Operation Homewrecker

  Sorry - Not this one.  Not this one either.

 Nor this one. 

How about these Homewrecker's? 

     

The Fed's have just busted a huge Foreclosure Rescue Scam, much of it operating in and around Sacramento, Tracy and Modesto.  They were preying on the homeowners who were in danger of losing their home to foreclosure.

It's called an Equity Scam.  It's nothing new.  Here's how it works...

You are in trouble.  You haven't paid your mortgage in over 3 months.  Your Lender files what is called a Notice of Default.  This is public record.  That means the bad guys now know about you.

There's a knock at the door.  It's a well dressed man.  He's even smiling.  He's obviously not a bill collector.  He says he knows about your problem.  He says can help. 

Better than helping, he has a proposition you can't refuse!

• He's going to help keep you in your home.
• He's going to help you rebuild your credit.
• He's going to help you keep your equity.

This sounds like an Angel was sent from above.  How's he going to do all this you ask?

He's got people.    He might even refer to his people as "Angel Investors".

"We're going to add my investor to the property title.  She'll charge you a low monthly rent while you continue to live here and rebuild your credit.  Then, in a year or two, when you are ready, she'll sell the property back to you.  Sounds good?  OK, sign here."

The problem is that his Angel Investor doesn't pay your mortgage.  She never intended to.  In some cases she might not even know she owns the property.  She might have been duped the same as you.  They do however collect your rent.  They might even sell your property out from under you then next day.  You don't get to keep the house, you don't get to rebuild your credit, you don't get to keep your equity.  You don't pass go, and you don't collect two Hundred dollars.

If you fall for one of these schemes the next thing you'll hear might be

Honey, what's that For Sale sign doing in our front yard?

or

Honey, the Sheriff's here and he says he has to escort us off the property!

Two things to remember:

1. NEVER, NEVER, NEVER sign over your Deed of Trust.
2. If it sounds to good to be true...

So you already know that one - right?

And just because I would love to their Mother's to see what they've been so busy doing, here's the sweet 16 indictment roll call:

• Charles Head, 33, of La Habra
• Jeremy Michael Head, 30, of Huntington Beach
• Elham Assadi, (aka Elham Assadi Jouzani, aka Ely Assadi), 30, of Irvine, California
• Leonard Bernot, 51, of Laguna Hills, California
• Akemi Bottari, 28, of Los Angeles
• Joshua Coffman, 29, of North Hollywood
• John Corcoran(aka Jack Corcoran), 52, of Anaheim
• Sarah Mattson, 27, of Phoenix, Arizona
• Domonic McCarns, 33, of Brea, California
• Anh Nguyen, 36, of Los Angeles
• Omar Sandoval, 32, of Rancho Cucamonga, California
• Xochitl Sandoval, 29, of Rancho Cucamonga
• Eduardo Vanegas, 28, of Phoenix
• Andrew Vu, 39, of Santa Ana
• Justin Wiley, 28, of Irvine
• Kou Yang, 32, of Corona, California

Don't Worry

My good friend and highly ethical mortgage professional, Tony Gallegos shared a video he found on YouTube.

As he writes on his blog The Mortgage Cicerone,

 "Bottom line - It's BOZO's like Richard and friends that hurt our industry. Can you imagine being so proud of these sales tactics that you actually post it on YouTube?"

Personally, I liked the voice in the background, "Hi, I'm calling you on behalf of your current lenders wholesale department..."

We, the true mortgage professionals, know these people exist.  We fight their mis-information and unethical practices each and every day.  Does the poor homeowner know who they are talking to?  Not a chance. 

These people exist and they are numerous.  I had an office right next door to me, now thankfully out of business.  But there's still plenty of scum out there.  I had a client just yesterday come to me who had been dealing with these guys.

Remember, this is only a small snippet of what they do.  Don't work with telemarketers.  Don't work with people you don't know.  Don't work with someone hundreds of miles away.  Only work with a True Mortgage Professional!  If you don't know one - ask me! 

I referred a Wells Fargo Mortgage Loan Officer to two highly ethical people I trust in Florida this week.  Imagine that, a loan officer calling me, to do a refinance on her home, because she didn't want to work with anyone in her company or with someone like Robert.  Smart move if you ask me.

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Real Estate "GURU" Caught Skimming

Here's a trail of stories to read dealing with Equity Skimming.

I started at this article in BusinessWeek by Dean Foust about Foreclosure Rescue Scams.

It's a good article and worth the read.

"... in which unscrupulous individuals or groups approach homeowners facing foreclosure and promise to help them save their homes. In many instances, they convince the troubled homeowner--who is desperate to save their homes--to transfer the deed over to them with the promise that the investor will make the mortgage payments going forward, and the previous owner can rent while they try to rebuild their savings and repair their credit."

In the comment section I saw a link that led me to this page:

"The Home Equity Theft Reporter"

"a blog dedicated to informing the consumer public and the legal profession about Home Equity Theft issues. This blog will consist of information describing the various forms of Home Equity Theft and links to news reports & other informational sources from throughout the country about the victims of Home Equity Theft and what government authorities and others are doing about it"

Which then led to to an article in The Kansas City Star entitled

"Real estate's market crash ensnares guru"

Of course that grabbed my interest. Just to help decipher the quote below, Smolec was the homeowner, Ledman was the Real Estate Guru, and Sargent the Buyer.

