Real Estate Financing...

I've heard analogies, loose and otherwise of salespeople.  Always liked the one about how a bad sales person is like a bad toupee; unnatural, easy to spot, and usually more of a blemish than a compliment.  Though, I don't know how many good toupees really exist anyways, so I will bald like I gray......naturally & inevitably.  As far as sales, I will try to evolve and learn as if I were to sell forever.

To me a good salesperson is like most of us, has two ears and one mouth, only what makes them good is they use them accordingly.  They not only listen to their clients, they are attentive and understanding and also in identifying their client's needs and matching them up with the best product and solution accordingly.  Through this process, it seems to me vital that the demeanor be sincere and the concern, genuine.  Hey, just remember, that client has a mouth and may use accordingly as well.  If they like you & your service...you may just get what is the core of a strong residual lead system.....referrals.

That initial contact is typically the dreaded "rate" question.  First off, a sense of trust and connection must be established and this rarely seems to be cemented down with a simple rate quote or pre-approval letter.  If you are quoting anything higher than let's say, 6%, you may feel like you just passed gas in church during prayer.  And you may be treated as such from that client.  Look though in the wallets of those same people and you see credit card rates of 18%, mortgage rates that shockingly aren't as low as they thought they were, and it makes you stop and wonder.  Why might that be?  It's about focusing on a consumer's needs.

By doing that, you overcome the rate issue.    Ask the probing questions; why do they want a loan, have they applied at the bank or other mortgage companies and if they had why didn't they take the loan or why were they turned down?  Those answers will give you a feel of the best lending options for that client.  As far as numbers, focus on payment instead of rate.  Afterall, payment and the stability of that payment years from now is the bottom line, rate is important but also overrated, you may be paying a 6% rate but what about the PMI they are paying.  Borrowers are amazed when you give them a higher rate but lower payment.  When they see an educated mortgage advisor on the other end, that is a relationship, and those turn into sales more times than not.  Give them options, but not too many to confuse the client.   Afterall, most people only go through the mortgage process a handful of times in their own lifetime and the parameters are ever changing as is.  If someone calls you and says, "What's your rate?"  As you are 'pulling up your rates' ask them ideally what they want this loan to do for them and say while we are on the subject of rates, how would you like to pay off your mortgage before your kids start college or maybe before you retire?  Then shut up, remember you have two of those ears.  Let them run their mouth.

It seems ActiveRain is just ready to bust at the seams and will probably grow to be a huge source of lead & network generating among the internet community.  I had a couple of thoughts as I wonder how each of us in our respective industries can take it to the next level and maximum the opportunities this brings us.  Here are just some of the benefits I think ActiveRain offers us:

 -  Great Platform to exchange ideas amongst our professions.  (Talk about diversity & maximum exposure of information & experiences)

 -  Increase exposure to the market place.  (I think this will especially be fruitful if you are licensed to do business in several states.)

 -  Ideas to generate Leads. (Great way new loan officers can use their spare time when not in the office)

     What else does everyone think this affords us in regards to opportunities.  And does anyone have a specifically neat idea on how to generate leads through this still new community?

Well, another interesting month here in the mortgage industry.  I had a lead which I got through a internet marketing firm we work with, a refinance of a high priced property here in Pennsylvania.  It was going to be a great loan, not only for the customer, but we stood to make a decent buck on it too!   And then the proverbial crap hit the fan.  But, one step at a time, let me fill you in.

 My customer, a 70 year old Single woman bought her home for $297,000 back in November of 2005.  Was given an interest only first mortgage and a line of credit second.  There was no sort of pre-payment penalty on the loan but she really wanted to get out of the interest only & adjustable rate combo and consolidate a mountain of debt she had piled up since her purchase.  According to the customer, she had contractors do a lot of work since her initial purchase.  She said that she had a recent appraisal of $350,000.  Ok, fine....let's do it.

