Mortgage Tips

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If you’ve recently applied for a home loan and been bombarded by competing offers, a “trigger lead” might be to blame.

Simply put, when your credit is pulled, other creditors may be alerted in real-time.

Armed with your contact information and your intent, they can reach out with competing offers via phone, email, or even snail mail.

And the best part is the credit bureaus themselves are the ones selling this information!

On the one hand, this can be seen as a major nuisance and/or invasion of privacy. But on the other, a means to shop around for your mortgage with a little less effort.

Your Mortgage Application Could Alert the Competition

When you apply for a mortgage, a tri-merge credit report will be ordered to determine your FICO scores and associated credit history.

This allows lenders to qualify you based on your credit history, which is a key component of mortgage underwriting.

A credit score is generated by Equifax, Experian, and TransUnion, collectively known as the three major credit reporting agencies (CRAs).

In the process, a credit inquiry is also created, which is a record that you applied for a certain form of credit, be it a credit card, auto loan, or a mortgage on a certain date.

This information can then be sold to other creditors who wish do business with you, whether it’s a mortgage lender, insurance company, auto lender, and so on.

Your contact information, including name and address, along with your FICO scores, credit history, and the type of loan you’ve applied for are packaged and sold as “trigger leads.”

Competing banks and lenders can order them directly from the CRAs by selecting certain criteria such as loan type, credit score, or location.

How a Trigger Lead Works

  • You apply for a mortgage with Lender A
  • They pull your credit report to determine creditworthiness
  • The credit bureau sells that information to Lender B
  • Then Lender B contacts you with a competing mortgage offer

Whenever you apply for a loan and your credit report is pulled, it results in a hard inquiry that is logged by the credit bureaus.

You can see these inquiries on your credit report, as can other lenders. They alert prospective creditors that you’ve applied for a loan in recent days, weeks, or months.

Too many inquiries in a short period may indicate that a consumer is in distress and could result in lower scores.

But mortgage inquiries are relatively safe because they are grouped together as one when made in a short window of time, typically 45 days.

This allows you to shop around and obtain multiple quotes without racking up tons of inquiries, which could lower your scores.

Anyway, these inquiries are essentially an alarm bell that you’re about to “convert,” making you a high-value, high-intent consumer.

If Lender B knows you applied for a mortgage with Lender A, there’s a good chance you’ll at least hear them out if they can make contact.

Instead of casting a wide net, lenders can purchase the contact information of those already in the loan process directly from the credit bureaus.

Then it’s just a matter of sending an email or making a phone call to pitch their competing offer.

In short, lenders can skip the guessing games and find prospective clients fast, even if another lender found them first.

How Much Do Trigger Leads Cost?

  • Price can vary from $5 per lead to $150 or more
  • Depends on quality of the lead/prospect
  • Attributes such as loan type, FICO score, and loan amount can determine cost
  • Along with demand for the type of trigger lead at any given time

Similar to other products, there are varying costs depending on the quality and nature of the mortgage trigger lead.

The credit bureaus may have their own algorithm that determines which prospects are most likely to convert and charge a higher price accordingly.

In addition, mortgage companies can fine-tune the criteria so they only receive leads that meet certain requirements, such as a minimum FICO score, loan amount, or loan type.

For example, a lender may be very aggressive when it comes to VA loans or rate and term refinances, and purchase trigger leads that meet those criteria.

Once a consumer matching those filters has their credit pulled, it triggers the lead and a prospective client’s information is sent to the competing bank or lender.

They are then charged for the lead. It could be $5 or it could be $150, depending on the quality of the lead, demand, and so on.

Why Are Trigger Leads Allowed?

  • While it doesn’t seem right for the credit bureaus to sell your credit information
  • There’s an argument that trigger leads encourage comparison shopping
  • And that tends to result in the discovery of lower rates/fees in the process
  • But there is proposed legislature to limit their use due to numerous complaints

While a trigger lead seems like an invasion of privacy, especially coming from the credit reporting bureaus, there’s some logic to it.

Government agencies including the Consumer Financial Protection Bureau (CFPB) actively encourage shopping around.

They have conducted studies and found that consumers who shop around, i.e. obtain multiple quotes, tend to save money.

Conversely, those who use the first lender they speak with may be charged a higher mortgage rate and/or higher closing costs.

So as a means to promote comparison shopping, trigger leads got the green light. And remember, the credit bureaus are for-profit companies.

In a sense, this allows you to let one lender pull your credit, then wait for the other offers to roll in.