"Smolec was about $35,000 in arrears on her mortgage, and the bank was bearing down. Smolec said she thought she was signing a lease with Ledman that would allow her to stay in the house for two years while she made arrangements to pay off what she owed using a pension that was due her.

Asked whether she understood she was signing away all her rights to her house, Smolec testified, "No, I did not... I didn't understand because I was told differently."

Smolec said Ledman never explained the complex papers she signed.

"He said I was too old and he would take care of me like a grandma," she said.

Instead, Ledman sold the house to real estate agent Susan Sargent for $500,000, said Tom Gottschalk, a former investigator who testified at the court hearing. Gottschalk said that in signing away all her rights, Smolec lost the equity she still held in her house. He said that after expenses, Ledman would make a $130,000 profit.

Sargent said at the hearing that when she told Smolec she was the home's new owner, "She broke down." Sargent said Smolec was never aware until then that her house was sold.

Sargent said because of problems with the deal, she got Ledman to buy the house back. The house was remodeled and sold last year, this time for $600,000."

Please, please - read all three sites and if you are in trouble - DO NOT sign your Deed over to Anyone - Don't allow yourself to be "Smolec'd"

Also Posted at THE FORECLOSURE REPORT

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No, Seriously...

I was working late the other night, it was after 8:00 PM.
The phone rang.

It was a Local Real Estate Investor. I know that because that's what he told me. He found me on ActiveRain.

He was calling because he had an exciting offer for someone just like me.

He was soon to be auctioning off a home in nearby Discovery Bay.

I replied that was indeed, very exciting. (He didn't hear the sarcasm in my voice)

He was looking for a "Marketing Partner".

okay...

Local Real Estate Investor: "We're prepared to offer you exclusive rights to pre-qualify each and every bidder!"

okay...

Local Real Estate Investor: "We're looking for a mortgage company, like yours, who can capitalize on the enormous potential of this offer"

okay...

Mike: "Let's get down to nuts and bolts. Who is WE? and what's this going to cost me?"

Local Real Estate Investor: "I work with Professional Real Estate Investor Partner. We're looking for 2%"

long period of uncomfortable silence...

Mike: "Uh, 2% of what?"

Local Real Estate Investor: "2% of the sales price."

Mike: "What's the property going to sell for?"

Local Real Estate Investor: "I don't know it's an auction."

Mike: "Yeah, right. What's the property valued at?"

Local Real Estate Investor: "We estimate around $540,000"

Mike: "So you want $11,000 from me? And for that I get to prequalify ALL your bidders?"

Local Real Estate Investor: "Oh, sorry, I mis-spoke, we want 2% of the starting bid."

Mike: "OK, and what is the starting bid then?"

Local Real Estate Investor: "My partner and I haven't yet determined that exact figure just yet."

another long period of uncomfortable silence...

Local Real Estate Investor: "We're looking for around 8 to 9,000 - ballpark."

Mike: "For the starting bid?" (ok, so I was messing with him a bit)

Local Real Estate Investor: "Oh no, sorry for the amount we'll need from you."

Mike: "So you want $8,000 to 9,000 from me? And for that I get to prequalify ALL your bidders?"

Local Real Estate Investor: "See, I told you it was exciting!"

Mike: "Exciting Indeed! Before I commit, I'll just have to run this by my Professional Mortgage Financing Partner."

Local Real Estate Investor: "That's great. I'll call you tomorrow."

Now that we were buddies, partners, and teammates...

Mike: "Hey, this house isn't in foreclosure is it?"

Local Real Estate Investor: "No, but the lady was worried about not making her payments and she answered one of my ads. She signed the DEED over last week. She just rolled over for me."

Mike: "Wow that's great! I'll talk to you tomorrow."

You know exactly what this is all about. So did I.
Somewhere in Discovery Bay, a poor little old lady has lost any hope of saving or having any equity.
She signed her home away, it's gone.

She has a mortgage though.
Does she know the house is going to be sold?
Does she know she'll have to move?
When the house sells, will the mortgage actually be paid off?

This stuff just makes me sick!

While I am not a violent person, I'd love to send Guido to pay my new friend a visit.

Check out "The Foreclosure Report"

For additional reading:

• http://www.saukvalley.com/articles/2007/05/17/features/personal_finance/340382223453162.txt
• http://content.hamptonroads.com/story.cfm?story=125076&ran=94047
• http://www.boston.com/business/personalfinance/articles/2007/06/02/state_cracks_down_on_bailout_scams/
• http://www.cmonitor.com/apps/pbcs.dll/article?AID=/20070519/REPOSITORY/705190311/1028/OPINION02
• http://www.wmcstations.com/Global/story.asp?S=6514629

Real Estate Investor?

This is Part One in a Three Part series

The System

Have you ever seen one of those signs and wondered?

"We Pay CASH for Homes!"

or the latest incarnation...


