Accentuate the Positive

Yesterday was indeed a tough one. 

Running into the brick wall called Mortgage Insurance.

But hey, there's always a brighter side (if you look hard enough).

No, the MI problem is still there.  No resolution.  I did have a lengthy talk with the homeowner explaining the problem.  That hurt a bit as well.

But one of my readers decided to call me.  Robert.  He's a Mortgage Guy down in Orange, CA.  We talked about bait and switching, unethical rate quotes, and all the scum we fight on a daily basis fighting the good fight.  It turns out he's a good, ethical mortgage guy as well.  Robert, you didn't think you were going to make my day, did you?

Bob at ActiveRain called.  We talked about operating  systems, browsers, and right clicks.  We talked about fishing and golf.   Bob and I talk from time to time.  Not often enough.  I wish we had more face to face time than a hurried dinner in SF, but we take what we can get.

This morning I had a couple of phone calls from my favorite real estate agents, and one from a motorcycle buddy.  Yeah, my leg hurts as bad as it looks.

The one common thread that runs through all these people?

They all have a positive outlook on life.  Every single one of them.

I thank you all for bringing a little ray of sunshine into my life!

Hey I even shot a video.

Speaking of calls and video - I'm considering a move to the WordPress just so I can enable video commenting.  it might create a bunch of havoc, but have you seen it yet? 

Check it out: LINK        Cool stuff!      (unless you're naked!)   (maybe) 

Level 3, FASB 157, and my 10 Taxi Cabs

Starting tomorrow, the rules for how a company carries a particular asset on it's books is going to change. 

The Financial Accounting Standards Board

These are the guys who set the rules for all accounting here in the United States.  I'm talking about FASB 157.   If you go to the website you can download the 158 Page document and read it for yourself, or I have a metaphor to illustrate what it is and why it's important.

Put on your Metaphor Hats...

I own a Taxi Company, Mike's Taxi Service.  I have 10 Taxis.  I bought the Taxis's over the last couple of years.  Each Taxi cost me $10,000 (they are very cheap taxis).

Using basic math skills, you can see my 10 taxi fleet cost me a total of $100,000 - right?

Unfortunately, I hired the wrong cab drivers.  It seems they never checked the oil and now half of the fleet is broken down with blown motors.  If I needed to sell my broken Taxi Cabs I might get $500 each in the state they are in.  Since  they have blown motors, my Mechanic Louie has resorted to calling them  "Non Performing Assets".

Along comes Nick.  He wants to buy my company and asks to look at my financials to better gauge the true value of my company.  My books show that I bought 10 Cabs for $10,000, I have depreciated them a little bit over the last couple of years ($1,000 total) so according to my accountant, the Mike's Taxi Fleet is worth a cool $99,000!

Hey, I know it's not their true and realistic value, but it looks cool on the Quickbooks Balance Sheet and as a side benefit it also looks like I'm doing really well!

After Nick  reviewed my books, he bought my company for full book value  - $99,000.  Only problem was that a week  later he found out about Louie's "Non Performing Assets" in the back of the garage.  Boy was Nick mad.  The real value of the 5 blown up cabs was more like $2,500 - not the $49,500 I was showing.  Oooops.  Sorry Nick.

REALITY BITES

In real life my metaphoric Taxi Cabs symbolize large securitized pools of mortgages.  And as you might guess, like my Taxi's, some of those mortgages are not performing so well.  Their value might not be all they are cracked up to be.  How that value is determined was somewhat up to various levels of interpretation.  What the banks, pension funds, hedge funds used to do is dump all these broken bits into a big bucket called Level 3.  They hid the bucket in the back of the garage.  They put a value on that bucket, much like I did with my broken down Cabs.  And this used to be perfectly OK.

Starting November 15th, the rules set forth by FASB 157 change how that value is determined.  They are shining the light on these buckets and we'll now get to see what's really in there and more importantly what the bucket is worth.

SMALL BUCKETS AND BIG BUCKETS

Here's a fun little tidbit I ran into the other day.  It seems most all the boys have buckets.  According to their SEC filings (Form 8-K) some of them have pretty big buckets.  Remember Merrill Lynch announced a couple of weeks ago that they had discovered they had a bigger bucket?   Cool.  The Merrill bucket is now at 16 Billion!

Just for giggles, here's some of the others;              

• Bear Stearns $20 Billion
• Lehman Brothers $35 Billion
• Goldman Sachs $72 Billion
• Morgan Stanley $88 Billion
• Citigroup $135 Billion  

Those are some pretty big buckets. Want a little good news?  Bear Sterns just announced the worst of the Sub Prime mess is now behind them.  No really.  They said that!  

