go to the Front of the Line

Ms. Norton also recommends that home buyers skip the slugfest with investors and look into HUD Homes, Homepath Homes and HomeSteps Homes. These are foreclosure properties that have been taken back by HUD, Fannie Mae and Freddie Mac. When these houses are put up for sale, owner-occupant buyers have several days to get their offers in and buy without competition from investors.

Joanne Cleaver at jycleaver.com recommends finding condominium buildings and developments that have reached their maximum allowable rental units (many HOAs limit the number of units that can be rented out or held by investors). “Ceilings may prevent investors from buying any more units, which means that owner-occupiers are the only option for sellers.”

Be Prepared and In Earnest

Want sellers to show you more love? Put up as much earnest money as you can. Some experts recommend an old investor trick, attaching a check for the earnest money to your offer – it makes a psychological impact that could put your nose ahead of the competition.

Make sure that you have full credit approval for your mortgage – not just prequalification. To get credit approval, you’ll submit your entire application package to a lender, providing all income, asset and other documentation requested. Don’t start looking for property until you have credit approval with NO outstanding conditions. “Credit approval” in mortgage lending means that if the property appraises for at least the sales price and meets the lender’s guidelines, you’ll be able to close on your loan.

Get Personal

Not all sellers are hard-nosed house-flippers. Deb Tomaro, of RE/MAX Acclaimed Properties in Bloomington, Indiana, advocates finding out what you can about the seller and using that to make a personal connection. “Look up the seller on the Internet, Facebook, Pinterest. See if you have anything in common or mutual friends. If you have mutual friends, see if you can have them put a good word in for you,” she recommends. “Write a letter to accompany your offer, personalizing who you are and why you love their home (of course, this only works with owner-occupant sellers). If you know they raised children there and you are going to or hope to raise children there, make that connection.”
Know When to Say No

Don’t get so emotionally caught up with being the “winning” bidder that you make a rash purchase or pay too much. It’s easy to do in a frenzied bidding war, says Bruce Ailion of RE/MAX Greater Atlanta. In Atlanta today, he explains, “Competing is difficult. We are seeing 70 offers in a week’s time. Final prices regularly 20 percent above list, sometimes 50 percent or more above list. For investors that purchase 50, 100 or 200 properties per month, paying too much based on the condition for an acceptable percentage of acquired properties gets averaged in. These hedge and equity funds have access to very cheap financing and buying leverage with contractors and supply houses, allowing them to pay more for the property and still make out.”

He warns, “To an owner occupant or small time investor offering more than the big players in a ‘best and final’ round can have harsh consequences. Sometimes winning the bid is not winning the best return.”

Welcome to Mortgage Advisers!

This site was created to collect consumer-oriented mortgage information. I have 20 + years in the mortgage industry and am a licensed Nevada mortgage originator (# 1698), but I have NO ax to grind and no products to sell. In addition to the library of mortgage information, you’ll get rate lock information and advice. You’ll also be able to ask me anything and get a reliable answer. Thanks for stopping by!

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