Why not get it right?

Sometimes I am accused of preaching.  It's true, I sometimes do.  Lately I have been preaching that the media is presenting a rather skewed picture.  I often mention that they are getting it wrong.  They are.  I am watching a guest on CNBC right now that just mentioned that there are x million of "Teaser Rates" that will reset before the new year.  He's wrong.  They are not Teaser Rates.  They will reset but they are ARM Adjustments.  The "Teaser Rate" does exist it's just not what he's referring to.

Perhaps he's using the "Teaser" term for it's soundbite power.  Perhaps he's just confused.  Perhaps he just doesn't know better.  The problem I have is that nobody was there to correct him.  The guest runs a large investment firm and I cannot say how much he knows or doesn't know about mortgages.  That shouldn't be a factor.  He was an expert on TV.  He should get it right. 

Case in point.  Jason Sardi - a mortgage professional in New Jersey wrote about an upcoming consumer education event being held in his community.  It sounds like a great idea. 

He says they'll be covering...

• How much is my house now worth?
• Should I refinance my existing mortgage?
• What is the best use of a home equity loan? Pay off debt? Home improvement?
• What are my rights as a borrower?
• How does the sub-prime market work?
• What is the difference between an appraisal and fair market value?
• Will I be able to repay my house debt?
• Can I avoid predatory lenders even if I have bad credit?
• What affordable lending options do I have?

That is certainly a great list of topics.  Many of which desperately need to be covered right now.  Good for you, Lehigh Valley!  But then as Jason sadly pointed out, they got it all wrong, (or they will).

The panel selected to answer these all important questions incredibly DOES NOT INCUDE a Real Estate Agent, a Mortgage Professional, or even a Title / Escrow Officer!    Correct me if I'm wrong but are these three people not the most knowledgeable on the subjects listed above?

 

Isn't this the same as the Love Canal City Council having an educational seminar to address the sudden rise of breast cancer but not inviting a Doctor or Oncologist to the party? 

Maybe that's where the Real Estate Agent, Mortgage Professional, and Escrow Officer went?

 

I would love to see a program like this happen in the bay area.  I'd attend and if asked I would be happy to sit on the panel.

It was my Grandfather who always said, "If you have the time to do it - you have the time to do it right  - the first time."

 

 

 

Technorati Tags: mortgage truth, payment option arms, ARM resets, recasting loans

An excellent explanation

Yesterday, I reported that Zillow featured an article I had written.

Puddles and Pools

The article was an attempt to explain the complex world of Mortgage Backed Securities. Lenders don't just create mortgage rates willy-nilly.

I found this video from CNBC with Steve Liesman explaining in simple terms how the Puddles are combined into larger Pools. This happens to show this as a SubPrime version.

This is more about how those Pools are then divided so that different investors can take "ownership" of different facets of the Pool.

Good Job Steve!

Boxes, Part 1

PART 1: The Lender Box

No this isn't about a Justin Timberlake song.
"I'm giving you a loan in a box..."
Don't even go there - you haven't heard me sing!

This is about the difference between a direct lender and a broker.

Another way of saying it,
it's about the difference between a Mortgage Banker and a Mortgage Broker.

The question seems to comes up from time to time and here's how I explain the difference.
I've was a Mortgage Banker for years and years.
I am now a Mortgage Broker.
Is that better?
No, it is neither better nor is it worse.
It is what it is.

Picture a lender, any lender.
While they may have a wide range of products they offer,
and they may offer the same programs at the same rates and the company in the next block,
they also have specific things that make them unique or different.

They have things they like,
They have things they don't like.
They have quirks both good and bad.

There are plenty of lenders around.
Many have retail outlets you can walk right into.
From the sidewalk, how do I as a consumer know which one is a portfolio lender?
Which one is very aggressive on manufactured homes?
Which one will not do a HELOC behind a Neg Am Loan?
Or of those that will, which ones will not go behind one with a recast of 125% and which ones will?
Looking at their windows, I certainly can't tell.
Walking into their lobbies, waiting in line, and even talking to the very young loan officer, I can't tell.

As an savvy mortgage person you know that even with a vanilla 30 yr fixed Fannie Mae, no two people have the same loan profile.
You didn't? Better go back and read this one: "The Right Answer".
All those factors can have a profound effect on the rate, terms and fees involved.