"Real Estate Investor Apprentice Wanted"

Wonder how all these people could pay cash for all those homes?

Wonder why the same looking signs have popped up everywhere?

Wonder why if they have so much money, they can't afford better signs or advertising?

Wonder why if they are seeking an Apprentice - why are they driving a beat up Pinto?

I have too.

So a little over a year ago I paid good money to go to this big Real Estate shin dig in Moscone Center. It was put together by the Learning Annex. It had keynote speakers like Anthony Robbins, Robert Kiyosaki, and even The Donald.
I certainly wanted to "Learn" and why not learn from guys like that?

For three days, for twelve hours a day, I attended "class" after "class". If I remember right there were over 80 different "classes" offered. Not by the Keynote guys above, but by True Professional Real Estate Investors. These people were some of the most successful people on the planet. They had spent the early years of their life learning how to strike it rich with real estate and now wanted to give something back.

I know they were truly successful because of the expensive silk suits they wore. And then I couldn't help but notice their flashy watches. Oh and the way they talked about their last vacation. And then to verify what I already knew, they also told me they were (extremely wealthy). Each and every one of them did.

Amazingly, they were all willing to share vital information, the very same information it took them years of hard work to learn, with anyone!
Almost.

Just as long as you were one of the first 500 people to make their way to the back table and give their wonderful helpers a credit card.

Don't think of the $1,800 charge as a high price to pay for 12 CDs and a booklet. It's an investment in your future!

Time and time again, in each and every "class", with the very same speech pattern, the rush to the back was on. People of all walks of life were suddenly running for their financial lives.
Not for the door (as I might have hoped) but for the back table!
These good people would literally inundate the 20 or so wonderful helpers.


"NO... Take my Platinum Card first, I was here first!"

At times it reminded me of glorious holiday times past.
Cabbage Patch Kids, Tickle Me Elmo, and Beanie Babies have nothing on this spectacle.





Continued soon...

Work it Out!

I came across what might be a very valuable site for homeowners in trouble.

It's called WorkItOut.com

I did a little background checking and although the site is in "beta" it is NOT an start up.

From the outside it appears to be on the up and up.

It was originally registered with Network Solutions back in 1998 by a legal firm in Irvine, The Wolf Firm, and specifically Alan Wolf.

I did a little further digging and found that this isn't an "open to all" type of club.
To join, you have to be referred by your lender.

There is a limited amount of content on the site available for all to see including what I believe may be the most important two features;

• The FAQ, which gives the reader brutally honest answers to many of the common questions they may want to ask. It's here: LINK

• The List of Lenders and the contact information for that lender's Loss Mitigation Department.
  

What is that?
Let's say you are in trouble. You know it. So who do you call?
You call your Trusted Mortgage Professional!
Good call - so to speak.
But unfortunately, after running numbers and scenarios, they said there was nothing they could do for you.

Now who do you call? Your Lender - that's who!

There's a problem here too. You start with the toll free number and spend the rest of the day on hold and then finally explaining in great detail why you are calling, only to be transfered to the next representative or department who may be able to help you. This goes on with 17 different departments until finally you either hang up or get lucky and get the right department.

The people you really need to talk to within your lenders spiderweb of phone banks is the Loss Mitigation Department.

Luckily for you they are all listed right here. http://www.workitout.com/mod/glossary/view.php?id=98

I noticed it also has answers to a few questions not specifically Foreclosure related.

If you want a copy of your credit report do you know where to go?

NOT www.FreeCreditReport.com - right?
It's not free.
It is a marketing gimmick design to sign you up for their "Triple Advantage" service.

The site you DO want to use is www.annualcreditreport.com
It's the only site,

Let me repeat that again for emphasis...

It's the ONLY SITE, that allows for a truly free annual credit report
But you already knew that right?

Be Careful Out There...

I just read a story in my local paper.

The local police here are warning Realtors about a registered sex offender. They say he hasn't yet done anything wrong but they are concerned. Why?

Because this Bad Guy has been posing as a home buyer and visiting real estate offices and open houses.

But Hey you say, "This is America and all people are free to pursue the American Dream - right?"
That's not so bad right?

Well, let's see...

• He's also been found poking around the back of a real estate office unescorted. He probably came in through a Employee Only door.
• He's asked Realtors to recite scriptures to him.
• He's told Realtors that "God has chosen you to be my Realtor."
• He's asked Realtors to see their personal homes.
• He told an agent that she was beautiful and that beauty is a sin.

How about peeking into a home windows?
Ok, I'll admit I've done that too.
For me it was a vacant house that I was considering, my agent was busy and I thought I'd just peek in the front window.
But I didn't do my peeking at 10 PM at night!

Remember, this guy is a Registered Sex Offender.
Agents are salespeople, they want and need to sell houses.
They are not supposed to be targets.

If you are an agent - not just here but anywhere, take a step back before you run to show a client you don't know an house.
If you are a possible home buyer and an agent you just met doesn't seem too eager to want to put you in her car and drive to deserted house, take a step back as well.


Be Careful Out There!

I've been Phished!

Not Fished, but Phished.

