Posted by JamesLee/VA on 7/24/07 8:01pm
Msg #201546

Baaad Loan

Hey Guys..Have you ever had this situation? I got a call today to do an Options Arm closing at get this..My next door neighbor. I get to the signing and the loan is supposed to have escrows according to the borrower, and the payment amount supposedly reflected the escrow payment but they were not listed on the payment page and there was even an escrow waiver in the package. She said the payment would have been around $225 less without escrows. I did note the original 1003 did reflect the payment without escrows.
Of course I advised that we call the LO and have him explain why the loan papers reflected no escrows but a higher payment. he told them the payment did have escrows and was figured in without being itemized.

A little information about myself is that I am also an LO at a large bank, and I have sold Option Arms back in the day when that was the thing to do. I always made sure my clients knew what they were getting. The fact is that he was lying to them. That loan had every indicator of a loan with no escrow payment. As I am sitting here stamping the package I cant help but know these people dont understand what they signed and they live across the street from me to boot.

The loan is also an cash out debt consolidation refi but the only thing they are paying off is their first loan which should clasify the loan as a rate term refi. Its usually a .250 difference in rate.

Anyone run into this type of conflict before? I really want to go over and tell them to rescind but I know I cant. I think Im going to lose sleep on this one tonight.

Sorry such a long posting..its just really bothering me.

JLee

Reply by Becca_FL on 7/24/07 8:25pm
Msg #201547

>>>Anyone run into this type of conflict before?<<<

Yep.

>>>I really want to go over and tell them to rescind but I know I cant. I think Im going to lose sleep on this one tonight. <<<

Yep.

Was there an "Arms length" document in the pkg? If so, I might have pulled it out with the RTCs and placed them on the top of the borrower's copy pkg. You did show them the Note (P&I) and the first payment letter side by side so they understood...I hope.

Reply by BrendaTx on 7/24/07 8:26pm
Msg #201548

Re: Baaad Loan - James, check your PM n/m

Reply by John_NorCal on 7/24/07 8:28pm
Msg #201549

I think many of us have had to deal with a loan that we know is patently bad. Being an LO myself, I just have to bite my tongue as much as I want to blurt out "Stop! You don't know what you're getting into!" But bite my tongue I do, understandably this is even more difficult when it involves your neighbor. Ya just gotta come here and vent.... Feel better now? Have a drink and take the rest of the night off.

Reply by Joan_OH on 7/24/07 8:46pm
Msg #201553

Never sign your neighbors and friends for starters.

Whenever I get an order for my town, I ALWAYS ask the borrowers name before I accept it. If they've worked for me or are a personal friend, I just feel it might be uncomfortable for them for me to sit there with all their financials.

As an added bonus, I don't run the risk of my neighbor coming over in 6 months asking why I didn't tell him the LO was lying through his/her teeth.

I just tell title that I am declining so the borrowers aren't uncomfortable. They always understand.

Joan-OH

Reply by Gerry_VT on 7/24/07 10:12pm
Msg #201593

Re: Never sign your neighbors and friends for starters.

I would never do a purchase closing for a next-door neighbor for a different reason than those mentioned by Joan_OH. I woud have an interest in the loan, because one or more of the boundary lines in the legal description is also MY boundary line. If there is some other legal description out there with a boundary line that is less favorable to me, I could be accused of somehow manipulating the situation in my favor.

I don't know to what extent this would apply to a refinance, but I wouldn't take a chance on it.

Reply by Becca_FL on 7/24/07 8:52pm
Msg #201556

Also...

See Msg #200458

www.MortgageFraudWatchList.org

Reply by PAW on 7/24/07 9:10pm
Msg #201566

What's on the HUD?

Does it show any reserves for taxes and insurance to be impounded in section 1000?

Reply by JamesLee/VA on 7/24/07 9:40pm
Msg #201579

Re: What's on the HUD?

No reserves on the HUD. This LO is flat out lying to these people. The loan has every indicator of being an impound free loan.

Reply by Philip Johnson on 7/24/07 9:13pm
Msg #201568

Over 18 and of reasonable mind?

I too often wonder about this and I tell myself that there is something that they need or they would not have bought. With as much info out now about bad loans and such, there is little reason for folks to get done too badly. Caveat emptor is always a good way to approach this.

Reply by Stamper_WI on 7/24/07 9:16pm
Msg #201570

Re: Over 18 and of reasonable mind?

I had one the other night that was similar. They were expecting an escrow. So they called the LO. He told him to send him the escrow from their old lender when it was returned and that would take care of it. Well thats fine for half the taxes this year If the payoff did not deduct them. Bit my tongue so hard I considered soft foods.

