MetLife Bank Is Underwriting keeping you under water?

1. MetLife Bank Is Underwriting keeping you under water?

2. According to Wall Street Journal • The last week of 2010, the Wall Street Journal published four housing-related issues to keep an eye on in 2011, which really haven't changed much. • #1 is jobs. "Who's going to buy a house when they're not certain they'll have a job in six months and when it looks like home prices are likely to fall another 5%?" • #2 is delays in the foreclosure process. Much of this has blown over, but still regulators and state prosecutors are in the midst of a series of reviews and investigations that could shed more light on abuses, such as misapplied or excessive fees, by servicers, their attorneys and other third-party vendors. • According to the WSJ, #3 will be whatever comes out of Washington DC in terms of Freddie & Fannie, the Dodd-Frank Act implementation, what does a "qualified residential mortgage" mean in terms of the 5% risk retention, etc., etc. • And #4 on the list is underwriting guidelines. 90% of production now is related to some type of government agency - if those change, private lenders are going to have to step up lending without additional fees, government regulations, down payments, etc. It is a tall order, given the overlays already in place.

3. Underwriting Topics • What is Underwriting • What does the Underwriting process look like • Current Market • Fannie & Freddie Update • Salability • Red Flags • Do’s and Don’ts • How can Agents and Sellers help the process? • Q & A

4. Underwriting What is Underwriting?

5. Why does Underwriting take so long? • Many factors influence the length of time a file may be in underwriting: • How busy is the lender? • How complete is the file? • How complex is the file? • How experienced is the underwriter?

6. Underwriting Process • Underwriters must evaluate the file for both Risk and Salability • Risk and Salability are mutually exclusive • Risk is the ability to determine future payment potential • Salability is the ability to package the loan based on published criteria and rules of the secondary market. • $100,000 down from a gift on an investment property. Loan to value is 20%. Minimal risk, no salability. Gifts are not allowed on investment properties. • FHA is discussing limiting seller contributions to 3% of the sales price. Statistical analysis of loans has shown that the greater the seller contribution to a transaction, the higher the risk of default.

7. Underwriting Process (cont) • Documentation in file is a snapshot in time • What appear to be minor details potentially become major snags • What appear to be “Out of Ordinary occurrences” must be explained to the underwriter • Deposits, Paid Collections, Changes to Income – better or worse, changes in debts, changes in address, etc all become “red flags”.

8. Process (cont) • This is not the same loan as 2007 or even 1997 • First Time Homebuyers, this is not your parents’ loan! • Remember the two’s • Two years income (W2’s, 1040’s, K1’s, etc) • Two months’ bank statements • Two years’ address history • Two pay stubs in a row (minimum), sometimes up to five • Receipt of two years of overtime, bonus, stock awards, etc. • History of working Two Jobs if using 2nd job to qualify

9. Current Market • Short Sales, Bankruptcies, Foreclosures • Attorney and CPA advice is not always good mortgage advice • Family Law, Tax Law, and Bankruptcy Law are all mutually exclusive from Underwriting Criteria • New Underwriting Guidelines and Credit Scoring now considering borrowers’ desire to “buy and bail”. • Washington Market, per Moody’s is expected to be soft through mid 2011

10. Loan Delinquency Rates

11. Foreclosure Sales Units

12. Products / Secondary Market Fannie Mae / Freddie Mac • Will not continue to exist as they do today • Currently under government oversight • Threatening to be de-listed by Wall Street • Will probably be completely dismantled for a different structure Government Loans – FHA/VA/USDA • FHA not financially sound • Looking to rebuild financially with tighter guidelines • Charging more monthly fees to rebuild reserves – will be more expensive for the borrower and more difficult to qualify • USDA – annual funding continues to be a struggle • VA – continues to adhere more tightly to its posted guidelines

13. Things that can stall your deal • Credit Repair – Rapid reporting is anything but rapid • Updating Documentation – bank cycles, pay cycles, etc. Borrowers may need to be able to offer “alternative” methods of validating information. Missing pages to bank statements. Missing pages to tax returns. Trying to use business funds as if they are personal ones. • Appraisal Review – prepare for surprises i.e. comparables that you don’t agree with, permits that are delayed, etc. • Changes at the last minute – change orders, seller contributions, marital status, upgrades, etc all must be reviewed by the underwriter, even if you deem it to be an enhancement to the loan.

14. Common Snags • Insufficient time granted to underwrite / grant exceptions. Many loans require exceptions. These all take extra time • Upgrades not factored into appraised value • Assumptions that exceptions will be granted without any additional conditions. • Insufficient explanation re: income • Declining Income not explained • Percentage of Ownership not disclosed • All partnership / corporate returns not provided under the premise that the income is not “relevant”

15. Common Snags (cont.) • Judgments against the seller or buyer • Tax liens • Mechanics liens • Pending Litigation • Paid, unreleased loans from individuals • Address discrepancies • Unusual banking activity or abnormal bank deposits • Undisclosed debts • Undisclosed real estate holdings

16. Borrowers’ Do’s and Don'ts • Tips & Best Practices for a Smooth Loan ExperienceDO save all of your pay stubs somewhere convenient • DO save all of your bank statements with ALL pages included somewhere convenient to access • DO continue making your mortgage or rent payments on time • DO stay current on all existing accounts • DO keep working with your current employer until your loan has closed • DO keep your same insurance company • DO continue living at your current residence • DO continue to use your credit as normal • DO call us if you have any questions whatsoever • DO be sure to return all documents that we have requested in a timely manner.  Your closing may be delayed if we have not received the information we need to complete your loan. • Do please tell us the truth!

17. Borrowers’ Do’s and Don'ts (cont.) • DO NOT transfer any balances from one account to another unless directed • DO NOT make any major purchases (car, boat, furniture, jewelry etc.) • DO NOT apply for new credit or open any new credit cards or credit accounts (even if you are pre-approved) • DO NOT pay off charge-offs or collections without discussing with us first • DO NOT close any credit card accounts or refinance any of your debts without discussing with us first • DO NOT max out or over-charge any of your credit card accounts • DO NOT consolidate your debts into 1 or 2 credit cards • DO NOT finance any elective medical procedures • DO NOT open a new cell phone account • DO NOT join a new fitness club • DO NOT start any home improvement projects • DO NOT pay off any loans or credit cards without discussing with us first.

18. Agents – How can you help? • Set proper expectations – it will take longer than you thought! • Get your lender (MetLife Preferably!) involved early. The underwriter has to review everything. • Don’t assume anything – ask…. We know what happens when we assume now don’t we…... • HVCC, MDIA, and TILA have all eaten into the time we need to close loans. Please plan to be compliant. • Plan for and communicate all change orders as they occur. Don’t assume that these will not materially change the terms of the loan as they often do.

19. Agents – How can you help? (cont) • Get your lender a clear and legible copy of the contract! All pages, all addenda. • Communicate clearly all seller, selling agent, and listing agent concessions your lender. Once again, do not assume anything! • Encourage our borrower to be “Johnny on the spot” with all documentation requested. We are a team. • Know your property – be prepared to discuss the upgrades and highlights of the property and neighborhood, if asked by the appraiser. • Minimize any changes to a transaction once underwriting has issued approval