Monday, July 29, 2013

So...why must you provide so much detailed documentation for your mortgage loan file?

The creation of your mortgage is just the first in a series of processes it goes through over its lifetime. Understanding the long-term nature of your mortgage will shed some light on the reasons why lenders are so scrupulous during the underwriting process.

Mortgages are created to be sold. Be aware that most mortgages are created with the intention of reselling them. Mortgages are bundled together after closing into what are called mortgage-backed securities, and these securities are then sold to investors.

Fannie Mae and Freddie Mac are the intermediaries between lenders and investors; effectively, investors forward money to lenders through Fannie and Freddie. In turn, lenders send back mortgages to Fannie and Freddie, who bundle them together (often thousands at a time) and send them to investors, who then send more money.

Fannie sets the guidelines under which the mortgages are underwritten, and the purchase of securities from Fannie/Freddie by investors is based on specific guidelines.

This process explains why lenders are careful. Before these securities are sent to them, however, sample files go through what is called a re-underwriting.

In this process, loans that (for many reasons) are outside the guidelines may need to be repurchased from Fannie/Freddie by the lender. Fannie and Freddie charge up to an 11% penalty to the lender ($22,000 on your $200,000 mortgage) for repurchasing. So in the event of a repurchase, the lender will face: receipt of a long term (in many cases 30 year) asset that they can't sell, reduced ability to lend further as lenders are restricted on loans receivable, and be required to pay a whopping fine to Fannie or Freddie.

This goes a long way to explaining why lenders check files scrupulously and may make what seems like unreasonable requests for additional documentation. 

As always, we are available for your questions or comments at

Thank you very much!

Tuesday, July 2, 2013

Don’t Forget Your Mortgage in Future Plans

Here are some things to always, you can find us at

Beyond the immediate benefits of home ownership (such as tax advantages), if you're considering entering the housing market, you will also want to look at the longer-term benefits of owning your own property.

These include:

Rental potential

If, at some point in the future, you decide that you need more space and are able to afford a larger home, you may decide that renting out your existing one makes sense.

The monthly rental income will help offset some - if not all - of the expenses of maintaining the property and may actually put money in your pocket each month.

If there comes a point when the property is completely paid off, then the rent could be a great source of retirement income.

Source of equity

Over time, as the value of the property increases and your mortgage balance decreases, you'll be able to tap some of the equity in your home with either a fixed-rate second mortgage, or some type of line of credit.

The equity may come in handy in the future for things such as home repairs and college tuition.

If you expect to be able to pay off your home at some time in the future, you may be considering downsizing to a smaller, less expensive home.

Your home equity may allow you use the proceeds of the sale of your older home to pay cash for a new, less expensive property, and you can deposit the remainder of the proceeds of the sale to provide retirement income, to purchase a vacation property, or for a host of other reasons.

For many decades, real estate has been one of the best places to invest your money, and despite the recent mortgage meltdown, it will continue to be so.

In many cases, it can even outperform the stock market.

Consider your mortgage as part of your long-term retirement plan.