Real Estate Financing...

For purposes of privacy, I will refer to this ex Loan Officer as JB.  It is a story I think of everytime I hear Tom Petty's tune 'Into The Great Wide Open.'  JB was a good old lad.  My first encounter with him was over 5 years ago when I first started here at FCEGI.  As I was working my way in, on a part time basis, JB had been here just 6 months (with no prior sales experience) and made about $25,000 in change out of the shoot.  Not bad for a true newbie.  JB was great on the phone, had a very amicable personality, a very trusting demeanor, and looked the part of a true professional.  He had all the potential and smarts in the world to go along with being a genuinely nice guy.  Enter the demons....

JB's weakness was he abided a bit too much in the bitters.  That's right, the old alcoholic beverage seemed to erect the demons inside and ruin any sense of making that potential into a reality.  Certain things affect individuals differently, from everything I had heard, the combination of JB and booze was about as detrimental to his life performance as shooting pool with a rope.  To boot, he had gotten in good on a lease purchase deal and was on his way to buying a home.  But after 6 short months, old JB lost it, went array, fled to Georgia for no specific reason at all.  He defaulted on the lease purchase and by the time I started full time, was just another ex-employee here at FCEGI.

Fast forward 3 years.  The senior partner gets a phone call from good old JB.  He's been clean for a full year and wants to come back home, not only to his family, but to FCEGI.  He's brought on-board once again and perches back with me in the domain we name, 'The Boilerroom'.  Out of the shoot again, old JB is on a roll.  Taking apps, registering & closing loans, all as if it is just riding a bike to him.  Quite the inspiration he was.  I finally got to know him this time around and learned a lot, about life, his past, his mistakes, his outlook, and all that.  My own performance started to enhance just by working with him.  Back then, I didn't have a ride, so JB picked me up every day and we worked like the hairs on our heads were on fire.  We drove eachother. Since he was clean, he was a joy to watch produce....especially considering he hadn't even been in the business a full year.  After six months, he had made over $30,000 and had a pipeline that was very active and quite extensive.  The future was bright...

He found another lease/purchase deal through a family friend and wanted a roomie, so I moved in.  Things were going good.  But life with old JB got to be a tad interesting.  While he took great pride in the house, decorated like he had worked as a 'Stager' in a former life, and did some great improvements, he gradually fell back into the oft times dreary spell of 'The Disease.'  Or as Gordon Lightfoot may sing, "Sometimes I think it is a shame when I get feeling better when I'm feeling no pain."  He soon began defaulting on financial obligations, missing work, passing out at odd ends of the house, and generally losing the sober edge that was so impressive to watch.  He left FCEGI to become unemployed, out of money, and soon old me started to flip the bill for expenses to the house just to make sure the roof wasn't swiped from over my head.  And then, he disappeared.  His possesions still there, once again defaulting on another lease/purchase and putting the family friend whom agreed to it in a financial bind.  Though I felt bad for the demons dreaming inside of him, I was quite angered at being thrown under the financial bus.  Though, in the same breath, I must say JB taught me an intangible...the fire that burns within.  You see, I thought I had lost it.  I thought I had lost me even at one point.  Yet, I beared down and took control of the house, the finances, and since meeting JB...my production has increased 10 fold.  And I'm not angry anymore, last time I heard after JB's disappearance, he was in Canada married?!?  He ignored most of the emails I had sent him, some of anger, some of concern, some of 'Are You Alive?'   I knew though he had always taken pride in the places he lived, his possesions and such.  So, me being me, I had one parting shot....one final email to the guy whose demons directly affected me by putting a bunch of things on my lap that I didn't sign up for.  A heavy load.  I felt like Santa Clause, staring across the way at Mama Cass with ham sandwich in tow.  My parting shot to JB went as follows....verbatim...

Hey man just wanted to see how you were doing.  My weekend was ok.  Had a party at the house, all was well until some jack off put a cigarette burn in the couch.  Not to mention the breaking of glassware which in turn cut my foot and bloodied up the carpet.  Luckily, only one of the walls has a small hole in it.  I was that pissed at the whole situation. The fridge from Rentway came in handy though to hold all the party favors until it started pouring outside, not sure if that fridge is going to hold up now.  I knew it was a bad idea to unplug it and put it outside next to the porta potty.  The next morning a buddy and some very robust half naked woman came meandering down the stairs with that familiar glow.  Haven't had the nerve to see what surprises they may have left up there.  Ahhh, what are you going to do?  Hope your 4th was well.  Live and learn, that house just is not meant for 30 people and some idiot who brought his dog and conveniently forgot to let it out.  I'll try to clean that mess up over the weekend.  Take care.