We got the appraisal over but the mortgage company she had dealt with refused to put it in our name and for some reason the appraiser would not do another appraisal and put in our name.  So, another one had to be done so we sent our independent appraisers out there.  Small problem, the appraisal that was done that came in at $350,000 was a tad skewed.  You see, the gentlemen had added an extra room/square footage/and acreage to the property that didn't exist when he did the appraisal to bring it in at the value.  Not good.

Bigger problem though, our independent appraisers had trouble finding comps as it was a ranch in a higher end neighborhood.  In fact, oddly enough, he was having a hard time finding comps to support a value of the purchase price she bought it at 10 months ago!  He took even more time to make sure he dotted all the i's and crossed all the t's as he knew this lady had been screwed.   He finally brought the appraisal in and it came in at $267,000 which is $30,000 less than she bought it for in a neighborhood that is by no means depreciating.  He went the extra step to call the customer and explain what was going on.  This guy has 25 years of experience and we've been doing business with him since our inception.  Very reputable guy and this lady had been screwed.

 Now she is stuck and guess who the bad guys are?  Yep, me...us....our firm.  We apparently were discrimatory towards her for whatever reason...and mislead her to what we could do for her.  Instead of listening to what position she was in and that she may want to seek council to what her options are, I have a customer who is in a bad, bad, position and it breaks my heart.  I was't even thinking of the lost commission, I was thinking of how this could be allowed to happen.  I'm not naive, I know fraud comes in all forms and businesses, but geez oh man, justice needs to be served.  Any thoughts or similiar experiences by the network.........?

For all those interested,  In case you missed it, on Monday, the chief
economist for the Realtors Association announced that
existing home sales were down .5% for the month of August.

Overall, the median price for a home has dipped below
the August 2005 level. According to David Lereah:
"Homeowners are finally starting to drop their asking prices
indicating they acknowledge the housing sector is slowing."

This is great news to those of us in the know for real estate.

It provides a new opportunity to purchase homes at more competitive
prices than in the past.

For those on the financing end, it allows some of our past clients who

perhaps couldn't afford escalated prices now to get into a home.  Touching

base and following up with these clients via phone, newletters, etc. allows

you the opportunity to turn former applicants & prospects into a increased pipeline

and future closed loans.  Especially considering that while home prices are decreasing, or

at least stablizing in a lot of markets, rates continue to be remarkably low!  Those factors

coupled together allows you a competitive edge to make sure your purchase money business

remains strong & well, even if you don't have a network of realtors sending you business.  If you

have been in the business awhile, I say at least 18 months or more, you should have a

good amount of former applicants who expressed interest in buying a home at one time.  It is a

good time to get a hold of these people and let them in on the great news you have, "Stabalizing

Home Pricing & Rates Are Still Low!"  And don't forget, one of the best times to ask for referrals is time

of the application, or in this case on your follow up call with these clients, remind them to refer anyone

they know to you.

• Have Relatives, friends, neighbors pass out cards where they work.  Heck, take a night and make a list of everybody you know, everyone you can think of and do the same with them.
• Follow up with your former borrowers/closed loans/turndowns on a consistent basis even if it is just, "Hey how's it going?"
• Leave a business card when you:  buy groceries, leave a tip, and go to a hair salon, store/church bulletin board, cleaners, and doctor’s office.
• Know someone who owns a restaurant?  Put business card/Advertisement on menu
• Send newsletter to club or church
• Ink pens with names are inexpensive
• Send announcement cards to everyone you know
• Magnets are inexpensive: Magnetic calendar with business cards; Use Magnets on your Car
• Give talks at clubs and organizations
• Advertise on local civic calendars, restaurants, sports calendars.
• Reinforce your advertising and your message by including a copy of your current ad in your mailings.  Repeat…Repeat…Repeat…
• Join homeowners association where you live...Volunteer to write real estate tips for the newsletter
• Contact your “sphere of influence” on a regular basis.  (Ideal: 3 times a year-one by mail, one by phone, and one by personal visit)