Instead of having to make phone calls and do lots of research, you can let the other companies come to you.

Granted, it can get annoying quickly, especially if you have no intention of using a different company.

And if any of the other companies are aggressive, which they often are, you may feel overwhelmed.

This is one reason why both a Senate bill and house bill have been introduced to limit their use.

How to Opt Out of Trigger Leads

Fortunately, there are ways to avoid trigger leads. Because they’ve become so pervasive, some lenders now conduct “soft pulls” that don’t create an inquiry.

This allows your loan application to evade detection from other lenders early on, but eventually the lender will need to do a hard pull once you formally apply for a mortgage.

This can at least allow you to stay under the radar while you shop around or continue to look for a house.

You can also register your phone number on the FTC’s National Do Not Call Registry.

And use OptOutPrescreen.com, which is the official website to Opt-In or Opt-Out of firm offers of credit or insurance from the CRAs.

Granted, your mileage may vary here. I’ve opted out of many things in the past and still seem to get hit with all types of offers.

When I refinanced my mortgage a few years ago, I received countless mailers, phone calls, and emails from competing lenders I had never spoken with, or even knew existed.

Of course, it wasn’t really a big deal because I screen my phone calls, unsubscribe from unwanted emails, and simply tear up junk mail.

But perhaps you’ll be more successful by opting out well ahead of time, as it often takes weeks or months for pre-screened offers and trigger leads to effectively be prevented.

So similar to working on your credit scores before applying for a mortgage, you may want to opt out early as well.

Just remember that consumers who obtain more than one mortgage quote tend to save more money than those who don’t.

Source: thetruthaboutmortgage.com

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Shares of Countrywide Financial plummeted today on rumors that the company was in serious trouble, with some saying the company would declare bankruptcy this week.

Shares of the embattled mortgage lender were trading down $1.71, or 22.38%, to $5.93 in early afternoon trading on the New York Stock Exchange, the largest single drop since 1987, and the lowest price since March 2000.

Credit default swaps tied to Countrywide’s debt also rose to record levels today, indicating that investors fear the possibility of a bond default.

Interestingly, just months ago Countrywide said it expected to be profitable in the fourth quarter despite a huge decline in lending activity and a $1.2 billion third-quarter loss, its first third-quarter loss in 25 years.

And the big fear now is that depositors will likely pull their money out in droves, and any potential depositors will look elsewhere, creating huge liquidity problems for the struggling lender.

The U.S.’s top mortgage lender is expected to disclose December mortgage lending results as soon as Friday, and will report fourth-quarter results later this month.

***Countrywide halted trading on the NYSE to allow officials to formerly address market speculation that it was planning to seek bankruptcy protection.

“There is no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company,” Countrywide said in a statement.

When trading resumed, shares of Countrywide (NYSE:CFC) began to improve, but later in the day fell even lower.

Shares of Countrywide dipped as low as $5.05 in trading Tuesday, eventually ending the day at $5.47 despite a flat out denial of a looming bankruptcy.

Bond issuers and mortgage insurers fell sharply on the news, with MBIA Inc. plummeting more than 16% and hitting a record low of $14.77, while Ambac Financial Group Inc. fell more than 21% to a record low of $18.37.

Private mortgage insurance provider MGIC Investment Corp. (NYSE:MTG) dropped more than 13% and PMI Group (NYSE:PMI) shed more than 11%.

Source: thetruthaboutmortgage.com

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Not surprisingly, the American Dialect Society voted “subprime” the word of the year for 2007.

At a voting session in Chicago on January 4, the group said the word was chosen because it provided a rare example from the banking sector that has become a part of everyday conversation.

“When you have investment companies losing billions of dollars over something like bundled subprime loans, then you have to consider whether it’s important,” said American Dialect Society spokesman Wayne Glowka, in a statement.

“You probably also want to think about paying off that third mortgage.”

It beat out competition from terms such as Facebook, green, water-boarding, and Googleganger.

Among related citations, the term “Ninja“, which means no income, no job, no assets, (no-doc loan) was also highlighted.

Other real estate terms nominated included “scratch and dent loan”, “exploding ARM“, and “liar’s loan“.

In 2006, the word of the year was “plutoed”, in reference to the planet losing its classification, preceded by the word “truthiness” in 2005, as made popular on the Colbert Report.

Founded in 1889, the American Dialect Society includes academics, amateurs, teachers and writers who study the English language in North America.