Never heard back from JB.  And none of my email was really true, but it felt good to be more tongue in cheek than (I'll leave that analogy alone).  While I hope his life took a turn for the better, I guess life works stranger than fiction.  As irony would have it, I am buying the same house I moved into with JB.  Closing early December. Knowing JB was a double-edged sword, in the end though, if JB is somewhere reading this.....Thanks man.  I learned a lot and feel free to email me, eh! 

Mortgage Troubles Are Rising?                                                                       

Ahhh, the dream & satisfying vision of homeownship.  Yet, like anything else, the ugly other side is ever present.  The financial crisis of a foreclosure is perhaps the hardest financial hit somebody can sustain...losing their home.

Is the crisis in house foreclosures good news or bad news?  For homeowners in that position it is obviously the latter.   For savvy real estate investors, the answer may just be the former.

I'll also address that question in two ways;

(1) Whenever there is chaos in the marketplace, you can be sure that someone is making a lot of money. Entrepreneurs of any business, including real estate often rely on chaos: whether it's a seller unwittingly under pricing the value of a property, a property being heavily discounted because of perceived problems or someone who's willing to sell cheap because of the urgency of the moment. Chaos is what brings  opportunity.

(2) What the headlines involving foreclosures across the nation tells me is that there is an enormous opportunity right now for picking up lots of pre-foreclosure deals. And that's not a surprise. Yes, this is good news....for real estate investors, especially in the face of the notions of a real estate bubble which lurk on every newstand and television program around. 

                                                                   


Nationally, about 30% of all homes are being financed with adjustable rate mortgages.  The % of those that got into them for all the wrong reasons is a whole other topic but the regardless, the facts are there are a lot of people in a high risk mortgage situation.   Adjustable rate mortgages are often offered with a low teaser rate, but after a year or two or three, the teaser rate ends and the interest rate begins floating with the market. As it floats up (as it has been recently), the monthly mortgage payment begins increasing and eventually increases to the point where the homeowner can no longer afford the payments. It's a predictable outcome. One that is now beginning to play itself out.

Up until the recent downturn in the market, homeowners could just sell their home when this happened. The market was so hot and prices were rising so fast, that selling the home was an easy, quick solution.

Not so now. Prices have softened, houses are staying on the market longer and many times, the homeowner doesn't even have enough equity to pay for the closing costs of selling the home, much less the time to afford waiting for a sale. 

I read that in Phoenix last month, notice of trustee sales (foreclosure notices) were up almost double from April. And the foreclosure problem is only beginning.   California, Florida, New York, and others are probably going to feel a lot of this wrath as well.  My guess is, the savvy investors will prey upon circumstance, on chaos.  And what can we learn of a very terrible situation many people may be facing in losing their properties?  One, to continue to inform and walk ethical lines in setting up consumers in mortgage that not only fit into their financial needs now, but 5 to 10 years from now.  Two, make sure we are educated in the products we are offering.  Come on, let's be honest, how many brokers/lenders had a clue of what the Pay Option Arm was all about when making those loans?  The budding rate of foreclosure while good news for the savvy real estate investor, bad news for the individual/family feeling its brunt, and a reality check on the true importance of our role in making sure clients are armed with a true professional in every transaction.

Mortgages are as common as Turkey on Thanksgiving, yet as misunderstood or not understood at all by the laymen in our fast-paced, zoom-zoom, world we live in.   In fact, I graduated college and didn't even know what a mortgage was at that point.  As common as mortgages are, there are a surprisingly large number of us who are mistaken about how they work, and what they actually are. For one thing, though we do commonly think of mortgages and "Home Loans" as one in the same, this is not at all what they actually are. Mortgages aren't loans, nor are they something that have been given to you by lender or bank or got you that bulk sum of money to purchase or refinance that roof above your head. In reality, a mortgage is a security instrument that you have provided to a lender. It is a document recorded at the courthouse or other like establishment protecting the lender with the collateral of the property itself.

A mortgage functions in the following way:

- A mortgager (you) - also referred to as a borrower and the mortgagee, who is also called the lender.