In mortgage terms that would sound like this:
"We, insert name of lender here, will fund this loan only after thoroughly reviewing that all terms and conditions detailed in both our 142 page book of guidelines and the secondary marketing guidelines set forth by the Federal Home Loan Mortgage Corporation have been completely satisfied."

The guidelines are not really 142 pages, I exaggerated a bit.
But in my slightly skewed metaphoric terms, it simply needs to fit in the lenders "box".
If it fits, it's a loan.
If it doesn't, it's a decline.

I know, it's not that simple.
There are exceptions to be asked for.
Possible ways around the rules or bending of said rules.
But in general terms, if it doesn't fit in the box - it doesn't fit.

Boy, was I just tempted to throw in a Johnnie Cochran reference there!


(Ok, I give in, but just a small reference.)

Direct Lenders may also have certain advantages.

For instance:
They may have direct underwriter access available.
On a loan file, if an underwriter sees something they cannot "un-see" it.
Submit a loan to an underwriter for review with something that should not be in that file, and it's too late. You cannot change it.

A real life example might be where a loan is supposed to be stated income, but the file sent to the underwriter has a W-2's included. So much for stated income, you just became full doc!

Hypothetically of course, let's say our mortgage banker might be able to, as he or she was hanging around at the water cooler, ask an underwriter what he or she might think about a typical and certainly hypothetical situation...

That underwriter may be able to give that mortgage banker an idea or two that might allow that loan to sail through easier and unencumbered - hypothetically of course.

The mortgage banker may also know the quirks and twists of their products better than anyone could.

Additionally, when I was a mortgage banker, there were programs and features that were available to only us (not the wholesale department).
We had favors we could call in from time to time.
We had access to instant automated underwriting decisions - Fannie Mae, Freddie Mac, and our sub-prime unit.
Not having to disclose YSP, and so on.

So lenders are not bad.
They are not good.
They are what they are.

Next time we'll look at this all from the brokers side.

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 column of ads on a website - that's all about lead generation!

What's that you say?
How come the tree collected only $750 when it sold 4 lenders at $500 a pop?
Smart cookie you are!

You see, the tree also owns it's own mortgage company called The Home Loan Center.
OOOOPS!

Chances are the first quote and probably the best was from them!
Nothing like faking the public into believing they were getting an honest deal while drive applications to your own people, all the while still making money off from 3 other lenders.

Too bad they couldn't keep it a secret. Now they are involved in a class action suit.

Also related: BankRate - same animal, same tactics, same problems - class action lawsuit.
This one not brought on by consumers but by the advertisers themselves.

In anything you do, anything you buy, ask yourself the simple question -- what is the business model working here?

Oh here's a mini bibliography of sorts:

http://www.bizjournals.com/charlotte/stories/2006/10/09/daily31.html

http://www.consumeraffairs.com/finance/lending_tree.html

http://inkblots.markwoodman.com/2005/05/24/cutting-down-the-lending-tree/

http://inkblots.markwoodman.com/2006/05/23/stump-grinding-the-lending-tree/

http://www.epinions.com/content_17983901316/show_~allcom

http://thesqueakywheel.com/complaints/2006/FEB/complaint8288.cfm

http://thesqueakywheel.com/complaints/2006/SEP/complaint9941.cfm

http://realtytimes.com/rtapages/20030909_lendingtree.htm

"I contacted LendingTree.com regarding a refinance loan and was told by the representative Mr. Daniel Lete that I would have to give him a $400.00 deposit to secure the lock-in interest rate on the loan and receive additional information regarding the Mortgage lending process. I stated that I was concerned about providing my credit card information without getting any information in writing first. Mr. Lete assured me that my deposit could be refunded. However, after giving my credit card information I was sent an e-mail from Mr. Leta which included detailed information on the loan and the very limited circumstances which I would be entitled to a refund of my deposit. Mr. Lete was quite misleading.

The matter resulted in my not getting my deposit back after the loan agreement was never signed or processed. After getting the lock-in interest rate, I needed to change my refinancing amount. I was advised by Mr. Lete to get a home equity rate because of the low amount I was requesting. I declined to proceed with the process after I was quoted a very high interest rate."

The "Right" Answer

As I was talking to a Realtor yesterday on Broker Tour,
They had happened to see me on the 4 PM News where the host had asked me the question, "If you make $90,000 a year and have $25,000 in the bank can you afford to buy in the Bay Area?"

