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I am a Mortgage Dispenser September 26, 2007

Over the past month, I’ve been combing through my database of my closed clients who have either adjustable rate or balloon mortgages.   I’m sending each and every july55adone of them a letter reminding them of the terms of their mortgage.   Regardless of how much time I spend explaining how their mortgage program functions, as soon as someone has moved into their new home and they’re unpacking boxes—they’ve forgotten the fine details to the financing that made buying a home possible! 

The letters restate what is disclosed on the Federal Truth in Lending and their Note, including what their margin and caps are.    It also addresses when their first adjustment will take place and what the worse case rate and payment may be.   Worse case payments are currently not disclosed on the Truth in Lending.   

I began my mortgage career on April 1, 2000.   So far, 20% of my closed transactions have been adjustable or balloon mortgages and 3% of my total closed business would be classified as “subprime”.   As part of my practice, I extract what my client’s financial goals are to make sure they fit with the mortgage they are selecting and to show them other possible mortgages that may be worth their consideration.   Sometimes, borrowers arrive to you with their minds pretty well made up regardless of if it makes sense to you or not.    ARMs have made perfect sense for many families if they were not planning on retaining the mortgage beyond the fixed period (in most cases, there are exceptions where keeping the mortgage while it’s adjusting is perfectly fine, too).  

The most popular ARM I’ve “dispensed” is a five year fixed with and without the interest only payment option.   5 year fixed period ARMs (all together) accounted for 66% of the ARMs I closed.   Just over half of those were interest only (some i/o for 60 months, other for 120 months giving 60 additional months of interest only payments beyond the first adjustment date).   I’ve provided everything from a 2 year to a 10 year adjustable rate mortgage…never an Option ARM.    With seven years in this industry, most of my clients will begin to see their first adjustment starting 2008 with a chunk adjusting in 2010 (most of my ARMS were originated in 2005).  

What I found by reviewing the information from sending the ARM letters to my clients is that the average “worse case” adjustment to a mortgage payment is 37%.   This is assuming that when the mortgage is due to reset for the first time, it reaches the maximum allowable cap.  You might think this figure applies to subprime; however a majority (88%) of the ARMs are prime. 

This is why the worse thing someone with an ARM can do is to wait until their mortgage adjusts before contacting a Mortgage Professional.   If you’re not going to dig out your Note to see what your caps are…then just increase your mortgage payment (excluding taxes and insurance) by 37%.  Try that payment on for size.   It’s not pretty or comfortable.    The earlier you contact your Mortgage Professional to review your ARM, the more time  you’ll have to decide what you need to do (if anything at all).

7 Ways to Make an Impact September 25, 2007

Getting people to visit your website and read your blog post is interesting, but the most successful bloggers I see seem to get a kick out of having an impact on the industry. With that in mind, I came up with seven ways to make an impact by blogging:

1. Be more consumer-focused: No one loves an argument about buyer agency more than Ardell DellaLoggia (Here’s her first post on RCG a year-and-half ago to give you some perspective). While she may appear to loose an argument with real estate insiders from time-to-time, she always comes out ahead with consumer by arguing for what she consistently believes is their best interest.

2. Be more principled: Whether it be refusing to accept Brad Inman’s gifts or going out of his way to disclose meager earnings from his site, Greg Swann insists on taking the high ground. Add a prolific personality and the ability to say the right words at the right time, and Greg has clearly earned his reputation as a leader in the RE.net.

3. Be more consistent: Whether your interest is real estate blogs or the architecture of doors; Whether you are Beattles’ person or a Dylan person; Whether you like Odd & Crazy or Odd & Ends, Hanan Levin has been searching out the edges of the internet to return with blogging gold. Despite threats to quit and/or move to New Zealand, he continues to delight with multiple updates every day.

4. Be more fun: Is there a business plan behind traveling the country and playing with photoshop? Who cares. The Sellsius boys have shown us all how to make a huge impact by simply having more fun that the rest of us!