Remember the good folks at FASB are looking out for the little people like you and me!  And on the bright side, now you know more about Taxi's, Level 3 Buckets, FASB 157, and how not to trust financial statements much more than you did before!  Cool.

Next we'll talk about other ways to hide other bad things like Herpes Sores and Super SIV Funds.

 

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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St. Joseph find me a buyer - fast!

I had previously written a story about how interesting it was that I found companies marketing St. Joseph statues to home sellers. 

Well, I guess that idea caught on with Agents. 

The California Association of Realtors - which licenses your local Real Estate Professional, has a page on their site selling products designed to help them (the Agents)  in their business.  The page is public and sells items like

• Marketing Plans,
• Presentation Plans,
• Door Hangers,
• Open House Signs

The idea is that the Association is there to foster and promote their business.  They even have a radio commercial going right now.  Have you heard it?

I track all sorts of things.  One of the interesting things (to me) is where new visitors come from, if they used a search engine, and if so, what words they put into that search engine to find me.

 Yesterday, I saw that someone had found the site and spent a great deal of time reading my posts - all because they used MSN and were looking for "st joeseph statue for selling homes".  Misspelled and all.  No really!  Here, try this: LINK.  I should be #1.

BTW: The two biggest hits I get are for Lending Tree Fraud, and most anything that has Mortgage Accelerator Complaints attached to it.  I guess they are pretty popular.

I scrolled down and found the page for C.A.R. and saw that they were selling statues in bulk!

I can't say I like this.  Why?

The Association exists for the betterment of it's members.  It subscribes to higher standards and pushes for those standards in many ways.  Not to offend anyone, but politics and religion aside, should this Professional Association be supporting something controversial like this?  What does this say about C.A.R.?

What's next? 

Find the Loan Program of your dreams

- Just add this Adorable Urinal Mint!

 

(sold in cases of 144 only) 

I know - That's Gross!

Point made.

 

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Pre-Payment Penalties - The Bigger Picture

This is a "sidebar" to " Of Pools and Puddles... "

Good or bad.
Right or wrong.
Black or white.

I know what your thinking, "There's no black or white about it. A pre-pay is a pre-pay."

Ask a room full of consumers, "Why do some loans have a PrePay?" and they'll pretty much all agree.

"Pre-Pays are for suckers. Those Lenders just want to make extra cash from us!"

Go ahead and tell someone at a BBQ that your loan has a Pre-Pay, I dare you!
You fear being an outcast right?
Visions of your own brother in law, Bradley "The Know It All" pelting you from 25 feet with overcooked hamburger patties?
Owwww!

Take a step back from the consumers point of view.
Then another and another. Keep going....
Far enough back yet?

Where does mortgage money come from?

"Duh Mike, the Lender."

Ok, I'll play. Where does the Lender get the money?

"Uhhh, the vault?"

No, let's just say the money comes from Wall Street. (those big guys)

Mortgage money mostly comes from large institutional investors that buy large pools of loans from lenders, warehouses, and pooling institutions.

As an investor, with the choice of two almost identical pools of loans to buy, let's play.
Which one would you buy?

• Pool A - is a billion dollars worth of 680+ credit score, full doc, 80% or less CLTV, Single Family Residences all with 30 yr fixed notes at 6.5%

• Pool B - is a billion dollars worth of 680+ credit score, full doc, 80% or less CLTV, Single Family Residences all with 30 yr fixed notes at 6.5% - and each one has committed to keeping the loan for at least 3 years.

Which one has more value to you the investor? The ones with the pre-pay right? - That was easy, eh?
Why? Because the investor has confidence the Pool Dwellers in B are going to keep on sending them checks for a long time to come.
If they decide to sell or refi - they'll still get a check (the pre-pay).
That makes for a better Return on their Investment (ROI)

To even things up, what if now Pool B was at a slightly lower interest rate than Pool A?
You could see there would be a point when both Pools might have the same value to the investor but carry different interest rates.

Now let's switch back to the role of the consumer.
You just asked for a 30 year fixed loan because you said you wanted stability and were going to live in this house forever.

Your mortgage professional presented you with two almost identical 30 yr fixed programs, except one has a pre-pay and a better rate.
(This isn't always the case. Sometimes their isn't the ability to accept a commitment period in lieu of a better rate.)
But let's just say that this time there was.

A couple of years from now did it matter that you had a pre-pay?
Did it cost you any more to have a pre-pay?
Actually not, it probably saved you money!

It's all about perspective. Stepping back and seeing the big picture.
Or stepping back and letting a Braut fly, beaning poor Bradley in the back of the head, knowing your rate is lower than his, and knowing why!

Perspective.