The Realtor and I were having a lively discussion about what the right answer would or should be.
I was contending there is actually two correct answers, the TV version and the Reality answer.

The TV answer is short. It's a broad based statement. It's a generalization. It comes with obligatory YMMV stipulations (Your Mileage May Vary).

The Reality answer is long. It well thought out and takes into account the many variables that play into this scenario.

In answer to the original question - the answer was "Yes! They could absolutely buy a home in the bay area."

That's the TV answer and that's what I said.
But then the "Mike" in me came out and I qualified it with a portion of the Reality answer.

The Reality answer would be, "Maybe! Maybe they could and maybe they couldn't."
I have a couple of questions to ask them first...

• How's your credit score?
• Do you have all three scores?
  
• Credit quality?
• Tradelines?
• Collections?
• Derogatories and the time since the last one?
• Past BK? How long ago?
  
• Are you full time permanently employed?
• How much of that $90,k is due to overtime?
• How much to Bonuses?
• Is that regular or scheduled?
• How long have you been on the job?
• How long in the line of business?
  
• How's your debt?
• How many accounts do you have open?
• How about remaining balances, are you maxed out?
• New accounts, how many of those do you have?
• Inquiries, how many recent inquiries show in the last 12 months?
• When we do this loan what will your back end debt ratio look like?
  
• What kind of property are you looking for?
• Single family, Condo, PUD, Manufactured Home, or Doublewide?
• Is the purchase going to be "as is" or fully disclosed?
• Seller concessions? If so how much and what?
• How much are you looking to put down?
• Seller Carry back?
• How does the Property appraise?
  
• What comps and where are those comps?
• Additions to the property?
• Were they done with a permit?
  
• Got assets? "No, sit back down and get dressed. I'm not talking about that!"
  
• How much do you have in reserves?
• Is that all in your name and for how long?
• How much is liquid?
• 401,k or IRA?
  
• Gift Money? How much and from who?
• Have enough cash to close?
• How much left over after that?
• How long do you plan to live there?
• And then what do you want to do?
  

That'll get us started.
No really! That's just a start to the considerations that go into a loan.
This is why people like me exist and cannot be replaced by mindless Borg Units or computer programs like online lenders.

So the easy answer is that, "YES! You could absolutely buy in the bay area."
But is that a tumble down shack in a shady hood, or a beautiful new home on top of a hill?

Even if there was an easy answer (there isn't), or way to compute the answer it still would be wrong to give that away on TV.
The reason?

If I had that answer, and hypothetically said, "Sure! They could buy a $550,000 home anywhere they want."
Then they talk to a less than ethical loan officer who tells them, "I can get you into a $1.4 million dollar home for the same payment!"
"Wow! That's more than double the home that lousy guy Mike said we could buy! - Let's go with Lester Sleazeball, He's the Man!"

You know the answer right?
That's a Neg Am Loan.
That's not the right loan for them.
They'll be in foreclosure in just a couple of years when their payments triple.
Lester and the Real Estate Agent, Suzie Sliime, will have already spent their huge commissions and moved on to the next victims, I mean valued clients.

In the end, I guess the right answer isn't what you see on TV.
The right answer only comes after you have spent the time and energy searching for it.
And channel surfing doesn't count!

Broker Tour Tuesday

Tuesday is Broker Tour day here in my area.

If at all possible, I'll try and get out of the office on Tuesdays and meet some of the dedicated and professional Agents in the area.

That sure sounds a lot like sucking up doesn't it?
Well... Yes and No.

Walk into an open house on the weekend and you are likely to be greeted at the door by a relatively new agent.
Why? With inventories as high as they are running it's easy to see, there's plenty of open houses out there.

The experienced, dedicated and professional agent is still out there but may have 3 or more listings that all need to be held open at the same time. Those open houses need to be manned by someone, and legally they have to be manned by a licensed agent. As a new agent you'll have ample opportunity to work every weekend holding open house.

Take someone in your office's listing, pack the corner signs in your trunk and create some flyers to hand out.
The concept is simple: expose the home to as many eyeballs as possible.
But then again, as most people should be using the expertise of a Realtor in finding their home, isn't that contradictory?

It is. But there's a lousy fact hanging out there.
Typically, from the time a person starts looking for a home to the time they actually purchase a home, they come in direct contact with 17 Agents. That's a number from the National Association of Realtors. People don't stick around, they are flighty. Very little "stickiness".

