I have a client that is retired and having a hard time paying his bills. I got him to talk about the loans that he has and it turns out that his mortgage (PITI) is at a 60% ratio and his other loans that he had in place before the refi on his home loan put him at about a 75% ratio. Would anyone consider this predatory lending?

I would like to know the full story before making such a claim...and this is only because I've been in this business long enough to know that there are always two sides of any given story. I had a client last september who came to me with a 62% back end debt ratio, same kind of scenerio, retired on a fixed income, owed $90,000 on his heloc, had 7 investment properties but no positive cash flow, no reserves, great Fico score but no other compensating factors whatsoever. He wanted to 1)pay off one of his office bldg's mortgage simply because the property taxes were $1,000/month alone and couldn't keep drawing his heloc to make the payment and 2) pay off his 2nd through a cash out refi and get a concurrent heloc behind the 1st for emergencies only (couldn't subordinate it because his bank wouldn't let us)...anyways, for fixed income borrowers (meaning Social Security and pension), the choices are limited, it's either full doc or no doc pretty much. So if the debt ratio is not in line with conventional fannie or freddie guidelines, and if you don't have compensating factors such as cash in the bank...it's not as easy as you may think to get someone approved for "what they want at the rate they want" (key words here). Not only that, you want that person to be able to afford their new mortgage so you try to avoid the "no doc" route to save them on the rate but the reality of it all is that the "no doc" loan is there for that specific reason: to qualify the "un-qualifyable."
What he wanted: a 'no cost cash out refi', a 30-year fixed at 5.00% "just like ditech said I could have."
In his situation: impossible...and that is the reality.

What he got: a no doc 5/1 ARM I/O at 6.125% to keep his payment as low as we possibly could and a safe enough program for him to not have to worry about it anymore (enough equity).

The point here is that unless you have the complete story in front of you including the settlement statements to see how much fees that person was charged at settlement plus the entire financial picture of that borrower prior to obtaining that mortgage, I wouldn't jump to conclusions so fast.

My borrower full story: he was getting a divorce, had his wife's mortgage on his credit report (must be included in debt ratio because they were only separated at the time), once the divorce was going to be finanlized he was going to have to pay child support, lose the only two office bldgs that had positive cash flow to his wife, was already giving half his social security check to his wife, and was going to end up with a higher debt ratio that he came to me with had we not closed his refi in 15 days.

His situation was heartbreaking but there was so much going on that it was either do it now or wait and not being able to do it at all. And trust me for the number of hoops I had to jump through in only 15 days, the pay was not why I did it believe me. If I ever had a charity loan, that one was it.

Remember, as an agent, you don't have the facts, only the assumption that what your client tell you is true and correct. Ask their mortgage provider and you may get a 180 on that same story...or you may have someone laughing at his expense all the way to the bank.

The problem is: right now, with what you told us, we don't know enough to tell you what really happened.

I looked at his truth in lending statement and they grossed up his income by 55%. They also put down 8,000 in cash reserves that he does not have. The broker also told him to come back in 3 months and they would refi him to a lower payment and put the closing costs on the new loan.

By the way does anyone think that 2.25% is a little high for an origination fee ?

You can gross up social security to 125% because it is not taxable income.
I'm just curious...what program did they put him in? What kind of documentation did he provide?
You said you saw the TIL, what was the note rate and what was the APR?
Does he know how the amount of non-recurring closing costs he was charged?
As far as the origination fee is concerned...it's all relative to the amount of hoops you have to jump through to get a deal done. Is the deal a slammed dunk or are there layers upon layers of challenges that must be solved to qualify that borrower.

For A-paper borrowers, I would say that 1 to 2pts is pretty customary (I'm talking total pts here origination fee + rebate). If just about anyone can do the deal, it means more competition and therefore, if we are only talking about rate and fees here, lenders must be competitive and charge less. However, it's all about value and what the originator brings to the table as well. A rate quoter will slash price to get the deal in, professional mortgage planners will defend their paycheck and rightfully so because we know that our advice do make a difference. Ultimately, it is the client's choice, take it or leave it but this is what I'm worth. I don't overcharge, do charge a fair price, and my clients know that they have NOTHING to worry about...I got their back period.
It's the same kind of debate as full service agents Vs. disount brokers. People get what they pay for. It's all about service and as a full service agent, I would expect you to defend your commission as well because you know what your services are worth. It is the same for us. If a borrower only cares about getting the lowest rate and that's all they care about regardless of what their total financial picture looks like, I tell them straight up that I may not be the right originator for them. If they want to go cheap, hey there's always ditech and all these internet lenders who spend all their marketing dollars on adveritising and whose pull-through ratios are below average. Agents love call centers and internet lenders because their deals always close, NOT! So you know what I mean?

In subprime, it's a whole different story. For the most part, these deals are much harder to get done, subprime loans cost more as they involve a lot more risk for investors and a lot more work...hence the higher rates and fees; and depending on the borrower's situation and past financial performance (mtg lates, bk, foreclosure, and so on), the origination fee can range from 2pts to 5pts. I would say that the average could be 3 or 4pts but that's just my guess.

And then, on the other end of the spectrum, you have those originators who function without a conscience and can't see past the transaction $$$ that it will bring them. I personally wish these people would drop off the face of the earth. It may be the kind of people, your client has been dealing with.

