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Financing A Fool - Brad Hein, Austin, Texas

Recently, I closed on a house working with Dave as my mortgage broker, and I'm posting my home buying experience.

Indeed... as of Friday, June 15, Brad's new home purchase is settled, funded, and all is well with the world!

Below I'm going to fill in some of the behind-the-scenes action in diary format. Names haven't been changed, as there really isn't anyone who's innocent. ;~)

(Privacy Note: Most folks on these boards are discrete in their identities. Brad happens to be one of the few Fools brazen enough to use his real name as his Foolish identity, so we'll continue here in that vein. As for me... I figure nobody can do anything with my name off these boards that they can't do with my name off my business card or junk mail...)

Browsing loans online worked well, but anything beyond that felt like pulling teeth. I'd been following this board during this time, and I'd seen several of Dave's posts on the process. I checked out his profile and decided to contact him to ask for his help securing financing for my home purchase.

4/11/01 [Wednesday] Brad emailed me
I'm a first time homebuyer and I've just started my home search. I've
been following your messages on the Motley Fool and am considering using
your services as a Mortgage Broker. I've also been researching home
buying information using different home search web sites and home buying

I'd like to know what you charge for your services. Also, the mortgage
professor web site has information on an Upfront Mortgage Broker (UMB)
agreement (see for details). Do you follow the standards in their UMB document?
Thank you!

4/11/01 I responded that I would be happy to help with his financing, that I am absolutely in alignment with the UMB Association, and that we should set a phone appointment to begin the preliminary documentation.

4/11/01 Brad immediately emailed me back with a great deal of his personal financial information all ready to go, and asked for a phone appointment that evening. I was already booked for several appointments that afternoon and evening and would thus have to schedule a bit further out.

4/12/01 Through a couple quick emails, we set an initial appointment for Friday afternoon, and just as quickly reset it for Saturday at 11 am Central Standard Time.

4/14/01 [Saturday] Brad called me a few minutes before 9 am Pacific (11 am Central), and I've already got the mortgage loan origination software program opened and waiting with a new file in his name. As always, I welcomed him, and asked if he had any particular questions, concerns, ideas or thoughts he wanted to explore before we dove into the application process? Of course, being a Fool (and a dream client) he's already done tons of reading and research, and he's pretty clear about what he has in mind, but he's also very educated in his lines of questioning.

I take about 15 minutes to run through all the standard questions in the Standardized Form 1003 Mortgage Application. This is name, mailing address, purchase address, previous addresses, employer & addresses, landlords & addresses, income, other assets (liquid and non-liquid, like other real estate,) and legal details (are you delinquent on any federal debt? Ever been foreclosed upon? Pay alimony, child support, etc. etc.)

At Section VI of the form, "Assets and Liabilities" I inform Brad that I'll only be able to complete the assets section after he faxes or emails his assets documentation to me (bank statements, brokerage statements, etc.) I also explain that I complete the liabilities section from the credit report, and that I can do that automatically by populating the software database electronically from a fresh credit report if I have permission to pull a fresh report. Brad asks me if he can send a report he's recently pulled on himself, and have me manually enter the information. Of course, I agree.

4/15/01 I complete the work-up of the initial mortgage application, generate the standardized Real Estate Settlement Procedures Act (RESPA) disclosures and documentation, and save it all in eFax file format for easy email attachment (since the documentation is generated in a fairly obscure mortgage industry software format that doesn't generate emailable documents.)

BTW, an unsolicited and uncompensated advertisement!
EVERYONE, Go get your FREE EFax number and reader!
You can save documents to send with emails WAY smaller than PDF files!
You get a free fax number that receives private faxes for you and forwards them to your emial inbox!

4/15/01 I email all the mortgage application, disclosures and documentation (as complete as they are sp far,) to Brad, along with checklists and directions for completing and signing the documents, and what he would need to send back to me.

4/16/01 Brad emails me his Credit Report, saved in HTML off the website where he pulled it, and zipped into an archive file.