- The mortgage document itself produces a lien on your property.  A lien on your property is the only thing separating you from owning your humble abode free & clear, AKA no payment! This is the collateral - the security - for the mortgagee who has provided the security instrument. This lien is recorded within public records - likely at a county courthouse or similar establishment.

- Ownership of the property is then in your hands and cannot be transferred to anybody until you have paid off in full the amount required to reverse the lien.  This means a relative, good buddy, or new found love interest, can't 'assume' the mortgage and take on the debt of that loan unless they either are on the loan or are refinanced into their name as well.

- Even if your property is mortgaged, you still own the property wholly and completely. Nobody else, not your neighbor Joe, the Mayor, the head of the schoolboard,  not even the mortgagee has title to the property.

- The only right that your mortgage gives to the mortgagee over your property is to sell it to recover funds in the case that you do not pay off your debt. This is the nightmare of nightmares as far as financial disarray.  In our industry, it is simply called a foreclosure.  Avoid it like the plague.

- Should the mortgage be used for security, then the foreclosure must progress through the court system in order to be legal in the majority of circumstances. This type of foreclosure is referred to as a judicial foreclosure.

Catching up on the in's and out's of mortgages, financing, buying & selling homes, and all that is encompassed therein can be a complicated process.  After all, most people only buy a home a few times in their lifetime and go through the process a handful of times.  The real key for consumers to get a better handle on this industry, any industry in fact, is to have a familiarity with the jargon involved.  This will ease any intimidation factor going on and allow you to make informed decisions and fair assessments of the process in whole.  And with the implemenation of the world wide web, sites like Active Rain and others offer the information for the taking.  All you got to do is find it.

I finally know how to upload pics here!!! Thanks Ann.  Anywhoo, on to the topic.... 

Have you heard of these?  One stop mortgage shops?  An umbrella of mortgage services without the need to go elsewhere for any part of the transaction?  Have you heard? Heard of independent mortgage brokers being kicked out of offices because of in house mortgage services, builder incentative and heard the one-sided viewpoints whether this is a good way for consumers to shop?  Think about it, you have realtors, title companies, mortgage companies, etc....all under the same umbrella.  So, why wouldn't this be a great idea for the consumer just to go this route?  Everybody would be on the same page, have a familiarity with how everyone else does business, and obviously have the customer's best interests and the best possible deal for their situation!??!  Or is it?  For one brief moment, I'm going to keep my opinion on this to myself?  Is it a conflict of interest, a disguised monopoly, or an easier way for the client to go about real estate transactions?  Or just another option in a very competitive business?  I would like everybody else's opinion on this.  Color me curious................

Ok.  I got to get something off my chest, besides the chia-pet looking growth the good lord blessed me with.  It deals with the featured blogs here on ActiveRain.  What separates the featured from the not?  I'm not quite sure.  Somebody help me here!

I will try to make this parsimonious.  I read through ActiveRain blogs daily, featured and otherwise.  Some of those featured are deservingly so in my mind's eye.  They are well written, timely, informative, creative, and have the intangible dynamic that creates an elevated enlightenment of some sorts when read.  Other featured blogs I've seen are more 'blah' than K-Fed's latest rap album. 

Quick Example:  "This morning before work I was shaving my legs and it reminded me of the mortgage industry and how smooth every transaction should be. Clients enjoy a smooth transaction and that's what I aim to give them on each loan they do with me."  Bam, 200 point blog.  And if enough people comment, it's featured.  Ok, that may be an over the top example but I've seen stuff like that.

The features get more exposure.  Exposure is good:-)  The ones that aren't, while perhaps harder to find, are seemingly diamonds in the rough.  If they are good that is.  What separates the two?  Maybe it's arbitrary.  Perhaps it's popularity.  Could even be a conspiracy.  WHEEEEEWWWWWWWWWW.  Who knows?  Whatever the case, I enjoy them in total.  The real estate industry, the internet community, & blog addicts are better off with its existence.  That I do know. 

A lot has been made of how to get referrals, the best sources to hit up asking for business, and the general keys to generating such a seemingly passive approach to garnering business.  Besides 'the usual suspects', the realtors, financial advisors, bankruptcy attorneys, bank loan officers, etc of the world....I would like to focus on another potential troop of referral foot soldiers, conforming business.  You know, impecable credit, good asset, stability of residence, occupation, lower LTV's, the ideal borrower.  The very business that you won't make a mint on an individual deal, yet it's easy to do and volume driven.  These are the hidden gems of referral business.  Let me give an example or two.

