Real Estate Financing...

The media and our industry have been crazed with news of the subprime market, in its disasterous state, and how that very state may lure our very economy into a downslide of Apocalyptic proportions.  I'll try to be as diplomatic as possible.  We, at times, are a society of drama queens....waiting to feast on what is so very, very, bad.  Well, let me also say something else, "Is It Really So Bad?"

No assumptions, no accusations, just a few tidbits of my off the cuff thoughts that may not have been delved into and 'hyped' up enough.  EXAMPLES:  Is it possible the economy could take some of the blame and inspiration for what is happening on the 'other side' of the mortgage market?  Is it feasible that a hike in the price of the very necessities many of us count on....heat (oil), transportation (gas), may have a tad little bit to do with what is going one?  Some point out >>>The subprime market was making risking loans......YES THEY WERE!  But risky loans are risky also because of risky borrowers.  How about some of that responsibility falling on them and their financial choices along the way?  I recently posted a blog from an email I received from the Pennsylvania Association of Mortgage Brokers about a Consumer Advocacy Group wanting to regulate the costs of mortgage loans to 3%.  I have an idea, why don't we regulate the prices of gas as well?  If we are going to regulate capitalism, we might as well be consistent...I think at least, and Regulate Capitalism.  How much does that Attorney/Accountant/Cleaning Lady/Iron Worker/Doctor/Bartender/Entertainer make....doesn't matter, it is too much.  Let's try to regulate that too.   Damn, there goes my diplomatic mood I wanted to portray in this post!

Let me step off my proverbial high horse of thought, my initial idea in even writing this was one of looking at things not so much from a different angle, but trying to breath in every bit of reality I can muster.  That deep breath led me to the thought, "Is It Really So Bad?"

  Yeah, in many circles it is bad, in fact...a nightmare.  But you can't have the good, without the bad.  Afterall, you take the good, take the bad, take them both and there you have...The Facts of Life, THE FACTS OF LIFE!!!    Sorry, that was unnessary...I was actually singing that in real life.  Back to my point.  You can't feel love, without knowing hate.  You can't have a boom, without a bust being an eventual reality.  What is going on now is simply a response to that very boom.  So, where does that leave us as professionals?

I've been doing this for a little more than a mere five years, so what do I know?  There are so many of you out there more seasoned than me.  So, what do I know that hasn't been thought of.....if anything?  Not sure, but I'm very sure I will tell you what I think.

-As the industry contracts, the strong will survive and perhaps expand, which is good for consumers who really only need/want a true professional in transactions that are of such importance that they involve the very roofs over their heads.

-As the parameters tighten up with lenders, being approved for a loan to buy a home will become more difficult.  Yet, that will ensure that when you apply for a mortgage and are eventually approved as a consumer, you may actually be ready to afford the responsibilities of home ownership....financial and otherwise.

-65% of mortgages done in this nation, at my last statistical working knowledge, are done my mortgage brokers.  (I must point out, as a broker...perhaps I'm bias on this.  Of course I am...)  A lot of heat is and will come down on some of the less than ethical boys and gals in our particular profession.  Some of it is very relevant and long overdue.  Yet, I once dated a corporate attorney for a highly recognized corporate entity and when finding out that I was a mortgage broker she said, "You guys are schysters!"  I responded, "Laura, you are a freaking ATTORNEY!"  There are schysters in every profession...but if you are good and true to your cause (your clients)...they will benefit by what you do.  The shrinking of that industry, my industry, will ensure the removal of a lot of the bad and ensure the good remain true and strong to our cause. 

- A las, I would like to point out the true thing that I hope happens with all this fuss over what is going on in the mortgage industry.  The very thing that may not only help our economy, help the industry, but submerge our culture in a new wave of that thing that has helped make humanity so strong.....KNOWLEDGE.  The attention to our industry I hope, will lead to education in our high schools, our colleges, and in our homes, with our families and conversations with our friends, about credit and buying a home.  I hope it better equips and educates our industry because of mistakes made in the past.  I hope it makes the bulk of us less ignorant as to the why's, where's, how's, what's, when's, of home ownership.  I hope and think all this negative attention will make our culture's thirst for that knowledge greater.  Perhaps it will increase our Pride of Ownership.....of Real Estate...of Knowledge.

Is It Really That Bad?  Perhaps, but maybe it just has to be to ensure it becomes so very good all over again.

