Sub-Prime Lending Equals Big Money
The real money to be made by loan agents is with sub-prime borrowers. These are people with collections, car repossessions and bankruptcies on their record. Because of their poor credit ratings, they can't qualify for prime interest rates. If the sub-prime borrower does get a loan, his or her interest rate will be above the prime rate.
"A lot of inexperienced loan brokers rushed in to make quick money. The sub-prime guys can make anywhere from $5,000 to $10,000 on a loan. On the 'A' deals, they could make maybe like $2,000. I saw new people come in and make a ton of money on sub-prime, but now the market has changed. Lenders are being much safer and they want the borrowers to be cleaner."
So How Hard Is It to Become a Mortgage Broker?
Not hard enough, in Victor's opinion. "Different states have different requirements, but in most states you get licensed through the department of real estate. It's super, super easy to become an agent. I think it should be tougher (to get a license), and that way the business would attract people who are in it for the long haul."
According to the National Association of Mortgage Brokers, an association known as the voice of the mortgage broker industry, every state does require a license before someone can broker a loan, except for two. And what are those two states? Colorado requires registration with the state, but no license is required. Alaska has no requirements for mortgage brokers to register or get a license. "The requirements vary from state to state," says Jim Pair, chairman of the (NAMB) and Chair of the Education Committee. If you want to verify a broker's license, Pair recommends that you check to see if they are a member of NAMB or consult your state's department of real estate Web Site.
One Good Thing About Sub-Prime Loans
While most headlines of late have focused on the victims of sub-prime loans facing foreclosure because of adjustable rates, Victor points out one positive of sub-prime lending. "The borrowers were given a means to buy a home. These people wouldn't have been able to get loans before, so it's good in that way." The problem now, of course, is when the loans adjust up and the borrower can't afford the new payments. They'll face a tough time getting another loan because the banks have tightened their lending practices.
What Tips Does Victor Have for Loan Seekers?
* Inquire how long someone has been in the business. Avoid rookies and find an established broker.
* Go with referrals from a friend that you trust. Then that loan broker has a loyalty to the client and the referrer.
* Watch out for bait and switch. The lender promises a lower rate up front to get the process moving. Down the road when time is running out, they will up the rate and say things like, "Your lock expired," or "Your credit score changed."
* You should always ask for what's called a "good faith estimate" up front to get a handle on the rate and fees.
* Ask about prepayment penalties, which stipulate that you cannot pay off the loan before a certain number of years, such as three. The penalty is usually six months worth of interest.
* Get estimates from both a broker and a direct lender (meaning a bank) for comparison shopping. If you go with two brokers, you get into the "biggest liar gets the deal" situation.
* For higher credit scores, avoid maxing out your credit card(s). You're better off scattering your balance across a few cards. This way the lender sees that you have room to borrow if needed.
* When signing the papers during closing, if you look at no other paper, make sure to ask to see what's called the note. This will verify the interest rate and length of your loan.
Don't Go for Broke
And the final piece of advice? "Living beyond your means is the big mistake," says Victor. "People are like, 'Now that I have an interest only loan or refinanced, I can go out and get jet skis and a boat and a new car.' They don't realize they're worsening their situation."
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