• Certified Financial Planners
• Divorce Attorneys
• Local Union representatives (electricians, plumbers, HVAC, Police Benevolent Association, etc)
• Restaurant Owners
• Loan Officers at branches of Retail Banks (Commerce Bank, Wachovia, etc)...brokering to the broker?
• Dental Practices
• Tax Attorneys
• Estate Planners
• Corporate Relocation Firms
• Local Builders
• Insurance Agents with rental policy holders that might be eligible for their first home through your brokerage?
• Tax Planners
• Immigration Attorneys

I work for a firm here in Allentown, Pa that is licensed throughout Pennsylvania to do first & second mortgages.  That being the case, a lot of our business is done locally, within driving distance.  It is our firm's policy that all of our Mortgage Consultants attend their closings.  There are a few reasons for this:

-  If any problems/questions arise, we are there to make sure they get handled right there and then.

-  Provide a continued support structure for our clients.

-  This allows us to have our face in front of everyone involved in the transaction, the realtors, title agents or attorneys, borrowers, sellers, etc.  In otherwards, not a bad way to get your business cards and face in front of the eyes of the real estate industry and its participants.

Now, I must be honest about the whole thing as I'm not a huge fan of attending closings though I fully agree that we should attend.  I guess my reasoning is for selfish notions because I always pre-close my customers so there are rarely surprises and make sure the HUD matches up to the transaction we discussed.  I always kind of thought they were boring and I wasn't much into smoozing over agents and I could instead use my time to generate new business.  Yesterday, I had another closing in what has been a heck of a year by any standards and I must say the closing was a purchase money, went smooth as silk, and as all parties left on their merry way, the President of the Title Company came outside to introduce himself.  We exchanged greetings and he said, "I'm so glad you guys came out, it is such a rarity in this business that the bank or broker attends their own closings.  That's a great attribute you guys have."

After hearing this it reminded me once again why it is important.  Of course for the reasons listed above and attending your closings does separate you from the rest.  Perhaps that intangible that makes you a little different, maybe a little better.  I wonder how many out there do attend their closings and those who do, why?  I guess it does put all parties at ease to see the financial 'middle man' there, but I think there is also more to it.  You are not only representing your firm, you are providing support for your client.

As I was ending the long & dreary work week before the holiday weekend, I was encompassed with many thoughts as we have 4 new people that just started last week.  What advice can I give these newbies on how to network with professionals, especially established ones?  So, I let my thoughts and meager opinions dance off my fingertips and onto an email.  I figured I would share it with all of those here on ActiveRain. 

So here it goes............ I would like go off on a tangent of sorts and it involves....Marketing!  The opinions expressed are soley mine and are not endorsed by First Choice Equity Group Inc, Active Rain, The National Association of Mortgage Brokers, The Allentown City Council, or The Committee to re-elect Gus Hall:   I apologize now if I come off sounding like Tony Robins or even Yoda with slightly more hair.....I am what I am just a little taller than that Yoda dude.  

When targeting realtors, financial advisors, builders, Bankruptcy or Divorce Attorneys....appeal to their ego.  I'm not talking about kissing keisters here folks, I'm talking about the right approach in selling yourself & your services you offer by appealing to that deadly sin of mankind.........PRIDE.  An example, "Mr. Papsmire, I hear through the grapevine you do a great business, but more importantly to me, that business you garner generates more business.  Since referrals are the very core of my business, I aspire to work with individuals just like you." Everyday we pitch, whether an idea/loan to lender/rate to customer/etc, and when you do start with the premise.  Example, "I have a brilliant idea on how to corner a market largely untapped until now," or "This might amaze you but I've done this before and in your unique situation, this very thing can work again!"  This isn't about products anymore, don't get me wrong it is important to know and absorb them but we always need to differentiate ourselves.  You have to believe you are the best of the best(even if you are just starting out, why would anyone trust their mortgage in anyone else's hands) and if you don't believe that...why should they and why would they want to work with you?
If you really have a story & product to sell that can help people and most people eventually need...direct mail, internet, banging the phones,kissing babies, hit the streets and combine every available outlet we have and be original....create new ones!  A young dame used to work here that dropped off a boot at banks filled with goodies and fliers.  The point, it was her introduction to them and her way of getting 'her foot in the door.'  Innovative, yes....and it worked. Have you ever looked at the world or this business and said, "What is missing?"  Provide that, idealistically & in reality.  Create the perception you want them to have of you.  If a perception is already there and you believe it to be wrong, change it.  Even small firms can compete against the big boys whose billboards hang large and plain for all to see at Yankees Stadium and while that seems strange...that's the hidden beauty.  We have the tools to compete and beat the big boys without all the high to do corporate B.S.  We are here to grow......like opening a door and instead of walking in the room, we Enter it.  And we do so knowing that this great big world is better off with us in it and the mortgage industry, is better off with us being a major player.  Helping people and making money doing it. 

