All of the questions that are posted in this section have been posed by either a previous, current, or future client. People within the industry, like loan officers, or business owners, along with any member of the inquisitive public could also be the source of these questions as well. Sometimes it helps knowing the situation in which the question was born so I always identify the circumstance.

These questions have also been posted word for word, and some may include a conversation string. Remember that is always wiser to ask rather than assume, so please fire away.

QUESTION

Can my loan be sold? What happens if my lender goes out of business?

ANSWER

Your loan can be sold at any time. There is a secondary mortgage market in which lenders frequently buy and sell pools of mortgages. This secondary mortgage market results in lower rates for consumers. A lender buying your loan assumes all terms and conditions of the original loan. As a result, the only thing that changes when a loan is sold is to whom you mail your payment. If your loan has been sold, your existing lender will notify you that your loan has been sold, who your new lender is, and where you should send your payments from now on.

If your lender goes out of business, you are still obligated to make payments! Typically, loans owned by a lender going out of business are sold to another lender. The lender purchasing your loan is obligated to honor the terms and conditions of the original loan. Therefore, if your lender goes out of business, it makes little difference with regards to your loan payments. In some cases, there may be a gap between the date of your lender’s going out of business and the date that a new lender purchases your loan. In such a situation, continue making payments to your old lender until you are asked to make payments to your new lender.

Due to the high volume of questions being asked about Refinances and Debt-Consolidation, I hope this Q&A helps.

Shanice & Dwayne Glover
Status: Current Client
Location: Queens, NY
Mission: Potential Refinance/ Debt consolidation

AG,

My husband and I bought our home about 14 years ago. When we bought it, we paid $250,000 and now after serious renovations and appreciation it’s worth over $500,000. Our current loan is very small and we have always made a conscious effort to pay off our mortgage as early as possible.

The only problem is that after car payments, 2 kids in college and 2 still at home, a few too many credit cards, and maybe some bad decisions, the bills have become a little more than we can handle. I personally have never even considered doing a refinance because we worked so hard to build up the equity we have now.

My question or questions for you are, “What factors should I consider before doing a refinance…Is a refinance even the right way to go…Are there any other options you could recommend? Sorry to bombard you but any advice would be greatly appreciated.

Shanice and Dwayne,

Where you two find yourselves is the same spot many American have landed as well. However you guys are ahead of the rest due to proper planning.
Don’t worry because you two have been responsible with your mortgage, building equity, and making a dedicated effort to increase the value of your home.

The reason why people should do this is to provide themselves with a safety net for situations just like this one.

To answer your questions, let’s start with the most important one, “What Factors should I consider before doing a refinance?” This is very simple. You have to crunch numbers with a professional and find out if it makes financial sense to refinance. In today’s day and age too many people just refinance like buying a stick of gum. It can be a very costly experience and one that you could regret some time down the road.

Here are the factors to consider:

1). How much money am I looking to take out and how much will that money cost me in the future? Basically if you borrower 20K today how much will it cost you down the road…say 15 or 30 years down the road with interest.

2). Is debt consolidation the right move? I have had countless clients who wanted to refinance with the hope of getting out of debt and as a means of gaining financial control over their lives. Debt consolidation can be a much needed lifesaver in a pool of debt collectors. An APR of 6.3% is always better than the dreaded 24% credit cards charge…but again does it make financial sense?

3). Also you will seriously want to consider how the different payments will affect you. If you are used to paying $1300 now and the payments jump to $1800 how will you be able to cope with that? Also think about what type of product would best suit your needs; a 15 year or 30 year FXD?

4). Consult with a certified broker who will show you the monetary benefits on paper, but don’t forget to speak with your attorney, accountant, or financial planner.

Some alternatives could be a HELOC (home equity line of credit). This is a second loan and has relatively minimum closing costs; in most cases only a few hundred dollars.

It is a good way to take advantage of the equity in your home, without having to finance closing costs or deplete your equity instantaneously. A HELOC is also good because it allows you to only draw out only what you need.

Another option might be to consult with a debt consolidation company. Many are reputable but beware; some of these companies actually put you deeper in debt.

As for your two children in college; if you have a Sallie Mae loan, you can have the payments deferred until they graduate.

Weighing the pros vs. the cons is always the way to go. Getting out of debt is never easy and many people fall victim to a vicious cycle of payments for other payments. Getting one loan to pay off another is only worth it if it saves you money and stress.

I hope this helps guys and please feel free to call or write me with any questions you might have.

Justin Snyder
Status: Curious Passerby, Potential Client
Location: Long Island, NY
Mission: Refinance to Get Debt Free

AG,

First off I must admit that I changed my name and if you keep reading you’ll see why. I just really need help and am not too sure where to turn.

When my wife and I got married 11 years ago, we had these big dreams of making much more money in the future (which is now). Things didn’t turn out as planned…car payments, college for my 2 sons, and just day to day expense are now beginning to add up and I’m nervous for our immediate future.