5. Be more credible: Whether taking on short sales, professional status, or subprime lending, Jillayne Schlicke always finds a way to offer the voice of reason by providing an interesting perspective filled with interesting solutions…

6. Be more unexpected: With stories ranging from the real estate happenings of Sanjaya, little towns in Austria with unusual names, and hard-hitting coverage of Redfin, one can never know what you’ll get when you land on a post by Marlow Harris… except that it will be interesting and probably provocative.

7. Be more up-to-date: No one else follows the online real estate industry better than Joel Burslem of the Future of Real Estate Marketing. Whether he is analyzing the new guys like Terabitz or the old guys like Zillow, he never misses and interesting story and consistently does a top-notch job putting developments in perspective.

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If you’ve made it this far, then I might as well tell you the genesis of this article…

After my presentation a few weeks ago in Austin, TX, the folks at KW asked if I’d like to submit an article on blogging for the next issue of the KW newsletter. Rather than succumb to the usual “5 reasons you should blog” type article, I thought I’d try to be a bit more interesting and profile some of the bloggers that have made the largest impact on me.

I still haven’t figured out how I’m going to deal with the links (which obviously don’t translate well to a written article). I think I’ll just add one link for each individual back to their blog, and include some text that says the article is best viewed “blog” format on Rain City Guide with a link back to this article. If someone has a better solution on how to deal with lots of links within a printed article, I’m definitely open to suggestions…

As always, I’d love to get your feedback. Should I re-phrase things? Should I include another blogger who has made a strong impact on you?

And, no surprise, I put off writing this article until almost the last minute (the article is due by the end of the month!), so if you have some suggestions, you’ll need to make them soon in order to get into print! :)

Worthy of the public trust?

I think this comes under the category of “Out of the mouths of babes”.

I happened upon this description of a real estate agent apparently written by the young man pictured here as a school project for “career day”.  Recently I have been evaluating a large number of agents who are currently with the Company, as well as several asking to join us.  I’ve always been told that my standards are too high.  That my bar is not realistic. 

As I read the young man’s description of what a real estate agent is, or should be, I was stunned by some of the key realities this young man depicted.

“Real estate agents help people buy and sell houses.  They must be able to say approximately how much money a house is worth…Real estate agents work for real estate brokers. Real estate brokers manage real estate offices…They help the seller set the price for the house. To do this, they must know what the house is like. They must also figure out what people would be willing to pay for the house so that it will sell quickly…Good real estate agents also spend time away from the office finding out more about the houses in their town that might one day be up for sale…They should deal honestly with people and have good manners.”

This is just a small excerpt.  I’m thinking of making this young man’s depiction of who we are and what we do required reading for all agents.  More and more I find my standard to be “worthy of the public trust”.  Someone you might hire to help your elderly mother buy a home.  Someone you might seek out if you don’t speak English very well, and need someone who you can trust to have your back. 

More and more I see people using “assistance to savvy buyers” as the benchmark for all that an agent needs to be.  I just don’t see it that way.  A savvy buyer can’t be the benchmark, though options should clearly exist for the savvy buyer.  Lower cost options.  But I think the standard of hiring and retaining agents has to be someone who is worthy of the public trust, because you really can’t forget the people who need an agent most, when setting your standards.

Deceptive Radio Advertising in Mortgage Lending September 24, 2007

Because of the enormous amount of deceptive direct mail, Internet, and email spam advertising currently taking place in mortgage lending, for this blog article, let’s focus on radio advertisements.

Every city I visit, loan originators and brokers complain about deceptive radio ads running continuously, making claims that may or may not be true, slamming the competition, and barely if not at all complying with advertising requirements set forth in the federal Truth-in-Lending Act. When I was in Vancouver WA recently, LOs told me there’s an ad running that says something like this: “If your mortgage broker charges any fees at all, they’re predatory lenders.” Since we all know how “no cost loans” work, this statement brings great harm to everyone in the mortgage industry.

To say business is tough out there right now is a gross understatement. When people get desperate, they tend to be able to justify desperate actions. Expect false, misleading, deceptive, and bait-and-switch advertising to get worse right now, not better.