I warned about this a while ago when a friend of mine was caught by a Phishing scam as he was selling something on eBay. http://activerain.com/blogsview/48462/Ebay-Scam-Beware-Phishing

I warned that if they are scamming the sellers - just wait, they'll be scamming the buyers next.

And what do you know, this just popped up in my email! (click on the image to make it bigger)

You may notice that it looks just like an eBay email might.
The first thing I noticed was the TO: address (undisclosed-recipients)
It also has eBay listed in many of the links (bottom of my screen) but those are all redirects.
They put the name in there to fool you.
DO NOT CLICK ON ANY HYPER LINKS

(click on the image to make it bigger)

I haven't bought or bid on anything in eBay in months.

I don't know who CoconutCabana007 is and quite frankly I don't want to know.
So what did I do?
I went directly to eBay (as in typed it into my browser letter by letter)
Remember: DO NOT CLICK ON ANY HYPER LINKS

My eBay account shows I don't have an issue.

Phishing is a scam.

The first rule of Phishing is that they want to appear familiar to you.

No Matter how familiar an email looks to you DO NOT CLICK ON ANY HYPER LINKS

Phishing is the bad guys way of getting you to provide your private information.Beware of anything coming from your bank, any bank, PayPal, eBay, or even Active Rain that is unsolicited.

Once I knew it was a Phishing Incident (spoof) - I forwarded it to eBay.
They don't like this stuff. It gives them a bad name. They'll go after them. Here's their email address to report any sneaky stuff you come across.
spoof@ebay.com

So now I have to ask the question...

After all you just learned, did you click on that image to make it bigger?

Be careful out there!

Want to Super Size that?

Not that they are related...
But with the combination of the collapse of the sub-Prime markets,
the tightening of the credit window,
and the recent bump in short term interest rates have in combination changed the menu on many a mortgage lenders drive thru window.

What's happening?
We're losing the ability to do combo loans.

These are loans that allow a borrower to borrow higher loan to values at lower blended rates.

Let's say you want to buy a home.
You have 10% available for the down payment.
Let's say you want to avoid PMI
(although now that it is tax deductible further analysis is required).
Your trusted mortgage professional sets you up with a great conventional loan of 80% loan to value, they also do a "piggyback" 2nd loan of 10%.
You now have what is called an 80/10/10. That's a combo loan. Make sense?

This was the way many purchases were structured especially here in CA.

Lately we've seen many lenders backing out of the second mortgage market.
They would rather do the loan at 90% at a higher rate, than do two loans.

Why?
Liability in part.
As loans go bad, the foreclosure process protects the holder of the first mortgage first.
If the house is sold at auction and only yields enough to payoff the first and part of the second, it's the second that takes the hit.

The other part that comes into play is what we call Section 32.
This is named after the code that defines a high cost loan.

It doesn't matter that I've never done a Sec. 32 loan.
The well is drying up for all.

Here's an email I received from a lender stating their concerns.

"Due to an increase in 2nd mortgage rates, there is a possibility that certain loans may fail the section 32 APR test. The 2nd mortgage loans most likely to be affected are fixed rate, lower score, high CLTV, stated income/No Doc and 2nd's with negative amortization loans in first lien position. Generally, a combination of two or more of these loan criteria adjustments are necessary to fail the section 32 APR test.

NOTE: We do not purchase or originate a loan that meets the federal definition of a high cost loan (section 32)

A general rule for fixed 2nd mortgages is that the APR can not exceed 14.86% with today's 30 year treasury index of 4.86%. In some cases the adjustments as noted above may exceed this APR in which we would not be able to originate such a loan.

The following is a short summary of the Section 32 Test that is run against all owner occupied loans submitted to us.

1) The Section 32 test is applied to all owner-occupied transactions, both purchases and refinances, 1st and 2nd liens (excluding LOC).

Although the Section 32 Test is not applied to HELOCS, we do apply a company specific high cost test on these loan programs. It is the

fully indexed rate + 10% and is found on the compliance report under the Test Name "Policy Rate." Purchase transactions which fail

the Section 32 test will also have results appear here.

2) An APR Test and a Points & Fees Test is applied to these transactions.

APR Test: The annual percentage rate (APR) cannot exceed by more than 8% (1st liens) or 10% (2nd liens) the yield on treasury securities with comparable loan maturities as of the 15th of the month immediately preceding the month in which the application is received.

Therefore, the APR on the loan transaction is tested against the Index + 8% or 10%. For example, on a 30 year, 1st lien with an application date of 2/10/2007 and an APR of 12.586% would be tested against the following value: 1/15/2007 30 year treasury security index of 4.86% + 8% = 12.86%

This loan would PASS because the APR (12.586%) is below the maximum Section 32 calculation of 12.86%"

Does that all make sense?
If it does, count yourself as one of the elite in the mortgage biz.
I'd say 99% of the loan officers out there don't understand this.