Learning deal structuring for you investors out there is very important. The first thing you need to do is, "investigate the deal and do your homework" to know the ins and outs and facts about the property (what I call the DNA of it all) and it is important to know what is the seller's main objectives or motivation.  Why do they want to sell?  It should make sense.  How is it that you can get a property that you've done comps on that is worth let's say, $150,000 for only $110,000? That allows you to have an idea of what approaches are going to be compatible with the sellers needs and your financial interests, allowing you to do the deal.

Also, Create a Real Estate Forms Portfolio.  This should include:

-a weekly planner & priority schedule along with an Analysis of Property (sellers info, buyer's property inspection report, property analysis report, cash flow anaylsis, property rehabiliitation analysis & Market Sales Analysis).

-Acquiring Property, Agreement for deed, real estate sales contract, addendum, deposit note, attorney approval, quit claim deed, closing statement, bill of sale, affidavit and memorandum of agreement.

   You will also want to explore with your Real Estate Forms Portfolio all Financial Documentation you may need, lease/rental agreements & property management.

Here are a few ways to structure deals.  Of note as well, research professionals in areas you are investing in that may be of help to your needs, in otherwards Title Companies, Appraisers, Mortgage Brokers, Realtors, Etc. 

Create a Real Estate Team or Partnership: You can partner up on a 50/50 basis with somebody. It doesn't have to be 50/50, it can be what ever you can negotiate.  Perhaps one of the partners has the perfect credit, the other has a good cash flow, and even another (A Birddog) who finds the properties. 

That good old often mentioned term........THE FLIP: the best way to flip is to find a potential buyer first and then find a property. You can do this by running an ad on a property to see what kind of action you get. One of our best clients does this all the time.  Last week he was settling on a house Friday, ran an add two days prior to settling for $35,000 more than he was buying it for and had 5 open house appointments on Saturday.

LEASE OPTION: Many times you can buy and sell with a lease option. Of note, if you will need traditional financing to buy the home when the lease option contract is up.....it is a must that you have 12 months of cancelled checks.

SELLER CARRY BACK: This tends to be a great and often overlooked way to buy real estate. Now the best way to utilize this system is to do a second seller carry back in order to give the seller some cash in the deal. If money doesn't exchange hands, many times the seller doesn't feel that they consummated a sale.

HARD MONEY: Hard money is purely an equity loan made generally at 65% LTV, based on the equity of the property only.  There is hard money availability all over the place, both residentially and commercially. Credit is not a consideration nor typically is income.  There are three C's of lending.....Credit, Collateral, Capacity.....Collateral is the only one considered here. 

Non-Conforming or Sub Prime Financing: Many Wholesale lenders I deal with will provide financing at 70% with poor credit and won't verify money down.  We have access to many of these.

SUB PRIME/ SELLER CARRY BACK: This combo can provide  a bulk sum of money to the seller, rather than ask them to carry the whole thing. Also there are local independent portfolio lenders that will lend as well as mortgage co's that may be worthwhile in seeking them out. National one's would be Associates Finance, American General, Beneficial etc.  With these companies you will be paying high fees & rates that are associated with the high level of risk they are entailing giving out the credit.