4/17/01 Brad emails me 3 monthly statements from his E*Trade employee Stock Purchase Plan Account, and the 3 most recent paystubs 9even though I only needed 2.)

4/18 Brad faxes 25 pages of stuff to me, which converts to eFax files and hits my inbox. I pop them up and adjust the data in the mortgage documentation.

4/19 another 14 pages of stuff from the checklist. More dotting of the eyes, and crossing the tees.

4/20 Brad emails his current landlord info for the last 2 years for verification. He also lets me know he's still shopping the insurance companies and policies.

4/25 Brad emails the last of the necessary bank statements for a complete file (to this point anyway,) and prods me for his Pre-Approval Letter.

For my loan preapproval and good faith estimate, I sent him my financial information around mid April and he sent me the preapproval letter on April 25th.

4/25 I email him back, attaching a pre-approval letter created as a Word Document. I explain that, because I'm sending him the raw Doc file itself, he can make adjustments to the "approved for" price for negotiating purposes... it's always better to show a letter with approval SLIGHTLY higher than the amount you want to offer, rather than the full amount you're approved for. Reduces the invitation to the seller to haggle so much.

5/10/01 no word from Brad since the Pre-Approval Letter... so I emailed him a "What's Up... HOw's It Going?" letter. Brad responded back saying things were going slowly...

5/20/01 Still nothing from Brad... so again I shoot off an email titled "Checking in on you..." and Brad immediately responds back with an excited email saying;
> Maybe you're psychic. I just finished a message to you about my house
> hunting status and an offer I made today.
> Brad

I responded back that it happens ALL the time on TMF Boards!!!

5/20/01 Brad emailed me the story you're all just now getting to read. What a blast it is for me to get to live the first-timer's buying experience and excitement through each of my new clients!

5/21/01 Brad emails me with FURTHER negotiations and details of the deal. In the final negotiations, he's buttoned down the closing date as 22 days away!!!

I responded;
Were you playing tennis or negotiating a house! Great Job!

Now... 3 weeks to close from tomorrow is a TIGHT finance turnaround for
Texas... excessive underwriting requirements stretch it out longer in TX
than all the other states (that's what you get for bragging about being the biggest in everything!)

Get those Contracts to me ASAP! Or have the realtors call & fax them.
We'll jump on it immediately.

5/22/01 Brad's realtor team, Michael Ribaudo and Rosa Prevost at Realtron in Austin, TX, call me to introduce themselves and bond the team. they are great... easy to communicate with and clearly experienced and ready to move things along smoothly. They immediately fax over to me the Purchase And Sale Agreement for the financial files.

5/22/01 After checking my licensure and the state specifics for Texas once again, I've decided to utilize my network of loan broker associates to help me make sure this loan closes on time and with the proper execution. The state of Texas has a few peculiarities that tend to slow down the appraisal process and underwriting, AND 2nd mortgages can only be written by loan brokers resident in Texas (making my associate a necessary part of the team.) I've chosen Mike Task, of Presidential Mortgage (owned by Ed Saltus) in Austin because he is extremely well respected by the wholesale side of the industry (which says heaps in his favor,) and he's got a great track record of helping make deals close quickly. As a beneficial coincidence, he's located about 3 blocks away from Brad's workplace!

Mike and Ed normally charge a bit more for loans than I do, and usually deal with the stereotypical rate-shopper... so they usually do not disclose the rebate scenario. I explained to Mike that my clients are a bit more savvy, and we've agreed up fron to the compensation structure, and that we'll fully disclose all rebates to the borrowers and let them apply them to closing costs if they choose.

5/24/01 I have a strategy phone conference with Mike and Ed at Presidential. I emailed them the loan file documentation, and the proprietary origination files for their software. They've chosen their "go to" appraiser for this deal to make sure it all happens in proper time.

5/25 thru 5/30/01 Mike and I coordinate much of the processing work and document preparation. We confirm rates and combo packages, and coordinate with the Realtron team to make sure Title and Escrow are arranged properly.