If it wasn't clear here's your Cliff Note Version:
Treasury Bonds have risen. Your loan is not based on a T-Bond but the APR is judged against it.
Because 2nds have higher fees and rates especially on higher loan to value profiles, the APR on these loans may adjust to hit that ceiling.
Key word in all that wording is Fully Indexed Rate.
Fully Indexed means that the worst case scenario rate adjustments happen and the loan hits it's rate caps. So your ARM may start at 8 but could adjust to 14.

Don't want a ARM? Fixed rate 2nds are always available but the rates and fees are higher putting the loan into a possible Section 32 violation. APR is calculated to give a value to these fees in terms of a percentage.

In the end, the lender's answer is to just stop doing combo loans in many cases.
That said, I just approved a 1.2 million refi on a home for a $600,000 first and added a 145,000 HELOC at prime with no cost on the 2nd.

"But Mike, isn't that the opposite of what you just said?"

It is, but the good credit and the great Loan to Value was the difference.
The HELOC is a good idea for many different reasons but we're doing it as a security back up - a reserve account they can tap into in case of an emergency.

"Paging Dr. Mueller to the White Courtesy Phone..."

"Hi, my name is Mike Mueller
I'm not a real Doctor but I play one on TV...

I have a problem, it's a serious problem,
and guess what?
I know you have it too!
It effects each and every one of us every day."

Actually the realization is closer than you may think.

Disclaimer: The following is an analogy, a metaphor if you will. While using myself as an example, I am not equating the level of training as a mortgage professional is equivalent to a medical doctor. The analogy is in the dispersement of the treatment to treat the ailment.

I am a highly trained, highly skilled, Mortgage Professional.
While the real doctors are also highly trained, skilled professionals we both use much of the same systems and tools.

We both rely heavily on new and complicated technology.
This technology allows us to make better decisions in our recommendations.
Yet nothing replaces a human smile, a warm handshake, and a knowing voice assuring the patient that, "Everything's going to be alright."

The M.D. works in conjunction with others very well.
He refers tasks better done by specialists like lab tests & X-rays.
If the doctor is a general practitioner, they may bring in the opinion of other specialists in specific fields.

As a professional, I do the same.
I order work (lab tests) from my title company, my processor, appraisers and so on.
As for specialists, I have plenty. Not everyone who comes to see me is in good mortgage health.
As a mortgage broker I need to know who might be able to help my patient.
With the plethora of lenders available, sometimes it's in the patients’ best interest to call in a specialist.

Bringing in the expertise of others is critical to the patient's health.
Having a general practice doesn't mean the MD can, will, or should do most everything involved in the treatment.
The same goes for my chosen field of practice.

While I do have a State of California, Department of Real Estate License which would allow me to represent the seller or the buyer in a transaction, as a true professional I fully understand the implications and serious ramifications that may be possible if I did.
Working in the best interest of my client is my Fiduciary Responsibility as decreed by law.
Doing anything more would be Real Estate Malpractice in my professional opinion.

In the course of treatment the M.D. may recommend certain drugs.
Some times these may be considered "over the counter" and available to the patient with little guidance from the Doctor.

Other times the best drug for treatment may be by "Prescription Only".
Prescription drugs may have serious side effects if used by the wrong person, or in the wrong conditions, and may interact with other drugs a negative ways. While a particular drug may work medical miracles on one person, it may be deadly for another.

When dispensing any drug it's imperative for the patient to be aware of possible side effects and precautions. The Doctor upon writing the prescription will make these issues and concerns perfectly clear to the patient.
For this reason the F.D.A. determines the drugs that may pose serious problems be dispensed only by trained professionals.

As a mortgage professional, I dispense or prescribe loans.
Just like there are no bad drugs, there are also no bad loans.
Every loan program has the potential to be a good program if applied to the right condition with the right patient at the right time.

When the patient comes for an office visit,
(And yes, sometimes I do house calls) it is my job to accurately diagnose the ailments of that patient.
Once diagnosed, we can discuss possible treatment options.

Sometimes the best remedy may be something simple, akin to putting ice on a swollen joint.
Example: "Mr. Johnson, I suggest you live with the adjustable loan another 6 months until your prepayment period is up."

Sometimes the best remedy may be something generic, something "over the counter" but offered with a little guidance.
Example: "Mrs. Smith, I suggest you go down to your bank and get a $50,000 HELOC, but make sure there are no costs at all."

And then sometimes the best remedy is something very specific, but something with serious warnings and contraindications, something that if used improperly could result in devastating complications to the patient.
Example: "Mr. and Mrs. Newlywed, this combo loan will allow you to buy your first home but remember the interest rate is going to be fixed for only a short period of time. After 7 years this loan will become adjustable and you may want to move, sell or refinance before that time."

Any and all of the above also have possible side effects and complications that as a professional it is my duty to warn about.

I am a professional. I am very confident in the work I do and the patients I treat.
But I have a problem.

The industry allows non trained, non skilled, non professionals to prescribe the same drugs I can.
These pseudo professionals appear to the unknowing patient as professionals.

• Do they do the same diagnosis I do?
• Do they ask insightful, probing questions, like I do?
• Do they fully understand the needs and goals of the patient, like I do?
• Do they accurately and precisely articulate both the risks and rewards of all possible solutions, like I do?

And maybe the most important question of all...

