Refinancing a home

[Vegas Halo Fan]

i know nothing about any of this, so forgive me if this question is on the simple side . . . but if i take a home loan through bank of america, for instance, why in the world do they sell my loan to someone else?

 

My mortgages over the years have been sold so many times that I can't remember all of the financial institutions that I have made payments to.

[Vegas Halo Fan]

thanks both of you, that was helpful.

 

 

now, can you explain freddie mac and fannie mae? i have no clue what those are.

 

Fannie Mae is the Federal National Mortgage Association (FNMA). It was founded during the 1930s. Its purpose is to expand the secondary mortgage market by securing mortgages with mortgage backed securities. This allows lenders to reinvest assets into more lending.

 

Freddie Mac is the Federal Home Loan Mortgage Corporation (FHLMC). Freddie Mac buys mortgages on the secondary market and sells them to investors on the open market. The purpose is similar. It returns money to the original lenders so that they can make more loans.

Edited September 3, 2015 by Vegas Halo Fan

[Brandon]

Vegas basically summed it up. Think of Fannie and Freddie as government backed insurance. They basically say, if you do loans following our guidelines we will insure them. The mortgage crisis and what Wicked mentions is because the subprime and exotic loans don't fit their guidelines and are backed by nothing more than Wall Street.

To slightly counter Wicked, my company does loans but is also a huge servicer backed by one of the nation's largest banks....basically we loans, but also are in the business of acquiring portfolios.

It works like Wicked mentioned, but the security is that Fannie and Freddie back these loans and we all know about the US money printing press should shit hit the fan.

Also, that's why there is mortgage insurance on anything over 80% LTV. If someone walks away from a home the insurance paid covers the loss because basically anything 80% and below the bank can still put the foreclosed house back on the market at 80% value and break even or still make money.

With servicing you make money like Wicked mentioned and then you also get servicing fees from Fannie and Freddie. You basically make money when people make their mortgage payment and from servicing fees from the above. If the borrower walks take the property and resell.

The key, and I mentioned this before is that if you ever look at a TIL (truth in lending form) with your mortgage papers you'll see by the end of the loan whoever issued the note makes something like three times the amount loaned. That's also why people invest in these, the returns are insane.

The mortgage crisis happened because people invested in these bad loans and after x amount of people walk away insurance can't keep up....AIG, etc.

[Tank]

thanks guys, that was really helpful.

[mrwicked]

no problem tank.

expect an invoice in the mail from each of us.

this information is not free.

note: i accept scones and beaver pelts for payment.

Edited September 3, 2015 by mrwicked

[Brandon]

Send me a complete set of WWF wrestling buddies and we are square.

[mrwicked]

ahhh man.

RIP ultimate warrior.

[Brandon]

Yeah, who didn't run around the house in the 80s with socks or bands around their arms

[happybat4]

Some banks will even give you Sports Chalet gift cards for refinancing.

[Vegas Halo Fan]

When I did HARP I had to provide proof of the level of income that I reported. Seemed a lot more legitimate than the stuff that went on during the sub-prime fiasco.

[Tank]

brandon and wicked, we're in a bit of a financial, ahem, "lull" at home. would it be okay if i paid you in He-Man trading cards or Flintstones plastic drinking glasses?

[Brandon]

Some banks will even give you Sports Chalet gift cards for refinancing.

Maybe in 2005 when people could do kickbacks. That was one of the bigger reform changes. Completely illegal and actually a serious crime now.

[Brandon]

When I did HARP I had to provide proof of the level of income that I reported. Seemed a lot more legitimate than the stuff that went on during the sub-prime fiasco.

Yeah, kind of depends who you do it with. Same servicer loans you don't need to do much more than just a verbal verification of employment. If it's not 100% harp eligible you can run it as non-American servicer guidelines and it's basically a streamlined loan....paystubs and W2s.

[Brandon]

thanks guys, that was really helpful.

It was actually a really good question that I now get asked a ton or now see that I didn't before.

Basically (I have to cover some tracks here with personal info) I'm with the largest or one of the largest servicers in the country and it wasn't something I thought about before with the credit union because it was a different operation.

When I hopped back into this realm I would only do it at a big box place because of the regulation changes, but ended up where servicing was as important as simply originating loans. And it reminded me of my business model, I actually made the most money and was #1 in the nation not during the hey day, but after the market crashed because instead of trimming the fat like everyone else closing their doors I actually was acquiring all these people. Same thing with servicing where the economy and landscape of mortgages is different and people are still closing their doors or needing to adjust and we simply keep acquiring portfolios to service.

A lot we simply buy, but quite a bit are actually just given to us at pennies on the dollar by Fannie and Freddie when places like BofA and Ocwen who used to be the top dogs got caught doing shady shit and all the government cares about is a legit company providing service for these loans.