Inspirational Message To Follow:

I seldom pass along inspirational stuff, but this one inately got to me. I believe, in these difficult and mean-spirited times in which we live and the very tough times that our industry is facing, there needs to be a message of Hope.
We can all use a single image that speaks to us of love, harmony, peace, and joy.
An image that suggests the universality of us all. I have been sent that image, and I want to share it with all of you.
All I ask that all of you take a moment to reflect on it.

Good Morning....more information ran across my desk.  One of my reps from my wholesale lenders gave me a heads up and I figured I would pass it along.  Below I wanted to share an important email from Bill Donivan, the president of  the central chapter of the Pennsylvania Association of Mortgage Brokers.  This, my fellow Rainers,  outlinines some major things going on in our industry.  Please take some time to read through and understand the proposed changes.  If passed, these changes would drastically alter life as we know it!

 Hello Everyone,   We now have a crisis upon us. One that needs immediate action and understanding from each and every one of you. There have been two bills introduced into the state by consumer groups that will drastically alter how business in our world will be conducted. It does not matter if you are a broker, banker, loan officer, A.E.(rep), realtor, or title person, we must stop these bills. If not, then your income and future will stop. Its that simple.   House Bill 38 & House Bill 40 will prohibit "Stated Income" & "No Doc" loans. A "Cautionary Notice" must be given stating that the rate and fees could vary based on which LENDER and which BROKER is selected. You must be able to document and verify "Current and Expected income" of the borrower. A Brokers NET worth must be verifiable and begin the first year at 50 thousand, the next year 75 thousand and the next year 100 thousand, etc. For each Loan Officer, there will be a fee of $200.00 per year.  You must chose between a YSP or Up Front Fees, not both, unless you first give the borrower all possible options.  Lenders Fees will be limited to 1% of total compensation and Brokers Fees to 3% which includes the Lenders Underwriting fees. You must meet with borrower(s) and have an agreement signed that state you will do a "suitable" loan for the borrower(s). Unfortunately who decides what a suitable loan may entail is not explained. Is a second home or a dream vacation a suitable loan?   These are just some of the features of these two bills. To find out more, you must attend our meeting on April 10th, starting at 4PM at the Holiday Inn, New Cumberland, Pa. The education for our meeting will be "Ethics and Pa Law," Wow, what a great topic for the evening. If you need these last two mandatory credits, you must preregister at http://www.pamb.org/ , download the form and get it to Erin at the PAMB office.   We are having a very special guest for this meeting on April 10th. George Hanzimanolis, past President of the PAMB and currently the President Elect of NAMB will be in attendance and available for questions. One terrifically important evening for all of us in this industry.   Lets not forget the Mac Valley Forge Conference on May 22nd and 23rd. Education, Lenders Booths, Networking and Enjoyment. Our own Jim Mahler from M&T Bank has agreed to be the DJ during the opening evenings ceremonies. I know this email has been lengthy, but it was necessary. Take Care and Happy Mortgaging. You all know how to find me with questions.  

Bill Donivan H. I. P. (Honor, Integrity and Professionalism) 717-586-2697

All I can say is Wow!????   Your thoughts?    

  First know, I'm that annoying mortgage guy.  Secondly know, that at this point I don't ask for business...I earn it.  Number three you should know, I try to see it from both ends.  Lastly, I'm nobody's lap dog but if you'd like to pet me and throw me a bone, I'll play that game.    I'm not a big fan of it though.

Let me explain.  Today, I went on Realtor Calls for the first time in close to 4 years.  I've done all my business, which happens to be a pretty fair share to this point, without it.  As much as I admire and respect the time honored tradition of asking for business, knocking on doors, creative ways to set yourself apart, for whatever reason...it made me upset in the stomach and grey in the hairs even thinking about it.  Thinking about trying to establish a relationship with a realtor by kissing receptionists, passing out fliers, and making sure I tell them how wonderful I am when I walk in the door and intervene in their day of chasing potential clients by asking them to give me those very clients.  I'm asking for business, asking for that lead, hoping they will help me get my next paycheck.  I don't know....it is still unsettling.

  From the realtor's end, it must be annoying.  I don't care if you are a Lender/Mortgage Company/Whatever sending in a young, brash, relatively intelligent guy or gal or even a seasoned veteran with a reputation to die for...it just seems like it may get annoying watching these individuals walking into your door.  Here I am, give me a pay check...at least that is how it seemed for me.