Dave arranged for me to work with a local mortgage broker (Mike at Presidential Mortgage) as his local arm and introduced us via email on Thursday, May 31st. By an amazing coincidence, Mike's office is really close to where I live and work (I just go down one stoplight and up a hill and I'm there). I called Mike that evening and we arranged to meet for the loan details on Friday, June 1st. On Friday, I went to Presidential Mortgage and we finalized the loan details.
I had a choice of locking then or letting the rate float. Mortgage rates had gone down for two days in a row, and I decided to lock that day. We locked the rate on the 80-15 combo at 7.125% on the first loan and 9.000% on the second loan. Because of the pricing relative to par at the time I locked, I also received a broker contribution of 0.375% on the first loan applied to closing. The loan has no escrow account and no prepayment penalty, and there weren't any additional charges for those options.

5/30/01 Brad emails me that the home inspection is complete and everything looked good.

6/05/01 Mike Task at Presidential emails me because a new issue has arisen regarding rebates, and he wants to do the right thing by our agreement... but we hadn't explored this issue before.

Because Presidential Mortgage moves a very high volume of loans, specifically for Countrywide, and because Presidential executes their service so that these loans are smooth and cause very few problems for Countrywide underwriters, Countrywide compensates them with an additional 1/4% rebate given on their total monthly volume each month they hit certain targets (which they always do.) Mike is concerned because we had promised Brad to fully disclose all rebates and apply them to the closing costs... yet these were above and beyond what almost anyone else in the industry gets access to. Basically, the 1/4% reward is an extra the lender gives specifically to Presidential to compensate extraordinary service.

I make a judgment call... and decide to propose to Brad that we allow Presidential to hold onto their 1/4% bonus, as it is essentially a lender-paid premium for the assurance of extraordinary service and execution. Brad agreed;

As part of our Upfront Mortgage Broker agreement, Dave had agreed to apply any additional rebates beyond our agreed fee to my loan. But I was surprised when Mike mentioned an additional rebate he would receive from CountryWide. I received the standard wholesale pricing, but there was an exclusive rebate that Presidential Mortgage qualified for due to loan volume and quality that wasn't credited. I didn't know what to make of this and emailed Dave for more information. Dave explained that only approximately 2% of the brokerages in the industry qualify for the program and this was an award above and beyond the normal rebates to brokerages. Also, usually Dave wouldn't qualify for the program because as an individual he rarely hits the volume necessary to qualify for these programs. After having the source of the rebate and the details disclosed to me, I agreed that Presidential could keep the award.

6/08/01 Mike confirms with me that we have final underwriting approval for the loan. We ahve one condition to clear and expect to ahve it covered this afternoon, or early next week.

6/10/01 Brad emails Mike and me with his final choice for an insurance company; American Casualty Insurance Agency. We immediately contact the agent to set up the homeowners policy binder for closing.

6/11/01 Mike emails to confirm that final docs are already ordered.

6/12/01 I confirm with Mike that he'll be attending the closing at 11 am, Central time. He'll be forwarding the final HUD settlement statement to me upon funding.

The morning of closing, I still didn't have the settlement costs for the loan yet. Usually, the mortgage broker and closing officer have them available the day before but everything was running down to the wire on calculating the HUD settlement statement because the underwriters kept asking for more info the day before closing. I wanted to submit the wire transfer request in time to have the funds there, and NetBank sends and receives wire transfers at 9 am, 11 am, 1 pm, and 3 pm EST. Plus, outgoing transfers need to be there 30 minutes before those times and there is a slight lag for the online wire transfer request to propagate from NetBank's customer service to the wire transfer department. Because of the lag, I decided to submit a wire transfer request for the estimated closing costs plus a little extra for an estimation error margin. The estimated closing costs were $10,506, so I decided to send $10,900. I submitted my request at 10:21 am CST (9:21 am EST). Even though I sent the request before the 9:30 am EST deadline time for sending a request, the transfer still hadn't been received by the title company by or even during closing. We signed everything and the sellers gave me their keys. Everything was good to go and would go through once the wire transfer was actually transferred.