• Do they act with the same Fiduciary Responsibility, like I do?

Anything less is mortgage malpractice and that, in nutshell, is my problem.

DO NOT FALL FOR THIS!

Remember the Bruce Cockburn song entitled "If I had a Rocket Launcher"

Not being a violent person, I can't really identify.
But sometimes...

Hey, here's a little know Mueller Factoid:
Did you know I have never actually touched a gun? I've been very very close to some really big guns. See this: LINK

Back to my Rant
I work in a large office building. In our building there is a mortgage company that hires extremely un-qualified loan officers, as many as they can. They do not have desks, they are outside sales people.They get them in, they hype them up, they give them scripts, and then they unleash them to the world like a swarm of bad door to door salesmen.

They train them on two, and only two loan programs.
Want to guess which ones?
That's right! The Payment Option Arm and this new thing they call the Mortgage Accelerator Program.

They are trained on what to say and how to say it.
They are NOT trained and do not understand the features of the loan, or how to be a LO in the first place.
They are really birdogging - that's all.

They'll start conversations with everyone. In the elevators, in the cafe, in the lobby.
The conversations all start the same, "Have you heard about this new loan program, OOOH, I'm sooooo excited!..."

I can't tell you how many people in the building really shun them.
They also all say that they have signed up all their Friends, Family and Co-workers!
If everyone's doing it, it must be a good thing, eh?

Right now I can imagine my grandmother would have then pinched my cheek and said,
"If everyone jumped off a cliff would you jump off a cliff as well?"
What, yours too?

But hey that's sales - and if that's the business model the company chooses to use - so be it.I won't go into the how when I ask insightful questions of this new program - they don't have a clue what I'm asking.

My problem is in the facts.
No matter what this loan is titled, "The Super-De-Duper Payoff Your Mortgage in 8 Years Program" or whatever they want to call it;

This loan is an ARM, this loan is a HELOC, this loan is a Hybrid.
I've seen it reported as a HELOC on Steroids.
Come on, give me a break!
And besides look what they did to Pro Athletes! (the steroids - not this loan)

So tell me what caps are there?
What's the Index? The Margin?
Does this loan have to be paid off in 30 years?
Does it recast? Does it reset?

This loan is quickly becoming one of the new HOT marketing products in the business.
Will it be the POA of 2007? Too soon to tell.

The charts and figures rely on the fact that the consumer will continue consuming in the same manner or less.
Yet we all know that as a group, consumers will, when given access to money at reasonable rates, tend to use that money.
So the loan balance may go up not down.
That's just human nature.
Knowing that's human nature, are they not lying with their projections?

Looking at POA people as an example.
It's true that if you took the extra cash you might have spent on a traditional 30 year fixed and invested in stocks, bonds and the like you will be light years ahead down the road (net worth wise).

Some people who have POA's were sold on that premise.
Others were sold on the minimum payment.
Virtually none were shown what happens when the loan recasts.
None were shown that their loan may recast in as soon as 3 years or less.
None were shown how their minimum payment would double or even triple!
Here's the truth: http://www.patagoniafinance.com/poa

Industry figures maintain that a full 75% of those people with a POA (Neg-Am loan) consistently make only the minimum payment.
Now with all those Neg Am payments out there and all that extra cash floating around you might expect to see savings and investment rates at all time highs.
Conversely, those savings rates are at all time lows!

Put everyone in this glorified HELOC program, let them spend what they want, or paydown what they want and you tell me what's going to happen when the loan needs to re-amortize.

This program isn't all that new, I did a quick search and found an article in my paper from back in May 2005 warning of it's pitfalls.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/05/26/BUG95CULR51.DTL&type=business

From the Article:
People who continuously spend more than they earn will keep adding to the principal and their mortgage will end up like a negative amortization loan.

Joyce Franklin, a financial planner with JLFranklin Wealth Planning, says "a borrower with financial discipline who wanted to pay down principal could do so on her own, without a fancy product" that charges a premium rate.

Any good financial planner will tell you to keep a mortgage on your primary residence for as long as you can.
Additionally, paying off your mortgage early is dead money.
I'd explain further on that thought but it's another posts worth.

ebay Scam of the Month

This was just sent to me by an associate and I thought it might be beneficial to those readers who sell items on ebay.

Personally, I've sold maybe three things in my life on ebay.
It turns out I really don't like packing things, boxing and taping them up, and going to the post office and waiting in line.
I'm an ebay buyer.

I imagine there's also a scam out there for the bidders of items too.



"It starts as an email from a "potential buyer" about the item you have listed, asking if it is the same as this item at this location. (they give you a link that looks like ebay) You respond - and it takes you to what LOOKS like ebay and you have to enter your username and password. Bingo - hooked another one! Then - all the existing bids on your item are canceled - within a minute or so of each other. Then you start getting emails from OTHER sellers that have apparently gotten a similar request from your hi-jacked ebay account - and the cycle starts for them. Then your password to ebay no longer works. When reset - ebay has a message to you (and it is also in your personal email) that your account was compromised, etc., etc., etc... so do this, then this, then this, then that. Ebay knows ALL ABOUT IT and how it works."