I think servicing fees are just a %, but let's say each loan we service gets $5 a mo. but with a portfolio of 30 million...as you can see the math becomes insane.

That's why I still think about your question, but also how we are regular dudes so this is probably a common quesrion/or concern for regular people. I see huge opportunity in servicing and get the question often because we'll have acquired the loan and call them to also refinance them (remember, with servicing, at the end of the day you want happy people that simply pay the mortgage on time...so you don't want them to refinance with someone else because they may service or it could be a regular broker that sells it off and you don't know if you'll acquire that portfolio) as you just want stable and happy customers.

This probably way too much info, but kind of how sevicing works or why it works/makes sense combined with Wickeds breakdown of who buys and sells to who.

It's a pretty big rabbit hole learning how everything works.

[Taylor]

I'm years away from being in a position to even think about owning a home, but I'm glad to know I can count on AW when the time comes.

[mrwicked]

definitely buy whatever you an afford when you can afford it.

real estate is a great thing to spend coin on.

i am starting to think about picking up some rental props.

[Brandon]

definitely buy whatever you an afford when you can afford it.

real estate is a great thing to spend coin on.

i am starting to think about picking up some rental props.

You're going to be a nightmare haha.

The simple 9-5, checking/savings only, people are incredibly easy. The baller types with businesses, investment properties, need tax returns, etc. are such a pain. I hate doing tax calculations. Generally rewarding loan sizes though.

I had some young dude renting out of LA County that pillaged Michigan/Detroit area when it was hit and the dude simply rents a beat ass apartment but has 3-4 properties he picked up on the cheap.

[Stradling]

Brandon, I always think about that.  What would be the best thing to do, buy rental property, or just throw all my extra money to my current house, until it is paid off, then just save and invest, and retire early.  Or instead of investing in mutual funds or my 401k or FlexOp, do I just throw it all down on rental properties.  I get that they are good for tax reasons, I just wonder if I would want to deal with it.  I look at it like I have 15 more years or so of work, after that I should be able to live pretty close to the same life style, if not better in retirement before age 60.  I guess it comes down to personal choice.  

[mrwicked]

Brandon, I always think about that.  What would be the best thing to do, buy rental property, or just throw all my extra money to my current house, until it is paid off, then just save and invest, and retire early.  Or instead of investing in mutual funds or my 401k or FlexOp, do I just throw it all down on rental properties.  I get that they are good for tax reasons, I just wonder if I would want to deal with it.  I look at it like I have 15 more years or so of work, after that I should be able to live pretty close to the same life style, if not better in retirement before age 60.  I guess it comes down to personal choice.  

 

My opinion:

I wouldn't "throw it all down" on any one particular area.

Diversification is key.

Go talk to a financial advisor.

The math is pretty simple, just depends on your situation / needs / risk tolerance.

 

But if your rate is low, no need to pay it off.

Let the bank's cheap money ride, and use your money for other investments.

Unless paying it off makes you sleep better at night, which is a valid reason in itself.

 

You can do very well with rental properties, but they can also be a pain in the ass.

RE is illiquid. Cash / equities / etc is very liquid.

[Brandon]

Wickeds post is good, Strad.

It's always personally independent on what your long term goal is. Rentals aren't necessarily a hassle, I meant the process because I think like an underwriter so I do all the allowable rental calcs and adjustments.

I just got off the phone with someone in New Jersey, 50-60ish, retired, and just lives off a small pension but rental incomes. Another old dude in NorCal, retired old man that lives off three rentals.

I like rentals and write offs myself while building a nest egg of passive residual income, but if someone gets some fat pension and can retire with a paid off house, why not? There's probably a mathematical answer, but really personal choice. The one thing I do know is that you want your money to make you more money.

I'd ask around and talk to a quality financial advisor that isn't going to try to get you into one direction.

[halomatt]

Wickeds post is good, Strad.

It's always personally independent on what your long term goal is. Rentals aren't necessarily a hassle, I meant the process because I think like an underwriter so I do all the allowable rental calcs and adjustments.

I just got off the phone with someone in New Jersey, 50-60ish, retired, and just lives off a small pension but rental incomes. Another old dude in NorCal, retired old man that lives off three rentals.

I like rentals and write offs myself while building a nest egg of passive residual income, but if someone gets some fat pension and can retire with a paid off house, why not? There's probably a mathematical answer, but really personal choice. The one thing I do know is that you want your money to make you more money.

I'd ask around and talk to a quality financial advisor that isn't going to try to get you into one direction.

Good answers.  Thanks for the input.  I find that it's difficult to find a financial advisor that I can trust.  I'm ALWAYS suspicious that I'll be swindled. 

[Vegas Halo Fan]

I always wonder if they are looking out for my best interest or theirs.

[Brandon]

It's like the rest of life, proceed with caution because at the end of the day everyone is trying to make a buck.