Source: thetruthaboutmortgage.com

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Speaking today at the US Chamber of Commerce, Fannie Mae chief executive Daniel Mudd said there was no need for the government-sponsored entities to expand their portfolios at the moment.

“We do have the capability both through the size of the portfolio now, as well as through the modifications that OFHEO granted… to have some growth, so it’s not an issue today,” he said.

Mudd appeared to leave the door open for a possible easing of Fannie’s portfolio limits, but seemed to insist that it wait for new OFHEO legislation to be in place before any such expansion.

Late last year, OFHEO Director James Lockhart said he strongly preferred having new legislation in place before the portfolios limits were eased, and noted that demand for liquidity was not high enough to warrant an immediate increase.

On the other hand, the Fannie chief did express the need to raise the conforming loan limit, which currently sits at $417,000.

“Secretary Paulson, the mortgage bankers and others have called for raising the loan limit,” he said. “I agree, and Fannie Mae is ready to take action.”

“We would like to see legislation in this regard,” he added.

Mudd also called for a review of the Wall Street players and the risky investments that created the housing boom and its eventual bust.

“While the so-called private market has nearly collapsed from the subprime meltdown, it will rise again. So it’s worth taking a hard look at what happened to allow so much unsustainable lending there,” he said.

He also predicted that the housing market would continue to deteriorate through 2009, with a turnaround not likely until 2010, and urged lawmakers and lenders to pursue “the most generous means possible” to help borrowers facing mortgage resets.

In mid-December, Mudd told investors at Fannie’s annual meeting that he didn’t expect a housing market recovery until late 2009 “at the earliest.”

Shares of Fannie Mae were down $1.78, or 5.20%, to $32.45 in late afternoon trading on Wall Street.

Source: thetruthaboutmortgage.com

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IndyMac Bancorp reported total loan production of $4 billion in November, largely unchanged compared to October, but down a staggering 53% from November 2006.

The wholesale channel saw production of $2.4 billion in November, up 1% compared to October, but down 20% from last year.

The Retail Lending Group produced $345 million, a 17% jump from October and a sharp increase from the $9 million produced in November 2006.

The mortgage lender noted that $2.95 billion of its total loan production in November was eligible for sale to the GSEs, but warned of further credit restrictions on loans Fannie and Freddie purchase.

“Growth in the pipeline and resulting production volume may be negatively impacted by further credit tightening currently being implemented by the GSEs that is requiring IndyMac to implement another round of credit guideline tightening,” the company said.

The value of Indymac’s loan pipeline at the end of November was $10.7 billion, up 9% compared to October, but down 20% from November 2006.

The lender’s servicing portfolio grew from $194 billion to $196 billion in the month of November, though 30+ day delinquencies (measured in unpaid principal balance) for the total servicing portfolio rose from 6.62% in October to 7.12% in November.

The company said 30+ day delinquencies in its prime first-lien loans (which account for 93.5% of the total servicing portfolio) increased from 5.80% in October to 6.25% in November.

Subprime 30+ day delinquencies continued to rise in November, up to 26.87% compared to 24.43% in October, though subprime loans comprise of only 2.8% of their total servicing portfolio, and have been completely discontinued.

Second mortgages (which represent 3.7% of their servicing portfolio) with 30+ day delinquencies increased from 12.17% in October to 13.68% in November.

As of September 30, IndyMac’s delinquency rate of 6.96% was markedly higher than the industry rate of 5.82%.

IndyMac blamed their product mix, which has historically been more prime/Alt-A loan based compared to the industry’s more agency/conforming mix, along with the fact that only 14% of its servicing portfolio consists of loans that were originated prior to 2005, before things got murky.

Despite this, Indymac continues to experience a lower foreclosure rate than the industry, at just 1.41% versus the 1.69% industry rate, as of September 30, 2007

IndyMac shares, which lost 87 percent of their value in 2007, were down 5 cents to $6.22 in afternoon trading on Wall Street.

Source: thetruthaboutmortgage.com

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The Wall Street Journal reported today that Bank of America is in advanced talks to acquire ailing mortgage lender Countrywide Financial.

According to the Journal, two people familiar with the matter said it may happen very soon, but noted that it’s also possible that any agreement could be delayed or fall apart altogether.

It is believed that an announcement regarding the matter will be made either late today or tomorrow morning.

In August, many believed Bank of America was gearing up to take over Countrywide after buying $2 billion in preferred shares convertible to about a 16% stake in the company.

But since then, Countrywide shares have fallen tremendously, briefly dipping to $4.43 Wednesday, an all-time low for the struggling Calabasas-based lender.

