Several months ago most lenders started requiring the completion of an IRA form 4506-T in every loan submission package. Not too long afterward I had an applicant in my office signing documents with a Loan Officer when the LO came into my office and said, "They do not want to sign this 4506-T."
A 4506-T is a request for copies of tax filings from the IRS for the most recent 3 years of tax transcripts to prove the applicant filed and that the numbers match what the applicant provided at the time of application.
When I asked the applicant why they did not want to sign she simply replied, "I don't think I have to." Then I asked if it would be a problem if she did she said, "Yes."
What happened next may amaze some of you but it did not even phase me: she demanded all of her documents back including her signed application. Why? She wanted to destroy them of course. Who would want to be convicted of mortgage fraud by their own hand? I'm not sure what happened to her but I sent the story along with the paperwork to the local FBI Field Office to Agent Law. I kid you not, that is her name: Agent Law.
Two times in the last 1 week we have pulled 4506-T reports where the tax returns had not been filed even though the clients had provided us with copies of their returns saying they had been filed. They lied. Both are currently, as I type, at their local IRS offices filing their back taxes.
You will sign a 4506-T. If yo have not filed your taxes or if you filed a different number that is on your tax return it will be discovered. If you fudged the numbers it could result in charges of fraud. It's not worth it. If you have not filed within 30 days of application your 4506-T may still return a negative result. If you have not filed back taxes file them now. If not it could stretch your closing time from 2 weeks to 8 weeks or more. If you filed with a different AGL than you shared with your loan officer correct the mistake now - the 4506-T must reflect exactly what the documents you provide to the owner indicated.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
Golfers already know - par is when you reach balance with the score on the golf course. Many golfers instead of writing down the total number of strokes record the number of strokes over or under the par. In golf par is the standard to aim for. The same applies in mortgage lending and investment borrowing.
Not every golf player "shoots at par". Others actually beat par - they beat the standard. Tiger Woods has a bad day when he shoots a par score on the golf course and I am joyous when I'm within 15 points over par. In fact that is my handicap. I have a handicap of 15. Essentially this means I can reasonably expect to have to hit the ball (add a stroke) on 15 holes and get the other 3 at par.
Par on the golf course is determined by playing a few games and keeping my score then using a weighted set of numbers called Course Difficulty and Course Slope. On a more difficult course I may actually shoot 17 over par and still hit my mark and on a less difficult course I may have to shoot a 13 or even a 12 over par game to keep my handicap.
All of the things that go into course difficulty and slop ratings have to do with the course itself plus a sampling of all the other "scored" games played on that course. To make it really fun the actual hole, called the cup, is moved around on the green, the condition of the turf (the grass), dry weather, wet weather, windy weather, and the list goes on, all effect the golfer's chance of scoring a par. All of those are a part of the risk and all go into the resulting score which is how far you are from par.
I think you probably know where I am going with this, eh?
Par interest rate is the zero rate. It's where the broker is not making any YSP (Yield Spread Premium). It is lower than the retail rate you would get if you called the bank directly. There are some very small but very vocal groups out their claiming the par rate is the rate the borrower is qualified for. Nothing could be farther from the truth. Par is the equivalent of wholesale.
Do you go into a restaurant expecting to pay wholesale for your prepared meal? If you do you must be uncle Posie who bargains with the checker at Publix over a can of peas. Let us look at that prepared meal. The restaurant has paid wholesale for the items and provided all the services needed to put that meal together. They have created a price and placed it on their menu. You have agreed to pay that price and calculate it to be a worthy value. In some ways loans are not too different but that's for another day.
Your interest rate (not the interest rate) is based on the risk you and your home present to the lender. So let's say the par rate is 6% for example. And let's say you are a very good borrower. You have a credit score of 800 plus, a debt-to-income ratio of 35% on all of your credit payments, 36 months of liquid reserves, your home is in a very low foreclosure area where values are still actually increasing (these areas do actually exist) and you only need to borrow 75% of your home's value. Chances are you are going to get the best rate available. If your loan amount is high enough and you are going to be paying your closing costs "out of pocket" you will be able to get the par rate. In fact you can even pay "discount points" to get the rate below par.
Closing costs are paid from somewhere and everybody pays closing costs. You either pay origination, discount or a premium rate. You may even pay a combination of the three. You want par? You will be paying the costs somewhere - either out of the proceeds of the loan, out of your pocket or in the rate.
One last note: the misconception (and it is a horrible misconception) is the brokers add the yield spread to the rate. Absolutely NOT true. If you want to get the broker's wholesale rate then you will have to pay all of the broker's fees out of pocket. The broker's par rate is not your rate, it is the wholesale rate. The par rate is lower than the rate you get from the bank specifically so the broker can be paid by the lender OR by you for part or all of their origination fees. This does not increase the cost of the loan to you over what you would pay at the bank.
If you have been quoted ANY rate with no closing costs you better have a very good understanding of what you are looking at because you can bet you ARE paying for closing costs - one way or another. If you are shopping and nobody has looked at your credit, income, assets, and property value the rate quote is worthless. The rate quote is no good if you do not qualify for it. Unfortunately the mortgage industry is still filled with liars and inexperienced loan officers who do not properly complete the Good Faith Estimate and Truth-In-Lending. And remember, until they have seen your credit, income, assets, and property value that GFE and TIL are still worthless.
When you're ready for the truth and you live in the Southeast call me. I will tell you the truth and if that doesn't sound good enough for you then you can go away. 866-946-0120 extension 101. America's most honest mortgage company. Seriously, we lose business every day because we refuse to lie. Unfortunately we have volumes of stories from people who could have had a great loan, reasonably priced and how we told them who ended up at the closing table feeling forced to sign documents and get a loan that was nothing like the big national lender told them it would. WE WILL NOT MISLEAD YOU but we will give you the choices you need to make an intelligent decision.
99% of borrowers do not understand the mortgage process. Do not be embarrassed to admit you don't. Every loan office who has been in the business can tell within a couple of minutes how knowledgeable you are just by the questions you ask. Least knowledgeable person's most often asked first question? "What are your interest rates?"
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