Solutions? Well sure, there are lots of solutions. Here are four; if you have other ideas, let’s hear them.

1) Contact your state regulator and file a formal complaint;
2) Contact the offending company’s owners and point out the false, misleading; deceptive, or illegal portion of the advertisement;
3) Do nothing;
4) Create respectful, responsible, and honest advertisements, with hopes of drowning out the competition.

One at a time, let’s analyze each possible solution.

1) Sure, you can go down this path. But folks who advocate this position cannot also complain about more and higher government fees.
2) People tell me they would never do this. Reasons range from: “I don’t have enough time,” “that’s not my job,” “I don’t want a confrontation,” to “nothing would change.” So whose job is it to regulate an industry? If your personal answer is “not mine,” then we’re back to solution number 1. Interestingly, when I ask this question: “If you ran a radio ad that was questionable, would you want your competitors to call you first, or your regulator?” 100% of the time, the mortgage broker/LO would want a competitor to call him or her FIRST. If we would want this for ourselves, why wouldn’t we want the same for others?
3) The solution of doing nothing means the radio ads will continue and get worse. If this is your choice, then whining is not an option.
4) Not every company is so well situated that they are able to spend thousands of dollars creating and continuously running radio ads. After running the ads, someone has to be paid to answer the phone. The ads are so expensive to produce and run, that a brokerage has to either pay their LOs a less-than-competitive split, which results in high turnover and low-quality LOs, or they end up running a very small, tight ship with the vast majority of leads coming headstrong at only 2 to 3 originators, with overworked processors doing the majority of the work.badradio

Compare mortgage brokerage to that of other professions. Do we hear deceptive, false, misleading, and borderline illegal radio ads out there from doctors, lawyers, dentists, CPAs, engineers, or accountants? Not likely. These groups are regulated internally, by their professional associations, which provide a supporting foundation for responsible, respectful and honest advertising. Anything less than, is brutally self-regulated. Subsequently, government intervention is low.

The largest trade organization for mortgage brokers, NAMB says in their code of ethics “members shall provide accurate information in all ads and solicitations.” I guess that means competitors can bad-mouth each other, as long as what they say is accurate. When a competitor or consumer has a complaint, what does NAMB do? It points us to a list of state regulators. A code of ethics without enforcement is the same as having no code at all.

Let’s face it: when it comes to advertising, mortgage brokers are running around largely under regulated. Government never has nor will they ever have enough money to regulate every piece of advertising created by every single LO/Broker in every single state. Government was not designed to do this. Government was designed to go after only the most egregious violators. The rest is up to us. Self-regulation is a sign of industry maturity and growth. When mortgage industry members agree that consumer respect (of its members) is highly valued, perhaps we see conversations spring up in this area. If self-regulation is not something you’re interested in, please don’t complain when your family, friends, new prospects, and existing clients do not trust you and shop you based on rates and fees.

Top 100 Most Influential People in Real Estate? September 21, 2007

We made the list… and if you’re a real estate blogger, then you did to! (PDF) :)

Inman’s annual list is a fun read filled with a who’s who in the real estate industry…

(via John Cook)

Friday’s Rates featuring Jumbo

A welcomed site for many home owners and potential homebuyers: jumbo mortgages and ARMs are returning to the market with better pricing.  Prior to August, there was about a 0.25% difference between conforming and jumbo mortgage rates.   Last week, the gap between conforming and non-conforming 30 year mortgages was 1.25% in rate.

Conforming fixed rates are slightly higher over last week’s rate quote.   This following the Fed’s move on Tuesday and yesterday’s testimony to the House by Ben Bernanke and group topped off with a huge rally in the stock market.  There was plenty of talk from the panel supporting a temporary raise of conforming loan limits to help ease the jumbo markets.  

Rates and products change constantly during these volatile times in the mortgage industry.  Just yesterday, many lenders issued four rate sheets (a ”normal day” would be one).   I highly recommend locking your mortgage rate and program as well as getting preapproved as soon as possible when considering obtaining a mortgage.