This is called Phishing.
Here's a link to ebay's page on it: LINK
If you do get a funny looking email, don't delete it - forward it to spoof@ebay.com
They are pretty good at getting back to you as well.

Phishing comes in many forms and hopefully you are smart enough not to be sucked in by any of it.
If you do get other suspicious emails you can also go here: http://www.castlecops.com/pirt to report them.
They'll attack it for you.

Be careful out there!

Friday's Fraud Story

Honest Confession:
In some perverse way I think I may actually get a kick out of these posts.

I'm very sorry.
Somewhere, someone was deeply effected by the fraud and indeed lost something of value. Their lives were not improved but instead were damaged by the actions.

Don't get me wrong.
I am certainly not rooting for the bad guys.
Maybe it's more of a matter of my astonishment of their cunning ways. I really can't put a finger on it.

Why do we like all the cops shows?
CSI, Law and Order, and the like?
They all certainly all have victims, people who have lost something.
I pride myself on being able to feel how others in different situations may feel. This is called Empathy. I feel the joys and pain of others.
I am an empathetic person.

But alas, on to the Fraud!

So this guy, Michael Edison of Las Vegas was just indicted for defrauding a SF woman.

He told her he owned a financial planning firm with something like 12,000 clients!
He first got her confidence, then once he had her confidential information, he opened a joint account, I'm guessing a checking / savings combo.

With that opened, he then applied for a mortgage on her home.
He got a first mortgage from Wells Fargo and then a second line of credit from Countrywide.
Since her home was paid off, I guess these would be cash out refinances.

Where did the cash go?
To those joint accounts he set up.
He deposited 5.2 Million to the accounts.
He then drained 2.8 Million from the accounts leaving her with two mortgages and from my calculations $400,000 left in her new accounts!

So how'd she find out?
The banks started foreclosure proceedings on her property for lack of payments.
I guess he wasn't smart enough to setup automatic withdraws.
Even if he did - let's see...

• 2.8 million loan amount
• 30 year term
• 6.5% ballpark interest
• Would give him a theoretical payment of $17, 697 P & I
• Given the $400,000 left that would have lasted for 22 months.
  

"So Mike," (you say) "At least he left her the $400,000"
Don't count on it. Chances are not.
Once the F word was uttered the banks probably froze the accounts in question, if not all of her accounts. When the dust settles she will have lost many thousands of dollars if not millions!

How do I feel now?
Honestly? Not so happy.
As a matter of fact, I feel really sad.

I will never knowingly engage in fraud and yet the possibility of fraud is infused in what I do for a living.

Earlier this week we had a client who wanted us to pull only his credit.
He wants to do a cash out refinance but doesn't want his wife to be emotionally dragged thru all the details. He told a sad story about how his wife just can't handle numbers and finance.
He wants her to NOT be on the loan, not on the deed.
Matter of fact, let's not even tell her we're doing this.
"I'd prefer you only contact me on my cell phone and mail everything to my office."

What's that?
You smell something too?
So did we.

The Lead Gen Biz - Part One

So I caught a little flak over my explanation of the Tree and it's business model.
LINK

No biggee.
If I get this right, I am the "Flak-er", and they would be the "Flak-ees".

The Flak-ees reactions ranged from the standard issue knee jerk "Duh", to eye opening wild disbelief.


Let's do this in two parts:
Part One - the answer to the Dee-Dee-Dee side, (Carlos Mencia reference)...

Some of the Flak-ees maintained that the Tree was and is doing what it needs to do to stay in business. In order for the Tree to continue offering the great services it does to us poor consumers, they need to sell the leads. "Wadda you think? They should just give 'em away?"


Uh, no...
I have no problem in their selling the fruits they have grown.
I do have a problem with their trying to deceive both the buyers of the leads and the customers.

Advertising has been called the business of half truths.
Some might argue that there's far less than half of a truth in any advertising.
But I'll say, if the banks were competing you indeed would win.
That is the truth. But the truth is, the banks can't really compete.
For many reasons, the playing field is stacked against honest competition.

With the Tree sending leads to their own mortgage company first, they get a jump on the competition. If they really wanted you to know they had a mortgage company wouldn't they have called it something like Lending Tree Mortgage?

Home Loan Center doesn't sound like L.T. at all does it?

Then there is matter of human nature.
I'm a good guy, but I know there are plenty of less than honorable people out there.
As I have said before, they can lie thru their teeth about rates and fees all the way to the signing table. There's nothing illegal about it. It's called Bait and Switch and I see it everyday.
And guess what? If they know they have to beat 3 other liars to get your business, guess what they are going to do?

The best liar wins.

I have a great solution.
Make them tell the truth!
How?

The "Mueller Act"!

Force the lenders (you figure out how) to quote you a rate, a term, a prepay, the total non-recurring closing costs, all fees, everything, and then set that quote in stone.
No changes - period!

Then, if the loan you get isn't what they quoted - they have to pay the difference plus let's say $10,000 in damages.