Whether you remember the good old days or not, things were much easier in one aspect.  But with the implemenation of thousands of loan products & 100% financing, things have changed.  It used to be that "people" made decisions about your credit worthiness. You knew your banker and your handshake was all the collateral you needed. Those days are long gone....long gone, and now a single number - your FICO score - determines your credit worthiness.

Although there are several credit models, the most commonly used is FICO, based on a model created by Fair, Isaac Company. Their consumer website is myfico.com, and you can find information about the FICO credit scores there.

Your FICO credit score can be used to determine your interest rate, the percentage of financing you qualify for and how much credit a lender will give you. So taking care of your score, and keeping your credit clean will save you money both in the short term and in the long term.

Preserving your FICO score, and improving it, is not difficult, but it may take time. Here are some tips to maintain and improve your score, based on three credit situations.

Strategy One: Obtain a Credit History

There are many reasons you may have no credit history, which is a history of paying bills such as credit cards, car loans, student loans, note loans, mortgage loans, etc. Maybe you're just starting out in this great big financial world, maybe you pay cash for everything and have never needed a loan. In any case, if you have no credit history, your FICO score is likely to be low or you may have no score at all.   There are programs out there in the mortgage industry where you can build what is called an 'alternative' credit file with cell phone bills, car insurance,cancelled rent checks, etc yet that is a differnt article in of itself.

The easiest way to raise your score is acquire a loan, and pay it off on time. In general, installment loans are weighted more heavily than credit cards. In other words, you will improve your credit score faster if you buy goods with an installment loan, rather than acquiring a credit card.

Another way to acquire a better credit history is to take $1000 and open a 6 month CD account at a financial institution. Now, get an installment loan for $1000, using that CD as collateral. Now, here's the trick. Take the $1000 loan, and open another 6 month CD account at another institution. Take another loan for the $1000 at the second institution. Do this one more time.  There are many self-help financial 'gurus' out there that may charge you a fee for this little 'secret'.

Now what you have is 3 loans. Pay the minimum payment for 6 months. In the last month, cash out your CDs and pay the loans off. You now have a credit history, and did not go into long term debt to get it.

Strategy Two: Maintain Your Good Credit History

Good job - you have paid your bills on time, and do not have high credit card debt. Here's some ideas to keep your FICO score as high as possible.

First, don't close your old accounts. One part of your credit score is based on the amount of credit available verses amount of credit used. Closing old accounts can lower this part of your score.

Second, paying off your credit cards every month is good money management, but you may be able to improve in this area. Here's the scenario: you have a $2000 credit card. Every month, you charge about $1800 to that card. And, every month you pay it off. But here's what happens - your credit card company reports your credit information monthly to FICO. If they report it before you pay off your card, it looks like you carry a balance on your credit card every month. You may find your FICO score improves if you pay off your credit card at a different time of the month.

Strategy Three: Repair Your Poor Credit History

For whatever reason, if you have a poor credit history, there are things you can do to improve your score. Some of them take time, and you will probably be best served by talking to a credit counselor to be sure that you not only repair your credit history, but also eliminate what caused that poor credit history in the first place.

The most heavily weighted part of your score is based on your payment history. The first thing to do to start repairing your credit history is to pay your bills on time. The mortgage is the most important, followed by installment loans, and finally credit cards.

The next largest portion of your FICO score is based on how you use credit. The fastest way to improve this is to pay down your credit cards.

One final thing to look for is errors in your credit report. Get a copy of your credit report from all three primary agencies, and look at all the entries. You can find the agencies here: experian.com, equifax.com, and transunion.com. If there are any errors, start the process to have them removed. Call your creditors - sometimes they will remove negative information.

Your FICO score is an important part of your financial life, and using these strategies may help improve your FICO score. Before making any drastic changes to your finances, consult with a financial advisor.