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  Conforming rate quote below based on owner occupied, “full doc” with minimum credit scores of 680 with an 80% loan to value or lower and a loan amount of $400,000.   Rates quoted are priced based on a 45 day lock with 1 point and there are no prepayment penalties on any of the rates quoted below. 

30 Year Fixed: 6.250% (APR 6.392%).  Payment per $1000 = $6.16.

30 Year Fixed with 10 Year Interest Only:  6.500% (APR 6.653%).  Payment per $1000 = $5.42.

40 Year Fixed:  6.625% (APR 6.771%).  Payment per $1000 = $5.68.

5/1 ARM (2/2/6 caps):  6.000% (APR 6.139%).  Payment per $1000 = $6.00.

5/1 ARM 10 Year Interest Only Payments:  6.125% (APR 6.281%).  Payment per $1000 = $5.10.

FHA/VA 30 Year Fixed:  6.500% (APR 7.118%).  Payment per $1000 = $6.32 (not including MI for FHA).

JUMBO (Non-Conforming) Rates.   Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).    

30 Year Fixed: 7.125% (APR 7.798%).  Payment per $1000 = $6.74.

30 Year Fixed with interest only:  7.250% (APR 7.929%).  Payment per $1000 = $6.04.

5/1 ARM:  6.500% (APR 6.644%).  Payment per $1000 =  $6.32.

5/1 ARM Interest Only:  6.500% (APR 6.644%).  Payment per $1000 = $5.42.

Please do not select your Mortgage Professional by interest rates alone and do not shop rates by APR.    This is just a small sample available of rates and products.  Rates are as of Friday, September 21, 2007 at 8:15 a.m. and may change at any time.  Available programs may change at anytime as well.    This is not a guarantee nor is it a commitment of interest rate.  For your personal rate quote or for loan amounts over $650,000, please contact me.

Employment Ideas for Laid Off Mortgage Workers September 20, 2007

Current estimates project the number of mortgage industry workers that will lose their jobs to be 100,000 or more. Here are some job hunting ideas for those resilient folks who love mortgage lending and want to ride out the storm by making a lateral move within the industry.

Consider looking deeper into the big three information service companies (we use to call them the title insurance companies: Firstam, Fidelity, Landam) and check out all the job openings in your state.

If you are an underwriter, consider becoming an independent mortgage compliance consultant. You can help existing mortgage firms move up a notch with training and compliance. But that would mean you will actually have to talk with retail mortgage salespeople and pretend like you are enjoying the conversation. This would be a daily thing and requires your blood pressure and HDL/LDL cholesterol readings to be at or within a healthy range or, alternatively, you should prepare to show an active prescription for Lipitor. If you can’t stomach working directly with retail mortgage salespeople, then consider a position in auditing and compliance at a major bank or lender in your hometown. Someone will have to help write and enforce the ever-changing tighter lending guidelines. However, your real talent may be of use as an independent expert witness for law firms in mortgage broker and shareholder lawsuits. Underwriters, don’t leave the business. We need you now more than ever. Besides, who’s going to help re-assess the risk on all those collateralized debt obligations? Nobody knows what anything is worth right now. You ought to be cashing in on those jobs.

If you are a loan processor, consider joining an independent contract processing company, or forming your own company. If you are a really good loan processor, consider becoming a retail mortgage salesperson yourself. The very best loan originators start out as processors. You will be better than the competition in your hometown because of your knowledge in state and federal laws governing mortgage lending. Trust me on this.

If you were an entry-level worker, such as an assistant or receptionist, you might seek employment as an assistant to a top-producing retail mortgage salesperson or real estate agent. Title companies routinely hire entry-level folks and a background in lending will help. In fact, you might even know more about title insurance than some of the sales reps. If you’re good looking, and by that I mean “hot,” consider a job as a title rep. Am I being too cynical? I don’t think so. But maybe title isn’t the place for you. If you have masochistic tendencies, perhaps escrow is more up your alley.