Keeping up with the Jones is not a simple thing and I’m embarrassed to say that, “I care what the neighbors think”. My wife and I have overextended ourselves, as many Americans do but I just want a fresh start. I never really thought about refinancing seriously, but I’m very interested in finding out if this is the right move to make. I’m not really sure where to start and any advice you could give would be greatly appreciated.

Justin,

I understand where you are coming from. Many of us make plans for the future, hoping our situation will improve and before we know it, we’re scratching our heads wondering where the years have gone. There are 3 things that should be done in order for you to make the right decision:

1).Professional Consultation (FREE!)-

You need to contact a broker or lender and have your credit run (if you don’t have a current copy yourself) and really take a look at you monthly payments for all you debts and add that sum to your monthly mortgage payment.

Your broker or lender representative should be able to go over this in detail with you so you clearly know how much debt you are really in. The most important thing here is to analyze your financial situation to see if a refinance makes financial sense.

You should get quotes, rates, and proposed monthly payments from your broker
and have the terms clearly defined to you (MAKE SURE THEY ARE IN WRITING). *Good companies give FREE consultations*

2). GFE (Good Faith Estimate) -

Have your broker give you a FORMAL COMPUTER GENERATED G.F.E. which clearly outlines all your closing costs and any pre-paid items. There are some lenders/brokers that will actually pay your closing costs, but charge you a higher rate, which may be a good option for you.

3). Benefit to Borrower-

You broker should be able to give you a form that clearly show how paying off your debts can reduce your overall monthly payments. Numbers don’t lie!!! Your broker really needs to show you the benefit to doing this refinance, and if he/she can’t, then the refinance is useless and can actually get you deeper in the hole.

Do not allow yourself to be pushed into refinancing just so the broker can make a profit. Ask yourself?

-Do the numbers make sense?
-How much will I save monthly, yearly, 5 years from now?
- Is the rate adjustable or fixed and if it’s adjustable how will the increase
in payment affect my overall monthly savings…if there is still one?
-What are the EXACT terms of my loan?
- Is there a pre payment penalty on this loan or on my current one?
-How much equity do I have in my home, and how will the refi affect my
plans for the future?

These here are the basic steps to seeing if a refinance is a good option for you. Truthfully I think that debt consolidation is one of the best reasons to refinance a home. Just look closely at the numbers. I hope this helped Justin and please feel free to contact me with any more questions. I’m always here to help!

Felicia Santiago
Status: Current Client
Location: Broward County, FL
Mission: Home Purchase, FTHB (First Time Home Buyer)

AG,

I have been reading on the internet and newspapers that the mortgage market has been turned upside down and that it’s very hard to get a loan nowadays. I think they said something about a sub…or sub-prime bank. No one can seem to explain to me why this happened. Can you please shed some light on this for me… I’m sitting in the dark.

Felicia,

I’m really glad you asked this because there have been substantial changes made within the industry over the past few months. Many people don’t understand what happened and this is a great opportunity for me to explain. The market has changed, but it’s not for the worse; it’s actually a corrective phase in my opinion and the client is more protected.

The market has reacted and attempted to adjust itself these past few months. Banks have become stricter with their qualifying guidelines. This is the end result of a long chain of events. You see a few years back brokers started to push 3 types of loans very hard: the adjustable rate mortgage, the option arm, and stated type of deals.

An adjustable rate mortgage is one that is fixed for a certain time period at a lower rate and then adjusts to what the market is doing at a pre-set time, which almost always results in a higher rate and higher payments. For instance a 2/28 is a mortgage in which the fixed period last for 2 years, then adjusts and lasts for 30 years.

An option ARM is a loan that offers 4 payment options:

1). 30 year Fixed payment
2). 15 year fixed payment
3). Interest Only payment
4). Lowest/base/ or minimum payment

A STATED deal is one where a broker is supposed to ask the client to STATE their income, and the bank accepts this number, as long as it is within reason, and does not require proof or validation of the STATED amount.

In order to provide clients financing who have distraught credit or low income, brokers would have to place them into a stated deal because the income wasn’t enough and provide them with an adjustable rate mortgage to keep the payments as low as possible. However many brokers did not fully inform the client as to what was going to happen or the client wanted to get into the home by any means necessary.

Due to the blemished credit the broker would also have to take the client to a Sub-Prime lender which is more lenient that an A Paper Lender, but has higher rates.

This resulted in huge increase in payment default and foreclosures as people could make their mortgage payments due to lack of income, or payment shock when the loan adjusted.

The quality of the loan itself diminished and the secondary markets, which purchase the loans no longer, wanted them due to the lack of quality.

So now banks had to tighten up their guidelines to protect themselves and the borrower.

Some changes that have occurred:

- Minimum scores for high risk products have risen
- 100% financing for STATED deals is almost non-existent
- Many banks now require some money down on deals

I hope this helps explain what has happened. Please let me know if you have any more questions.