Again, I would like to know what loan program they gave him. If they grossed up his income to 155%, showed $8,000 in reserves that he didn't have, on a stated deal (SISA) showing the borrower as retired on the 1003...I don't know what to tell you because I don't know any underwriter who would have let that deal fly. They couldn't have given him a "no ratio" loan because all liquid assets would have been verified and the income wouldn't have even stated on the 1003. If it were a no doc loan (NINA), the assets and income wouldn't even be stated on the 1003 either.

So who knows at this point... what's the full story?

Client has contacted Consumer Protection in our state. Atty General can not get involved because there are no preditory lending laws in our state.

It looks like they ran the wifes credit only and got a 659 score. Quoted $3875 income on $2441 combined. Appraisal ran $600 and used 3 properties less than 12 years old for a 100+ year old home. Yes there were better comps available in my opinion but they would not bring the value. Total costs on loan about 8k for a refi.

Ok so it was a stated deal correct? If they used his wife's credit score to qualify, I'm assuming that she has a job, still works whereas he is the one on a fixed income and is retired, correct?
She was the primary borrower and he was the co-borrower on the loan, correct? Now, I don't know what her occupation is and I don't know the break down of their income as to how much is derived from whom and what. On a stated deal, also known as "the liar's loan", the income is most likely "exagerated". Now, don't get me wrong, every underwriter knows that and that's why the rates on a stated loan is always higher than on a full doc loan...more risk. Underwriters will check that the income stated on the 1003 is REASONABLE for the occupation of the borrower. Some use salary.com for that purpose. If it's not, the deal is dead anyways.

Trust me, the underwriter who looked at the file did check all this. If anything had looked real fishy and shady, most likely the file would have gotten denied. The underwriter's main focus is to protect the bank's best interest, then the borrower's; meaning the u/w will make sure that there is a benefit for the borrower to refinance. If there isn't, the file will get denied and the broker will be placed on a watch list for predatory lending.
The u/w also reviews the appraisal. If anything, he would have requested a desk review, a field review, or a second appraisal if something looked that wrong (at least I hope so).

You said the cost of the refi was $8,000 but you didn't say what the loan amount was. Was it a cash out refi or a straight rate and term?
If it was a cash out refi, what was the amount of cash they walked away with? Did they consolidate some debts, what?

If it was a rate and term refi, what were their original rate and terms and what did they end up with? Did they go from a 30-yr fixed to an ARM or vice versa. Did they payment increase or decrease?

As you can see, there are so many variables involved that without all the data, it is nearly impossible to say for sure.

With what we know right now, 2.25% origination fee if there was no rebate involved, I'd say that it is pretty average. Now, if they were charged 2.25% on the front and another 2pts on the back...it'd be a different story. But we don't know that.

So the questions that comes to mind right now are: Has their financial situation changed since they obtained that mortgage? Has heir combined income declined? Have they accumulated more debts since the last refinance? When they obtained that mortgage, did they feel comfortable with the proposed payments? WHAT KIND OF LOAN PROGRAM WERE THEY GIVEN? (I really want to know that one

Ok, send me the whole file and I will tell ya in a second whether it was predatory lending or not.

Alea, I couldn't think of a better person to respond to this thread. You said and addressed every item that I would have. I actually wanted to respond to this thread earlier, but didn't feel I had enough time to type out the great response that you did. I can guarantee that you would have said it better anyways. Way to go.

The only question I have is how much money a month did the borrower save by paying off all of his debt?

There would have to be obvious benefit to the borrower in cash flow to get approved. The predatory lending laws in a state or not will still be used by the lender. If the loan simply raised the customers monthly payment with no benefit it would make no sense for the lender to do.

Thank you for the kind comments TN. Actually, I spoke to Ohio Realtor on the phone about this yesterday and the problem here is that it wasn't a cash out refinance, a straight rate and term refi. There was no benefit for them to refinance AT ALL. His clients ended up with a higher payment they originally had and were told by their broker that they would refinance them again in a few months and get them a better loan then. What I don't understand is why the underwriter approved that file to begin with and how they pulled structuring that file the way they did and managed to get away with it. I'd like to know who the lender was. Like Ohio Realtor said, this is really sad; these poor people got taken big time. I hope the broker goes down in flame and goes straight to hell. $8,000 in closing costs on a $164,000 loan amount is just plain wrong. Ohio Realtor is definitely one of those agents that we, loan officers, like to work with. He's definitely looking out for them and giving them very sound advice. I wish they had called one of us instead of picking the broker out of the phone book. BURN BROKER BURN!

Ohio, if that is truly the case there may not be much you can do for the borrower. My sugggestion would be to get them infront of a reputable loan officer and let them work up something to help the borrower. Secondly you and the borrower should go after the original lender at least thru the better business bureau, and the state department of finance. Sometimes just because the loan can get approved doesn't mean it's the right loan to give the borrower. For someone to take advantage of someone like this is terrible. here is a link

http://www.com.state.oh.us/dfi/revcodes.htm

Ohio here is an even better link. Please follow thru as people like this are not welcome, and do not belong in our industry. This link actually has the complaint form attached to it. There is also a predatory lending hotline for Ohio at 877-228-1645


http://www.ohiolegalservices.org/OSLSA/PublicWeb/Library/Index/1090000/1060300

My client got his paperwork from consumer protection on Friday. He needs to make copies and send them back to them. I already gave him the number for COHHIO and they are more of a resource for information and referals. He should be able to get something done with consumer protection or hold out until January and file with the A.G.