Turning the tables, how do those 17 agents manage to come in contact with the potential buyers?
Mostly by marketing.
That means putting their faces on everything from shopping carts to restaurant take out bags.
My local drugstore pharmacy bags have a Realtor ad on them.
Newsletters, Bus Stop Benches, Pizza Boxes, and anything else they can to generate the phone call. Oh yeah, and by holding open houses.

That's right!
The underlying reason to hold an open house is to meet and greet potential buyers.
Selling the house is secondary. They know chances are they are not going to sell this house to you.
It's all about establishing a relationship, it's starting the conversation, it's building common ground.

Walk into an open house and the first question you'll likely be asked is,
"Are you currently working with an Agent?"
They want to know if you are attached to an agent already or do they have a chance on earning your business.

The bigger original question was, "What's a Broker Tour?"
Every area has a local Realtor marketing group.
In my area it's called CCRIM.
Contra Costa Realtors in Motion - catchy eh?
Solano has it's SAOR - Solano Association Of Realtors
Name aside it's a wonderful idea.

When an agent gets a new listing they are able to put it on Broker Tour.
Like I mentioned, in this area it's Tuesday.
From 10 till 2 or so, the agents will hold the home open not for the public, (although they are always welcomed) but for the other agents.

This way, when a home comes on the market, a good agent has had a chance to preview it, and then possibly suggest it to their clients.

But I'm not looking for a home.
I'm also not a Realtor.
So what am I doing on Broker Tour?

In part, I'm doing the same thing the new agent is doing on the weekend - I'm meeting and greeting, not the public but the professionals that drive the market.
I'm always looking to build professional relationships with honest dedicated agents.

On the other hand, I need to hear the word that's out on the street.
I need to know the vibe, the pulse of what's going on.
How the market is treating them and so on.

I'll use this information in my TV and Radio appearances as well as in the seminars.

Investing in Real Estate: 101

This Saturday, Rob Black has arranged another educational seminar.
This one is in the San Jose TechMart.

It runs from 9 to Noon.
Cost is $6 in advance.
Why charge you ask?
First of all it's such a small amount,
and second, it's a great way to raise money for local charities.

Sign up is here: www.RobBlack.com


"Investing in Real Estate: 101
Santa Clara's Network Meeting Center (Silicon Valley's Techmart)
December 9th 9:00 AM to Noon
5201 Great America Parkway
http://www.acteva.com/booking.cfm?bevaid=123230

Wealth Preservation & Retirement Planning seminar. Learn how to reduce risk with diversification, tax reduction strategies, estate planning tips, how to pull money out of the markets in retirement, economic outlook, portfolio structure, asset allocation and much more. All questions wealth preservation and retirement planning questions will be answered.

Real Estate 101 and a Real Estate Investments seminar. Expert speakers will teach you about buying your first home, evaluating investment properties, calculating real estate ratios like rent multipliers, buying rentals strategies, proper use of mortgages, financing, taxes and much more. All questions real estate questions will be answered."

If you have never been to RB Seminar you are in for a treat.
They are funny, they are informative, and they are honest.

Personally, there are 3 things I really like about a "Rob Black" seminar.

• No Selling - Any speaker who is invited is going to give you honest information without the sales pitch you see in every other seminar.
• Charity - all money generated by the seminar goes to charity. It's a little thing. $6 dollars is a very small amount, yet 100 people at each of the 20 or so held a year is going to add up. Additionally, most all the speakers donate portions of their ongoing business to charity. (I can't speak for everyone)
• All Questions get Answered - copious amounts of time are alloted at the end of each seminar to answer questions from the attendees. A card is given out to all at the beginning and collected at the end so even the shy still get to ask their questions.
  

Hey, in the market today:

Bond prices are backing off this morning causing interest rates to rise slightly.
The yield on the 10 year note has risen to 4.46%, up from the market close yesterday at 4.42%.

We received a couple of reports this morning that were weaker than expected. Productivity rose at an annual rate of 0.2% in the third quarter after a 1.2% gain the previous three months, the Labor Department said. However, labor costs only rose at 2.3% pace, lower than estimates. In addition, the manufacturing sector showed weakness as U.S. Factory Orders fell 4.7% in October, the most since July 2000.

These reports were overshadowed by the Institute for Supply Management's index of non- manufacturing businesses, which climbed to 58.9 last month from 57.1 in October. The strength reflected in the service sector has buoyed the equity markets once again as the DOW is reaching a new all time high.

