One of the best ways you can protect yourself against a toxic mortgage is to establish a relationship with an ethical and knowledgeable loan officer or mortgage broker for home financing advice. I also offer the following tips to homebuyers and any current homeowners who are looking to refinance:

 
• Know your credit score and history. Consumers are entitled to one free credit report per year from each of the three credit reporting agencies. They can order a free credit report at www.AnnualCreditReport.com. Your clients may also obtain a credit report from their bank or mortgage broker, who should also be able to tell them their credit score (which may not be included in the free report). They should do this prior to shopping for a loan and find out which interest rates are typically offered to people with similar credit scores. 
• Know that a good credit score (generally 700 or higher) qualifies borrowers for the lowest interest rates available and for lower costs and fees. 
• Find out what the lender is giving for the points it’s charging. If 3 points only buys a .125% rate adjustment, think twice about paying points. 
• Comparison shop carefully for a loan. Compare costs, fees, and interest rates from multiple lenders. Get quotes from two or more reputable mortgage brokers, to make sure they’re reputable. 
• Find out up front what fees and costs are non-refundable if the transaction is not completed. 
• Have the lender itemize every cost and fee and explain them. If any fee has a strange, generic, or “all-encompassing” name, ask to have it explained or itemized. 
• Try to negotiate every expense – many costs and fees are fully negotiable. 
• Consult a reputable real estate attorney for advice on financing and have your attorney review all documents before signing them. 
• Request a copy of all documents you’ll be asked to sign at closing at least 1 week prior to the closing date. Make this request in writing and keep a copy for your records. 
• Read the closing documents word for word, and make sure you fully understand everything you will be agreeing to. If you don’t understand something or don’t agree with it, consult your attorney. DO NOT wait until closing day to bring up your concerns; deal with them immediately. 
• Make sure the documents on closing day are identical to the ones you reviewed prior to closing. (It’s okay if your interest rates and closing costs go down, but if they are more than what you agreed to, find out why. If you don’t receive a reasonable and satisfactory explanation, then insist on having the items in question corrected.) 
• Ask questions about everything you don’t understand. 
• Get copies of everything you sign at closing and demand that whoever is the authorized signor for the title company or lender also execute the documents. The documents in your closing package should include all partys’ signatures, not just yours, and not copies of unsigned documents. 
• If you’re purchasing, ask for a marked-up title commitment showing that the title company acknowledges having completed each item it is responsible for. This helps protect against items that might get recorded in the gap-period (the time between closing and when the documents are recorded with the county). It’s just one more layer of protection to you, the buyer, that you’re receiving clear title. 
• Do not get rushed at the closing table. Take time to compare the documents you reviewed prior to closing with those presented at the closing table, ask questions, express any concerns, and make sure any issues are addressed to your satisfaction before you sign anything. Attend the closing and encourage your clients to have their loan officer attend the closing, as well. This can make your clients much more comfortable and confident that the closing is handled properly and that their rights are being protected.

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I know from a Realtor’s® perspective that when attorneys get involved, they often make waves in a no-wake zone, but you can do your client a favor by suggesting they use an attorney to review their documents prior to closing. This will also make you a better representative in the future as it enhances your credibility and allows you to understand some of the common issues the attorney points out. You may then be able to proactively head off problems before they become an issue at closing. Both your client and their attorney will be thankful.

Leading up to the mortgage meltdown, we were a little too cavalier about closing. A booming economy and soaring property values masked the underlying problems. If homeowners got stuck with a bad loan, they could always refinance out of it… or so we thought. Moving forward, we all need to be more careful, to pay closer attention to detail, and to serve the best interests of our clients. After all, they are the ones signing our checks and the ones we depend on for future business.

Congress took its first step last week on a mission that could totally reshape the American mortgage market.

A House financial services subcommittee held the first hearing on what to do with Fannie Mae and Freddie Mac — the failed, trillion-dollar mortgage giants that are now operating under direct federal control.

The ultimate answers are likely to determine the types of loans and interest rates that home buyers will have in the future. That’s because Fannie and Freddie have dominated the real estate market for decades, writing the rulebook on everything from loan sizes, credit requirements, downpayments and underwriting standards.

Among the idea floated at last week’s Capitol Hill hearing were a “utility” concept, where Fannie and Freddie might be merged into a single, privately-owned, federally-regulated superstore for mortgage money.

The model would be along the lines of the water, power and sewage utilities we see all over the country, but there’d just be one mega-utility to fund mortgages. The utility concept was first proposed last year by former Treasury Secretary Hank Paulson. The Obama Administration has not spoken out publicly on it yet.

Another idea floated at the hearing was to broaden the mortgage menus of whatever agency or agencies replace Fannie and Freddie to include types of mortgages they currently can’t touch — especially jumbo home loans and commercial real estate mortgages.

Frances Martinez Myers, representing the National Association of Realtors, said jumbos and commercial real estate loans are suffering in the credit crunch and need more support. Commercial and investment property owners in particular, said Myers, find themselves unable to refinance because there is neither a private nor public secondary market for their loans at the moment.

The Mortgage Bankers Association came to the hearing with a white paper listing various alternative futures for Fannie and Freddie, including turning them into a government-owned version of the FHA and Ginnie Mae, but targeted on conventional mortgages.

Without endorsing any particular alternative, the MBA also suggested consideration be given to a private “cooperative” model, in which banks and other mortgage industry players would pool their assets and provide secondary market services in addition to mortgage originations.

Under this scenario, the federal government would provide back-up insurance against “catastrophic losses” that exceed the private cooperative’s capital and pledged assets.

Where’s the debate over Fannie and Freddie headed? Look for Congress to hold more exploratory hearings this year. Then, maybe as early as next year if the recession is over and the market is healthier , the Obama administration might begin drafting its preferred solution – which almost certainly will not involve total privatization.