Furthermore, take the quoting away from individuals (loan officers who work for commission) and put it in the hands of the corporation. Not that corporations don't lie - they'll be more apt at looking at the bottom line.
In short, fully guarantee the quote.
Sounds like a sound and reasonable idea - right?


Now let's step back and see what happens.

From the Lender side:
The lenders will now be caught between trying to compete but not underestimate the rates and fees. They know there are 1,000 ways a loan can change from application to funding.
Many of which are completely unseen this early in the process.
As a lender, you can take a calculated risk and hope nothing increases the rates and fees, that you can close before your lock expires, that the supporting documentation comes back as stated.
But that's a risk. Guess wrong and it costs you money.

So the business is going to price these with a certain amount of cushion.
How much? - Nobody could tell for sure, but a cushion for sure.
Cushion means... not the lowest rate possible, yet low enough to win the deal.

Let's go over to the consumer side:
I'll take two different borrowers, one who has it all together and a super clean deal with no surprises anywhere. We'll call him Mr. Clean.

The other one has everything imaginable come up - not necessarily by his own fault. Both have identical income, credit, and debts. He's Mr. Calamity.

Mr. Clean is doing a refi on his condo. He locks for 15 days (cheaper rates), the appraisal is done and comes back perfect, the prelim as clean and clear as well. His HOA does what they need to do and keeps the records they are supposed to.
Working with any reputable lender, he would get the absolute best rates and fees.

Mr. Calamity, doing the same refi, the same amount, locks for 15 days as well.
But then the poop starts hitting the fan.
His appraisal comes back with issues - there are questionable comps, they need more pictures, or a zillion other things. The Prelim comes from title and shows tax liens. It also shows his ex-wife who happens to be on safari with the new husband. Ooops. We need a quit claim deed signed. His condo turns out to be unwarrantable, the parking is under the building as opposed to outside the footprint, the loan he applied for also says it needs to be 75% owner occupied complex wide. Oh, and there is pending litigation from someone who tripped on a sidewalk last month and is suing the HOA.

Each and every item listed added to the rate, points and fees of Mr. Calamity's loan.
That's just a couple of items that might go wrong.

So under the newly enacted "Mueller Act" the lender that quoted both these guys would get the same loan. Not having a crystal ball, the lender would have quoted the same to both. Got it?

But here's where market forces screw it all up.
Mr. Clean - had he gone the traditional route, would have gotten better rates and fees.
Why? Because the lender had to build the risk of unknown factors into the original quote - the cushion. Mr Clean paid more for his refi then he had to.

Mr. Calamity however made out like a bandit.
Not intentionally, but the lender would have to honor the quote.
(eat the difference)
His real rate and fees would be incredibly higher.
Missing his lock might have cost him a 1/4 point.
Tax liens, pending litigation, HOA cert. all would bump him out of an A paper loan.

The lenders, learning from their mistakes on Mr Calamity would adapt and build in a bigger and bigger cushion. Unfortunately imposing this cushion on the next Mr Clean.

So in the end, the "Mueller Act" would fail in what it was enacted to do.
Mike Mueller would be impeached,
the Act would be repealed,
and the lessons learned would be taught to high school history students across the US for years to come.

Ok, how's this idea instead?
We educate the consumer to make insightful decisions, by working with trusted professionals, who understand the consumers objectives and goals.
I like that better.

Next time we'll look at the "They don't really do that do they?" side in Part Two

The Truth About Lending Tree

In anything like this I find it best to start with the business model.

What is a business model?
Simple, it's what the company does, or plans to do, on a regular basis to make money.

DO NOT forget, every business is in business to make money.
Even Non - Profit's must have a business model, a plan to bring in money, or they will soon cease to function.

Lending Tree (hereafter to be referred to as the tree) portrays itself as the best and easiest vehicle for you to use to compare different lenders.
And you know very well that "When banks compete..."

But there's a couple of things you don't know.
The tree's business model is all about selling referrals, almost.

Fill out the application on their site and in 4 hours you'll receive up to 4 offers from competing lenders!

Hey that's pretty cool.
One stop shopping!

But how do those lenders know to send me their "best" rates?
Could it be because the tree sold your name and info to them for around $500?
True story!

So they advertise on TV, radio, ballparks, bus stops, and so on.
Meanwhile they bombard us with offers to sell us "red hot financing leads".
Four lenders pay $500 each for your name.
They know they have to beat the other guy so it quickly becomes a contest of who can bait and switch the other guys better.

You, the consumer, buys into what you believe is the best sounding one and commit to a loan.
You, the consumer then find out later, you can't get the rate they offered, or at the fees they originally offered but it's too late now. You've swallowed the hook.

The lender closes another loan, makes money, buys more leads.
The tree collected $750 on selling your name - so it made money.

This is the lead generation business and make no mistake, this is a big business.
I get lead sales offers everyday, not one - many!
It's not just the tree either.
Have a high traffic website? - You can collect names of people who want to refi and sell them!
Got a blog like this? - same thing.
Buy an Autodialer and download the names and numbers of people with sub-prime loans into it.
Let it run each and every day. Collect all those people that "Press 2 now" for more info.
Sell them, not just once but over and over again!

See those banner ads, pop up ads, or that long