Reply by TRG_wy on 7/24/07 9:15pm
Msg #201569

I for sure would have had them call their LO. It sounds like what they were signing isn't what they were told or expected. That being the case, THEY should have stopped the process right then and there. Never put faith in the RTC process.

If the loan goes through, don't expect a friendly waive from your neighbors anymore.

Reply by Ndwa on 7/24/07 9:45pm
Msg #201580

We are obligated to keep our mouth shut. However, we're obligated to show & tell borrowers title of the document they're signing. All the loans I did here in WA have a "no oral agreement" clause at the end of the DOT and a separate disclosure as well. In cases like this, I let my finger do the talking. I'd point them to what's disclosed the NOA disclosure, point out what's on the payment letter, tell them their RTC option, then let them decide on what's printed (in writing) against the LO's words.

Reply by Shannon_Va on 7/24/07 10:41pm
Msg #201614

Option Arm Loans

Option arm loans or pick-a pay as some call them are not always bad loans. You have to understand why people do them. They have their advantages. And of course their BIG disadvantages if they are used the wrong way.

Using them the wrong way:
Lower your payment to buy a bigger house and then not be able to refi later when your house doesnt go up in value enough to cover the new balance of the loan, or you start to adjust, cant make the bigger payment, and get foreclosed on

Using them the right way:
Investment properties that increase at least 3% in value each year, use the money you save on the payment and invest it elsewhere and make a better return on your money than the interest rate you are paying.

Think about it, if you would normally have a $1000 payment, rent of $1200, you clear $200 a month
Get an option arm loan with a payment of $750(including escrows in there)
Take out 50-100k from a cash out refi to get the option arm.
Now you clear 450 a month and have 50-75k a month to invest.
Pay a rate of 8% on the option arm (even if you get a 1.5%, you still really pay the 8% in the end because your balance goes up when you make the 1.5% payment)
You invest at a rate of 10-20% return, so you are making money on your money, have a positive cash flow, and you property value increases at about the same rate the loan balance increases, so you don't lose any money, you make money......and dont lose your initial investment of 50-75k, or more!

There are ways to make them work, you just need the right loan officer and the right investment company.

I close these left and right all week long...sometines I think I explain them better than the LO does

Reply by Rachel Harvey on 7/24/07 10:57pm
Msg #201621

Re: Option Arm Loans

You sure explained it well, here! I think I actually followed all of that, although my eyes were starting to cross...

Reply by goodgirl on 7/24/07 11:07pm
Msg #201625

I've been in similar situations, too. Unfortunately, I agree with Philip. These people are grown adults, "free, white and 21" as we say around here, and they have to make their own decisions. I see people living far above their means constantly. I have one couple that refinances their home yearly so they can go to Vegas and lose it all. That's just wrong. They have kids. I also go in these big homes and there is not a stick of furniture in the place, but they're in a $250K home and there is a new Hummer and a new Lexus in the driveway.
I think you would be jeopardizing yourself if you commented on the terms of the loan to these people. You could put your job with the bank in jeopardy because it could be considered a conflict of interest - could be a lot of "hay to pay" here.

Reply by Shannon_Va on 7/24/07 11:12pm
Msg #201627

I agree if you think it is a bad loan, but it may actually be a good thing for them, you make your self look bad.

What most newer notaries dont get is that everyone is in a different position. I may think a 9% interest rate is crazy, but the borrower may be getting a really good deal because he had a bad credit score, high debt to income ratio and a recent bankruptcy and he is trying to get the loan to fix his credit...

We never know when we sit at that table what is going on.....

Reply by CaliNotary on 7/24/07 11:56pm
Msg #201637

I wouldn't comment on the terms of the loan, but I would definitely make sure the borrower understands that the payment shown on the note doesn't include any impounds. If they pushed the "well the LO told me it does" angle I wouldn't have any qualms about telling them that he's mistaken and that the note NEVER includes impounds as those amounts can change from year to year, but the terms of the loan are set for the length of the loan.

If they still wanted to believe the LO and sign, I wouldn't have the slightest moral issue with it. My job is just to make sure that they understand what they're signing, once I've done that it's their decision whether or not to allow themselves to get screwed.

Reply by Elizabeth Soliday on 7/24/07 11:38pm
Msg #201632

Did you hear the loan officer say that "the payment did have escrows and was figured in without being itemized"? If you heard him speaking on the phone, I would write down exactly what he said and put it in my notary book because if they decide that they got screwed later and go to sue, you are a witness to it. Did they even read the escrow waiver?