Scenario 1 - Late in 2005, the air is crisp, holidays just around the corner and I have a nightmare on my hands.  The dreaded Foreclosure Buyout.  We've worked on this deal for over 2 months now, the customer is in a financial and psychological frenzy and time is running out.  About ready to visit my family in Raleigh N.C., I too had my lending panties in a bunch hoping to pull off a small mortgage miracle.  Do you believe in miracles?  So do I.  On Dec 23rd, 2 days before the Christmas hour, his loan closed and the young chap was off to a fresh start.  Merry Christmas!  And while the guy thought I was the best thing since a mail order Russian Bride in Stilletto Heals, the nature of the transaction leads to a slight problem.  How many people do you think he was bragging to me about?  The fact of the matter is while I helped him out in the most thankful of ways, the client wasn't going to work & social functions talking about this great mortgage guy who bailed him out of a foreclosure.  Indeed, he sent me an email afterwards saying, "While I don't make a habit of discussing my financial situation with others, if I hear of anyone whom needs your services, you are the man."  Hmmmmmm.....don't blame him I guess.  Number of Referrals = 0

Scenario 2 - March of 2006, on a late night making phone calls to former clients of former employees who worked here (Orphaning Files)....I caught a gentlemen at 8:30 and ended up revamping his application, establishing a great rapport, and didn't leave the office until 9:30.  Ended up registering his loan and closing his cash out refinance.  Unlike scenario number 1, this guy got a great rate and couldn't help himself but to brag me up to everyone he could (without me even asking...which ongoing I always do now).  In fact, before I even closed his loan, he referred me to his boss and 70 year old mother.   I should make mention that his 70 year old mother was going to go with an offer from another "Very Visible Company" which was an adjustable rate.   Not only did I close his loan in March, but I closed his boss's and his mother's in the same month!  I closed two other self sourced conforming loans that same month and each referred me a person whom I also closed a month later. 

My point is it makes sense to go after conforming business like your hair is on fire.  Sure, you probably won't get a big hitter in regards to fee income like on the subprime end, but it is all about volume.  Looking back on 2006, the majority of conforming loans I closed referred at least one person to me. And the conforming customer getting those great rates are more likely to brag about their situation and who made that possible.  It's the old sales stragedy of appealing to their ego.  Giving conforming customers conforming rates and pricing appeals to their ego and they are surely to brag.  Which does wonders to your ego in the eyes of those they refer to you. 

They are called "Tight Loans". 

Defined - Applications that flow from the 1^st phone / Face to Face interview, to the

         closing table in a swift and steady process that is tailor made for our sales

         and operating procedure.

·       Day #1 - Thorough interview. Accurately complete the 1003. Get the ENTIRE picture. 2 years res. & job. All assets. Completed REO. Taxes and insurance. Ask the tough questions. Command the accurate answers. Justify questions and answers with the impact of the speed of the process.

·       Day #2 - Prequal based on 1003 and credit. Make accurate fact based offer. If it's a questionable deal, get your prequal from a lender and CONFIRM its accuracy. Make sure you have the proper LTV, price, fees, etc. Have the GFE completed for quick reference. Be swift, factual, professional and sincere when selling your deal.

·       Day #3 - 1st Grab! Its show time!!! But don't forget to look at what you're getting. Is the income right? Do they have sufficient assets to close? How about housing history? Canceled checks, mortgage statements, management company VOR? Are there any letters we'll need? Do they have homeowners insurance? Declaration page? Appraisal check or arrangement to pay?  If it's a 2^nd, how about the 1^st mortgage note? DON"T FORGET YOUR RESPA! Your goal should be your 1^st grab is your last grab.

·       Day # 4-5 - Register your loan. Have your comments documented crisply and accurately. Make your submission read like a book. Check for stips within 2 hours of submission. Work the stips with your client as soon as you receive them.

·       Day 6 -16 - Talk to your client. Keep them posted. Problems get related pronto. Or maybe just small talk. How's the appraisal coming? Still waiting for....How's the packing going? ANYTHING. Realtors, applicants, referral sources. ANYBODY!

·       Day 17 - 26 - More chat. Lender has your file. Stips are in. How are Beth, Shannon or Brenda treating you? Can't schedule for sure, but when's good? STAY INVOLVED! Keep your client informed. 

And then you close.  Ideally, everybody's happy...or at least satisfied.  Kudos to a job well done. If done consisently right, this allows you to keep originating instead of putting out fires.