The good news for us is that the yield on the 10 year note remains below 4.50%

Transcripts?

Not school transcripts.
Show transcripts.

Somebody asked me the other day after a question and answer session on Rob Black's show if I had a transcript.

Ha, this is not Oprah!


I do not get transcripts, I don't think KRON has transcripts, they may not even keep a copy of the shows. Matter of fact I don't even get a copy of the video.

The best I get is the same as you.
For the next week or two it'll be available for viewing on their website. http://www.kron.com
I was on Nov. 29th sections 2, 3 and 4.

But, as far as I can remember, here's a quick synopsis of the questions and answers from yesterdays show.
Pardon my lack of transcription accuracies - I can't type as fast as I can think.


Gloria: Has a property with renters that are doing a rent to own scenario. The renters want to be on the deed. She asked about a quit claim deed.

Mike: She may have been confused, but the essence of what she was saying is they want to be listed on title. A quit claim deed is used to get a spouse or the like off of the deed. They are relinquishing their rights to the property by quiting their claim. I didn't want to correct her on air, but the answer I gave was "No, not a good idea. Not until the sale goes through. That gives them ownership in the house, not in the loan."

Lina: Owns a rental in AZ with no renters and negative cash flow. She asked if should she refi to get cash out just to make the payments.

Mike: She should sell the property right now or refi so that she can get positive cash flow. If she can refi and with a renter have a positive cash flow, if she cannot do that, sell and get out.
Staying in a losing position hoping and waiting for the house to appreciate is wrong from the start.

Rob had a side question, "Should a person come to me and ask about a particular scenario. Should they come to you and ask what a 3/1 Interest Only or a 5/1 would look like?"
I honestly have to say, I horribly bungled my answer.

I said absolutely.
But the thought I had wanted to get out was that it is more important to effectively communicate your exact condition, your exact needs, and your short term and long term goals to an educated mortgage person. That person can then propose different solutions to match the goals and needs of the borrower.

Coming to a loan officer and saying "this is what I want - what's your rate?"
May get you a loan that is not the best for your situation.

I have something like 7,000 different loan programs to choose from.
My expertise, my job, my art, is picking the ones that offer you the best answers to meet your goals.

Instead of all that I went on to suggested a Hybrid Payment Option Arm as an example for a short term solution to the callers problem. It may be the right loan to get her out of her situation, it's a short term fix and she'll need to know that going in.

Caller #3: (I'm sorry, I didn't get his name) Had rental property with positive cash flow but was thinking of someway to get out and get into something less demanding. He mentioned1031 and something about a REIT.

Mike: A 1031 Exchange refers to the IRS tax code that allows you to defer the capital gains on a property under certain circumstances. You have to be careful in doing any 1031X. If you go wrong it all becomes due and payable as capital gains and that's a bad thing. I also told him he has to sell and buy "like properties", a REIT is a stock product that invests in commercial properties. Buy into a REIT and you are buying shares. It is not the same as his rental which is real property. They are two different products and the IRS will not allow you to defer capital gains under those circumstances.

Oh yeah, and we started by talking about the New Home report that came out yesterday.
Here's the scoop.

On Tuesday, the Existing Homes Sales Report came out.
That was the topic on the 4:00 News that we discussed.
This is a national report that shows for the month of October the number of sales were up, yet the median home prices dropped at historic levels. I pointed out that while that is a national number I looked up the Bay Area and our median home value for October was exactly the same as it was a year ago. The Bay Area is a little special.

On Wednesday, the New Home Sales Report came out.
this is also a national number and showed the opposite of the existing sales figures.
The number of sales were down, while the median prices was up!
Interesting, eh?
But here's what you may not know.

The existing sales figures come from the Realtors.
They are real numbers based on actual sales that closed.

The new homes numbers come from the government.
They are derived from the contracts signed on new homes.
These contracts are usually signed before the house is built.
Right now around 40% of those contracts will not last to the sale.
40% of those people will back out!
That makes for Fuzzy Numbers.

Additionally, the existing homes account for 85% of the homes out there, new homes- only 15%.
That makes the new homes report a small sample of the housing market.

It's not a good leading indicator of the housing market.
However, it does play a role as an economic indicator as building a new home involves labor, materials, and capital. Existing homes do not. Does that make sense?

So as you listen to these reports coming out you have to know where they are getting their info and what it actually means.

Be careful out there.