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What is a Borrower-friendly Loan?

Invariably, when a question is asked and it relates to something one says or does, that question deserves an answer. I'm sure you will agree with that sentiment most of the time. Over the past two months I have read some of your questions relating to the title of this website. Questions like, "what is a borrower-friendly loan"? "What are friendly loans", and who are the "people offering friendly loans"? These questions plus a few others, while deserving of an answer, are more directly linked to the website title and must be addressed in a more elaborate fashion.

First and foremost let's talk a little about what friendship is. I'm sure you've heard, as I have, such adages as "a friend in need is a friend in deed" and many other quotes that didn't come to mind right away but were plentiful on The friendship Page I found as a result of a quick Google search. I came up with some old favorites like the following four, "It takes a long time to grow an old friend" … "I get by with a little help from my friends" … "The better part of one's life consists of his friendships" and "Friends are the most important ingredient in this recipe of life" among many others. In other words, friendship helps but should not hurt; It lessens the difficulties and complexities of life. It can be interpreted therefore, a mortgage loan consisting of features that lessen the difficulties and complexities of home financing as a borrower-friendly loan.

The FHA HECM Reverse Mortgage Loan

The Borrower-friendly Loans website deals with certain types of mortgage loans, there are all insured by HUD's FHA (Federal Housing Administration). There are the types of mortgage loans used to finance 1 to 4 family residential properties and, described by three different titles (203b, 203k and hecm reverse), are designed to meet specific demands relating to different sections of the mortgage financing market. Of the three mortgage types, one (the hecm reverse for seniors, 62 years of age and over) requires no upfront out-of-pocket fees, except the appraisal and credit report fees; and since it is technically a refinance, there is no down payment required and closing costs are paid from the loan proceeds. This loan is especially friendly to a senior borrower because it requires no repayment over the life of the loan or of the borrower, unless s/he relocates to a different home during either lifetime.

The FHA HECM (Home Equity Conversion Mortgage) reverse mortgage loan can be likened to that true friend who lends you money and utters these words as s/he is putting the money in your hands, "pay me when you can. There's no rush"! Many of us have a friend whom we had at one time or another uttered those words to, and another (or the same) friend who has uttered those words to us; and we can recall the sincerity and gladness we felt for being able to help a friend and sense of gratitude when we were on the receiving end. The FHA Hecm reverse mortgage, in the eyes of a senior person in time of need, could very easily take the place of that sincere friend filled with the gladness of extending a "pay-me-when-you-can-there's-no-rush" loan.

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The 203k Rehab Mortgage Loan

The FHA 203k rehab loan invites first-time home buyers to finance needed repairs into the the home purchase financing because, more often than not, a pre-owned property will probably need some kind of repair/rehab work done in order to meet HUD's minimum property standards or minimum property standards established by the commercial lender. Between 1979 and 1992 (a period during which I listed and sold homes as a New York-based real estate agent) approximately 9 out of every 10 homes financed with FHA-insured loans needed repairs done in order to meet HUD's minimum property standards.

The 203k rehab loan helped to address home repair problems by permitting a first time home buyer to finance repair cost into the purchase financing thereby removing the need for a large out-of-pocket expense that s/he would otherwise incur after closing the purchase. This is helpful in saving a great deal of money for a first time home buyer as well as eliminating stress and other emergency repair problems that may have otherwise occurred for many years into the home ownership. Anyone (and in this case anything) that helps you to save a lot of money, stress and future problems would most likely fit the description of a friend, thus the description borrower-friendly loan.

The FHA 203b (Standard) Mortgage Loan

Yes, 203b is considered the FHA standard mortgage because it was the loan that started it all for the FHA over seventy five (75) years ago when financing for a home purchase was hard to do and when home buyers – first time home buyers as well as experienced homeowners who wished to purchase another home – were able to obtain mortgage financing the terms were harsh (high interest rate, large down payment amount of 25 to 50 percent of the purchase price, 5 and 10 year balloon mortgages) and lenders were less apt to work with a homeowner to avoid foreclosure in times of sickness, loss of employment and/or loss of the breadwinner.

In 1934 when Congress authorized the FHA as a means of addressing some of the harsh terms that existed every prospective home buyer who could own a home under previous market conditions embraced FHA with what must have been a zeal and enthusiasm the likes of which the real estate market had never seen before; And they haven't let go since. The first time home buyer (as well as experienced homeowners wanting to refinance) had found a mortgage program that they could rely on to help in achieving home ownership. Yes, aspiring home buyers had found a friend in the FHA mortgage. The Borrower-friendly Loan.

A slightly modified version of this article is published on SelfGrowth.com, a network in which I have a membership.

Alternative Credit

This article is brought to you by North Shore Advisory, a credit consultant agency.

Over the last year or so, I have met with many real estate professionals who have requested information about alternative credit. For a majority of agents in Manhattan it is common to come across foreign clients with no credit history when reports are pulled. Besides the international credit issue, we have also uncovered some Americans who do not meet the required amount of trade lines listed on reports and are denied funding by the bank. This becomes a problem when banks and landlords are evaluating risk since there is very little or nothing to base a decision on. After researching there are a few important choices available to applicants that bankers and realtor's need to be aware of:

According to "Regulation B of the Equal Opportunity Act", consumers have certain rights once they sign an application authorizing financial institutions to pull and evaluate their credit profiles.

First when credit is pulled, the law used is part of the Fair Credit Reporting act (FCRA), specifically "Permissible Purpose" which gives the lender permission to pull credit reports and scores. After the lender pulls the credit reports, if it is determined that the application is rejected the consumer is sent a rejection letter in the mail. That letter is called a "Notice of Adverse Action", which provides the individual with notice of their right to get a free copy of the credit report used in making the decision to reject the application. At this point most people are just disappointed and do not pursue other options.

What is not clear or often understood is Regulation B of the ECOA. This requires and forces the creditor to consider any information an applicant might present that shows their credit worthiness. They must do so, at the time of the request of the rejected applicant, even if it is information NOT reported on their credit report. The key is, it must be similar in type to credit accounts that are considered on the credit bureaus. Some of these accounts that must be reviewed are rent, mobile phone, cable payments, insurance, electric, gas accounts or any other credit obligation that is paid in a similar nature to the normal trades on the bureau reports.

This regulation has been ignored for so long. It is no wonder most bankers and professionals in fields related to real estate and loans are not aware of it. Many of the pulling services used for merged credit profiles and scores offer alternative credit building for a fee. The actual name of the report is an ANTHEM REPORT. Although, in most cases there is no score, the trade lines will be reported. The underwriter must evaluate the report "by law" for consideration of approval. I've spoken directly with RELS credit which provides merged reports for Wells Fargo. The representative explained the bank would be billed a fee of $65 to update all trade lines and create a profile for the applicant pursuing alternative credit approval. If banks do not consider this alternative credit they are violating a federal law.

"Great credit brings great opportunity!!" Copyright 2011

North Shore Advisory offers credit repair and restoration services. We've been providing credit education and credit information for more than 20 years. We can help you with your business credit needs or personal FICO scores. For Banks and realtors we can improve your clients' credit score. Call us at 914-524-8300 - Email: info@northshoreadvisory.com