Shares of Countrywide rocketed shortly after the report was released, climbing $3.27, or 63.87%, to $8.39 in late afternoon trading on Wall Street, while Bank of America rose marginally.

Bank of America now holds 9.88% of the country’s deposits after its acquisition of LaSalle Bank in September, just below the federal limit which prohibits a bank from controlling more than 10% of U.S. deposits.

However, the law does not apply to federally chartered thrifts, one of which happens to be Countrywide Bank.

If successful, the deal would bring together the top U.S. mortgage lender with the second largest bank in the United States.

Nearly a year ago, the two financial giants met to discuss a possible alliance when Countrywide was trading around $42.

Bank of America declined to comment, as it doesn’t respond to rumors or speculation, while Countrywide representatives failed to respond to a request for a comment.

Shares of related companies surged as well, with IndyMac up over 16%, MGIC up 12%, Fannie up more than 6%, and Washington Mutual gaining more than 11%.

In similar news, Legg Mason revealed a 9.08 percent passive stake in Thornburg Mortgage, up from 4.35 percent, according to a previous SEC filing.

Updates: The New York Stock Exchange said it has contacted Countrywide, asking the company to make a statement regarding the unusual activity of its stock.

Analysts believe regulators would likely approve the takeover because a possible bankruptcy would further disrupt the market.

Countrywide CEO Angelo Mozilo could receive $36.4 million if the company were to be taken over, according to regulatory filings and compensation experts.

The deal looks like a go…and should be announced tomorrow. Sources say it’s an all-stock deal valued at just over $4 billion.

Rumors: There are some interesting rumors floating around regarding the takeover news.

Some say that the deal was facilitated by Washington, who couldn’t possibly let the top lender fail. Apparently the Countrywide bankruptcy rumors may have been true.

Others say there was another interested buyer, but Bank of America has the right of first refusal.

Source: thetruthaboutmortgage.com

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The Office of Federal Housing Enterprise Oversight announced yesterday that it is changing the way Fannie Mae and Freddie Mac must identify and report mortgage fraud in an effort to minimize the ongoing problem.

Specifically, the new policy guidance was altered to require that both companies “immediately” report “insider fraud”, which is defined as knowledge that “a board member, officer, employee, or contractor engaged by the enterprise has or may have engaged in mortgage fraud or possible mortgage fraud”.

The enhanced rules also require the two mortgage financiers to report any pattern of conduct or behavior that is “interpreted as mortgage fraud or possible mortgage fraud”.

In a statement released yesterday, OFHEO director James Lockhart noted that it was important to update the guidance of fraud reporting to help protect consumers and the government sponsored entities.

“Mortgage fraud can pose tremendous risks for consumers,” said Lockhart. “This guidance reflects the ongoing work of both OFHEO and the Enterprises in the development and improvement of mortgage fraud detection and reporting,” he added.

Per the OFHEO, the new policy guidance:

– Permits the Enterprises to designate scenarios that rise to a “pattern” of reportable cases of mortgage fraud or possible mortgage fraud further enhancing their reporting to OFHEO;

– Expands the immediate notification requirements to OFHEO to include situations involving insider fraud;

– Revises the time frame and format of reporting to follow the Department of the Treasury’s Financial Crimes Enforcement Network requirements; and,

– Adds clarifications to the definition of mortgage fraud, which continues to be defined as any material misstatement, misrepresentation, or omission such as, but not limited to, false information contained in identification and employment documents, false mortgagee or mortgagor identity, fraudulent appraisals, theft of custodial funds, non-remitted payoff funds, misrepresentations of borrower funds, and property flipping where designed to falsely inflate property value.

Jumbo Loans

According to an OFHEO report just released, assuming Congress decides to raise the conforming loan limit, Fannie and Freddie would likely only purchase low-risk jumbo loans.

These include fixed-rate mortgages and fully amortizing mortgages, which made up only 30% of jumbo loan originations in the first half of 2007, according to the report.

If a proposed bill were to be enacted, the new conforming loan limit for Los Angeles and Orange County could range from $568,000 to $588,400, and be as high as $625,500 in the Bay area.

But the OFHEO has found a number of drawbacks to raising the conforming limit, including greater credit risk which could have a negative impact on both the GSE’s and the common borrower.

Source: thetruthaboutmortgage.com

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According to an announcement posted on their website, First NLC Financial Services has ceased loan origination.

Per a bulletin on their website: “Due to conditions beyond our control, effective immediately we are no longer taking applications.

