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Understanding the Residential Mortgage Market

Sidney Whelan and Reggie Grayson recently sat down with Pat Keane and Rick Elliott, co-owners of Green World Financial, LLC  at Marseille to discuss the current trends in the residential mortgage market. Pat and Rick are experienced veterans of the business, having both been top producers and Sr. Management at Bank of New York Mortgage and then subsequently for Pat, at JP Morgan Chase.

sid_reggie_4-9-2014Sid: So we’ve known you gentlemen for years and have done a lot of transactions together and we want to know what our readers are probably wondering as well: why did you leave those great companies to start your own firm?

Rick: When you work at a bank you are “handcuffed” to their particular underwriting culture. Now we are no longer limited to a particular loan philosophy by one bank. We have diversity and choices that enable us to marry the right investor to the right borrower and deliver the best possible experience to both.

Reggie: Our readers own properties that are worth over a million dollars, in many cases well over that. What can you tell them about the lending climate for that type of property? What’s facing them if they want to refinance or acquire more property; or if they decide to sell, what will their buyers be facing?

Rick: Jumbo loans pretty much disappeared after 2008 and today you’re really looking at these types of loans as a portfolio product that a lender will keep on their books and not sell on the secondary market.

Pat: On jumbo loans the credit score is going up. It used to be 680. Then it went up to 700. Now it’s 720 but borrowers should not be surprised to see a requirement of 740 in certain cases such as a cash-out refinance. We see plenty of clients with excellent financial means whose credit score is not as high as it should be. This often has nothing to do with their overall financial health but is due to how the score is calculated and how the client used certain accounts. The good news is that increasing your credit score is not that difficult. We have a credit counselor who assists our clients with this.Rick: Assets are always the hardest part of the mortgage process. You’ve got to have that down payment and a reserve equivalent to two years of your monthly payments for principal, interest, taxes & insurance. In addition, when a borrower’s money moves around a lot, lenders must enforce guidelines, so wealthy clients may find themselves having difficulty getting approved if the necessary liquidity is not adequately seasoned in their bank account.

Pat: And stocks are going to be discounted by the lender to 70% of their current value. Of course the lenders are still looking for steady income and employment stability. Self-employed borrowers are tricky, and will generally need to have two years of stable income supported by tax returns.

Reggie: What’s your parting advice for potential borrowers going into 2014?

Pat: Prepare, prepare, prepare! First, make sure your loan officer is a knowledgeable high-producing industry veteran with a lot of experience. Second, make sure the property you want to buy into or refinance is warrant-able. Your loan officer can look into this for you. Third, make sure your credit is as good as it can be, above 740 is ideal, and get it “scrubbed” if it isn’t at this level. Fourth, make sure your necessary liquid assets are seasoned. Five, after you’ve identified the property and secured your financing, don’t make any credit or financial moves without understanding the effects that these “moves” can have on your approval. Always communicate with your loan officer or credit counselor. Even a simple mistake like using the wrong credit card can cost you thousands in additional fees and points. We just had a borrower this week where that happened.