Closing went well. I arrived at the title company approximately 15 minutes before the 11 a.m. start time. I was the first one there, and a bit later Mike (my local mortgage broker) showed up, followed by the agents and sellers. Before closing started, Mike went through the appraisal with me.

The house appraised for $173,000 by the comparable sales method and for $165,624 by the cost approach. Overall, the house was really clean. The actual age was 19 years old, but the appraiser's effective age was 8 years. The effective age was used to calculated physical depreciation of 13% (8/60 using the Age/Life method). One thing that everyone seemed to agree on while looking at the house was how well maintained it was (I noticed that when I looked everything over the day of the open house and had that same comment from both the home inspector and the appraiser's notes).

We went to a room for closing with all of us sitting around a table. First, we went over the settlement fees. Mike spotted a mistake on two of the fees and that saved me a couple hundred dollars. My overall cost at closing was $9314.16. The closing officer will wire transfer back to my checking account the $1585.84 I was over when I transferred. I had a choice for the refund of either a check or a wire transfer, and since my bank doesn't charge anything for incoming wire transfers I chose the wire transfer. My total loan settlement cost was $4470.01 and with a 5% downpayment that adds up to $12645.01. I'd paid $1600 earnest money and a $100 option fee, plus the broker credit of $490.5 and credit for $1140.35 of taxes were also applied at closing. The $9314.16 comes out once you subtract those out.

There were approximately 100 pages of documents I had to read, sign, and/or initial for closing. For the first mortgage, I read through the loan documents, but for the second mortgage I just scanned the documents to make sure they were the same ones as for the first and then signed them.

The entire closing process took about two hours. By the end of it, I almost had writer's cramp from signing so many documents.

6/13/01 Mike Task emailed me the postmortem;
Brad's loan closed this morning as scheduled. Very smooth closing, my GFE was approximately $1000 off in his favor. Brad seemed very pleased with the results and I think my presence at closing helped him with some extra backup.
I ended up saving him $175 that was on the closing statement for a title insurance policy for the second that was not required. I expect have a call from the title company later this afternoon to confirm funding.

Brad's final comments;
Overall, I went from my initial home search to the home purchase in approximately two and a half months. We took just over three weeks to go from offer acceptance to closing.

Certainly a whirlwind deal. One of several I've been captaining for Fools Of The Boards (Thank you very much, Brad... and All Fools!)

Austin Specific:...
...3. I worked with Dave Donhoff to start out and he hooked me up with Mike at Presidential Mortgage as his local representation in Austin. Both Dave and Mike were very professional and upfront.

Again, thank you for the kind words. Both I and Mike Task are appreciative!

...2. If you're planning on shopping for loans, get a good mortgage broker. If they won't agree to an Upfront Mortgage Broker agreement, go to someone else. IMHO, there isn't enough transparency to effectively shop among lenders if you aren't in the mortgage business.

Words of wisdom! Thanks.

7. At the last minute, the underwriters for a loan may start to get a little picky on the information they want. Be prepared to send documentation if they need it. I ran into a minor problem because I was depositing $5625 from selling stock in my Employee Stock Purchase Plan. The deposit wasn't on my account statement because I couldn't deposit the stock sale proceeds before the statement date. I sent Mike the paper trail for the sale and deposit when he called me because my statements didn't show enough funds available for closing. Additionally, for my second mortgage, they called the day before closing and asked for my landlord's contact information to check on my rental history.

As Liz and others have pointed out on these boards, underwriters are a peculiar bunch. Always looking for ways (seemingly at the last minute) to throw the maximum wrenches into the works. A good mortgage broker team can field these last minute goose chases well, as we see them all the time.

Hopefully this is enlightening to those who see the financing as a black box.

Post back with questions... and again, Thank You, Brad!

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