Those loans where closing documents have been executed will be funded in the normal manner.

Please call the number or email at the address listed below for additional information…561-962-6728.”

In late November, I was told by sources close to the company that First NLC planned to close 24 branches nationwide, shuttering their operations on the west coast and cutting more than 100 jobs in the process.

At that time, it was believed that only six retail branches would remain open, along with an operations center at its headquarters in Boca Raton, Florida.

First NLC was one of the top non-prime residential mortgage lenders in the nation, originating over $7.4 billion in mortgage loans in 2006.

In 2005, FBR bought the subprime lending unit for $101 million and arranged a sale last summer to an affiliate of private equity firm Sun Capital Partners.

Update: FBR said First NLC will file for Chapter 11 bankruptcy protection and plans to liquidate the company. It does not plan to recoup the $12 million investment it made in the failed lender, and does not plan to complete the proposed sale of the company.

Check out the latest list of closed lenders, layoffs, and mergers.

Source: thetruthaboutmortgage.com

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Failed mortgage lender NovaStar Financial said today that it will cut roughly 170 jobs, or 85 percent of its remaining staff, and give up both its mortgage-origination and brokerage business licenses.

The company, which will be left with about 30 employees after the latest cuts, said in an SEC filing that the reduction in staff is part of its plan to discontinue its retail and brokerage operations.

NovaStar noted that the discontinuation “may hinder or otherwise negatively affect the ability of the company to recommence a mortgage origination and mortgage brokerage business if market conditions improve.”

The Kansas City-based lender said the layoffs will result in a pre-tax charge of about $1.3 million to $1.8 million, mainly related to severance costs, with most of it realized in the first quarter.

Yesterday, the company said it had received another waiver from Wachovia Bank until February 4 to help it avoid defaulting on credit agreements.

It’s unclear to what extent the company is still operating, as a bulletin on their website reads:

“At present, we are no longer originating new loans, but we thank you for your interest and for considering us.

If you are a former customer, NovaStar Mortgage is no longer servicing any loans. You should have received a notice from both NovaStar and your new Servicer by now and will need to reference this material for their contact information.”

It is believed that the company may still be processing loans that were already submitted.

Shares of NovaStar were down 22 cents, or 6.71%, to $3.06 in late afternoon trading on Wall Street, far below their 52-week high of $97.64.

Check out the latest list of mortgage layoffs, closed lenders, mergers, and rumors.

Update: The New York Stock Exchange plans to delist the common and preferred stock for NovaStar Financial Inc. effective January 17.

The stock plummeted more than 40% in after hours trading on the news.

Source: thetruthaboutmortgage.com

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Bear Stearns CEO James Cayne is expected to resign today amid increasing pressure from investors over record losses and the collapse of two hedge funds last summer.

He will join Citigroup’s Charles Prince and Merrill Lynch’s Stan O’Neal, who now sit on the sidelines.

Cayne will likely be replaced by current President Alan Schwartz, a 57-year-old investment banker known for his strong deal-making ability.

Punk Ziegel analyst Richard Bove believes Schwartz is the “right choice” for the job, but warned that the position wouldn’t be easy.

“The task facing Mr. Schwartz is sizable. Outsiders may now be attempting to take control of the company. He must fight this off,” Bove said.

“I believe, as I have written for about a year, that Mr. Cayne must go. He was the architect of what now appears to have been a failed business strategy,” Bove wrote in a note to clients.

The analyst, who maintained a “sell” rating on the stock, slashed his price target on Bear Stearns to $67 from $94 and again reduced his 2008 earnings estimate.

For fiscal 2008, he cut his estimate to $6.59 a share from a previous $7.96 a share, and lowered his 2009 estimate to $7.10 a share from $8.54 a share.

“Its core businesses like mortgages, credit derivatives, prime brokerage, and investment banking may all be facing contraction while the company is losing market share in these shrinking markets. This firm needs to shrink rapidly and then rebuild on a more solid base,” Bove recommended.

Bear Stearns, the fifth-largest U.S. investment bank, took a $1.9 billion write-down in the quarter ended November 30 related to the falling value of subprime mortgage-related securities, leading to its first quarterly loss ever.

And Bove believes the struggling bank and mortgage lender will likely see further writedowns and post higher loan loss reserves in coming quarters.

Shares of Bear Stearns, which have lost 52 percent of their value over the past year, closed at $76.25 Monday on the New York Stock Exchange.

Source: thetruthaboutmortgage.com