Preface

With more than 20 years in mortgage lending, counseling home buyers from New York to California, I’ve certainly seen it all. The first edition of this book, published back in 2004, helped thousands understand, in plain English, the home loan process. It’s a confusing industry, mortgage lending. Heck, even the name sounds a little funny. And speaking of, the word itself has two roots with origins in both Latin and Old French. Literally it’s translated as “dead pledge.” Sounds fun, doesn’t it? But by reading this book, you will find some fun explanations on how mortgage loans are approved and learn about the differences in home loan programs. We bust a few myths along the way, as well.

The second edition was published in 2008. You remember that time, don’t you? Or maybe you erased it from your mind, just like mortgage companies and “no document” loans were erased from the industry. The old joke was that all lenders did leading up to 2008 was to make sure someone could fog up a mirror, and if there wasn’t any fog they’d make an exception. It wasn’t very fun being in the mortgage business back then. A lot of loan programs simply vanished almost overnight along with the lenders who made them.

The backlash was almost immediate. While it was too easy to get a mortgage loan for years with little regard for risk, suddenly it was nearly impossible to get a mortgage. Lending guidelines tightened up so fast that many mortgage companies simply appeared to be too afraid to approve a loan application, thinking they’d have to buy it back later due to some sort of compliance or documentation issue.

Slowly, however, the industry returned to its commonsense roots. Yet the mortgage landscape today looks different compared to just a few years ago. Congress stepped in and amended the Home Ownership and Equity Protection Act, first passed in 1994. The amendments took effect in 2009 and lenders are approving loans in a brand-new world. But they’re getting much better at it. In fact, loan quality today rivals any other period in recent memory. Mortgage lenders are approving loans for those with a job, verifiable income, decent credit, and enough money in the bank to close on a home purchase. These same standards apply to anyone refinancing an existing loan as well.

But for those who are thinking of buying their first home, they may also carry no shortage of anxiety. After all, will another financial meltdown happen yet again? This trepidation is certainly understandable and in fact healthy. However, loans being approved today are being evaluated in ways that make sure those who apply for a mortgage loan are in the right loan program, can comfortably afford their monthly payments each month, and that the mortgage company follows proper lending guidelines throughout the loan approval process.

What remain today are the stalwarts of mortgage lending, yet with a whole new set of rules. And with this new set of rules, combined with traditional guidelines and protocol, come new questions, new scenarios, and a host of compliance issues.

Yet by reading this book, and referring to it as you move through the approval process, you’ll know more about the mortgage industry than many of the loan officers out there. I’ve been where you are now and I know how the industry works and I know the questions you might have. In fact, the answers to more than 250 of them are in your very hands.

David Reed