Traditionally, when the retail side of lending turns soft, jobs open up on the other side; the dark side of mortgage lending. Consider job openings with trustee service companies (these are the companies that help lenders foreclosure), or check out opportunities for jobs in the foreclosure and loss mitigation divisions of local banks and loan servicing companies. Also, there are bound to be job openings for default counselors with non-profit associations. Start by going to HUD.gov, click on the link “talk to a housing counselor” and then click on your state. Find the housing counseling agencies that offer default counseling (some only offer first-time homebuyer classes.)

When economic times are tough, many consumers turn to finance companies and payday lenders. Although it might make your stomach turn to work there for six months, imagine the stories you’ll be able to tell.

Check your local county for job openings in their mortgage fraud division. Usually these job positions report to the prosecuting attorney.

Check out your state’s mortgage regulator for job openings. Many states have recently enacted loan originator licensing laws, which means an influx of new cash on hand for the regulator to hire entry-level staff all the way up to experienced-level investigators. Caveat: This might entail a relocation to your state’s capital.

If you are a retail mortgage salesperson who has never received any training whatsoever from your employer, other than being handed a laptop with Calyx and a lead sheet, you can’t stand Realtors (or you are afraid of them), you only know how to memorize sales scripts and work off of subprime leads that are handed to you, you’re going to have to ask yourself how much effort are you honestly willing to put into your own self-development in order to stay in mortgage lending for the long haul. If you only entered the business for the money, you really don’t like making loans all that much now that the easy money is gone, and don’t have much internal self-motivation to learn the business, you might be better off self-selecting your own exit path. If your recent entry into mortgage loan origination started by answering an ad like this: “make six figures your first year with no experience,” then consider taking a pass on these opportunities:

Credit restoration business:
This business model is selling faster than diet pills at a cheerleading camp. The doctor says eat right and exercise, or if you’re rich, have it all liposucked out. The doctor also says pay your bills on time and pay down your credit lines, or if you’re rich, avoid the loan and pay cash for the home.

Debt elimination plans:
This get-rich-quick scheme brings the business owner alarmingly close to violations of any state’s consumer protection act on a daily basis. Set aside a monthly budget for continuous legal counsel or, alternatively, prepare yourself for an early bankruptcy when the process server knocks at your door.

Foreclosure specialists:
Prepare to work long hours trying to get people who are financially desperate to trust you, for miniscule crumbs that have fallen off other crumbs. I suppose if you have sociopathic tendencies, you may do quite well in this field.

Short sale workout companies:
The profit margin here is excruciatingly small, nobody will want to give you money up front for your work, and nobody has any money to pay you when it’s all over. If you start one of these companies, do us all a favor and don’t promise any workers that you hire, that you’ll be able to pay them on time, or at all.

I suppose any of these new schemes might make someone six figures during their first year. I also suppose Aaron Eckhart will knock on my door and ask me out on a date for Friday night.

Laid off mortgage workers, I wish you the very best of luck in finding secure, interesting employment during this historic housing recession.

$30 Million for Zillow.com

moneyThat’s all she wrote.

Not much more to this story besides more money for Zillow.

Personal Finance with Mint

The winner of TechCrunch40 is a personal finance tool called Mint that looks very promising. I’m particularly interested in the way that they offer optimization of accounts…

For more, Robert Scoble interiewed the CEO:

I just signed up and if it turns out to be as useful as it sounds, I’ll definitely check back in…

New Mortgage Program for Helping Out Family Members September 19, 2007

Finally there is a mortgage program available that are designed for when someone is buying a home for another family member.   Previously, if someone wanted to buy a home to have their elderly parents live nearby, unless it could be classified a second or vacation home, the borrower would need to use non-owner occupied financing (much more expensive in rate and cost than owner occupied or second home financing).   

In addition to helping out the folks, this new program, the Family Opportunity Mortgage, works for parents buying a home for their college student and parents who would like to help their disabled adult child buy a home. 

Here’s the skinny:

Assisting a College Bound Student

Assisting an Elderly Parent

Assisting a Disabled Adult Child

It’s about time!  :)  

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