And from the Mortgage Guy's end...to be escorted so quickly out because they have an "In-house Lender", "Preferred Lender", or are an "One Stop Shop".....Hello Conflict of Interest.  What about your client's best interest?  What about the availability of options?  Who do they think they are?

There must be a better way.  Perhaps I'm looking at all this the wrong way and in a rather negative light.  Or perhaps, just perhaps, a little can be learned from this time honored game of establishing a network of professionals to enhance your business.

My take is this (as the annoying Mortgage Guy):

-You Don't Go In Offering Product (Any Competent Mortgage Entity or Lender has similar if not totally the same in regards to strictly product)....Offer Instead Education and Insight To Help Do Some Legwork In Helping Them Market, Help Them Understand What is Going On In The Market Of Lending, Provide them with leads you source of actively seeking homebuyers, and RETURN EVERY CALL....GOOD/BAD/OR INDIFFERENT.

-Have The Thought In The Front Of Your Mind, Not Only To Get You More Biz...But Make Damn Sure Their W-2's Read Heavier After Meeting You.-

-Share The Bond.  Some Individuals You Will Naturally Be Able To Work With And Get Along With In This Great Big World....Some You Won't.

-Relationship Building....Because You Can Surely Bet That Most Of The Time The Initial 'Leads' You May Get Will Be Ones That Have Already Been Turned Down By A Payday Advance Company.  None the less, you show them that same person 6, 8, 12, 24, months down the road qualifying to buy a home and going back to that very realtor to find it....they just might be impressed.

-Do For Realtors More Than You Do For Yourself.  Do For Their/Your Clients More Than You Do For The Already Mentioned Parties.

-If you are new, let them know you are new.  If you are passionate about life and what you are currently doing...the rest will take care of itself.

As it turns out, this new venture has me thinking.  And of course, in many offices I will become 'That Annoying Mortgage Guy' just because I like to seek new routes of success in whatever endeavor I may come across.   And maybe I'll be 'That Annoying Mortgage Guy' just because I walked in the door.  I would kick me out....at least at first.  If I'm honest with myself and them, some will quite frankly hate me.  But, if I'm honest and true, and play that nasty game of numbers, that other network I haven't delved into may find me finding them.

I hope to gather insight from this forum along the way in this new endeavor.  As far as the upset stomach, puking is a nice work-out for the abs.

Let humility reign down upon me.               

Years ago I was told by the senior partner of our firm here in Pennsylvania, "In this business, every mistake costs you money."  Oh, so very right.  So I wanted to take this time, these moments, to reflect on some mistakes I've made that not only cost me money, cost me something even more important, unbridled trust and client loyalty.  I hope to have learned from each of the following and even though they are in no particular order, one thing is for sure....I'll make a mistake again.  My only hope is to react and adapt to better handle the human error I've been blessed with.

10)  When using bank statement programs to document income, NSF's or Non Sufficient Funds showing up in bulk can screw up the entire transaction.  This happened to me on a purchase where the customer's not only couldn't document income, had a very beat up credit history, but it was a referral from a friend.  Ended up having to totally restructure the deal and still got them in the house, but to this very day...I hated the way that particular tranaction panned out.

9)  Hard times in the real estate industry.  Welcome to 2007.  I had a loan approved through one of our investors for a purchase of an investment property by a client I had garnered through internet marketing and closed a loan with before.  There was a 21 day time frame between the signed AOS and the settlement day.  Low and behold, a week prior to closing, that investor closed its doors, went out of business, and I had to scramble to get similar terms elsewhere at the last minute.  Of note, my mistake was to not immediately tell the client about this when it happened.  I figured it wasn't their problem, it was mine.  I was wrong.

8)  Even though I am the follow up king, I too have failed to be totally infallible in this regard.  There has been a few occassions where my follow up wasn't what it should of been.  By the time I did follow up, they had gone elsewhere.  While a lot of my clients call me first, it is our job to remain in front of them on a consistent basis.  When this doesn't happen, be sure to note somebody else is and don't be surprised if they went elsewhere.

7)  Know thy product.  Whether it be commercial financing, Pay-Opton ARMS, or a first time home-buyer, if you aren't ultra-familiar with what you are giving the client....it is a recipe for disaster.  This happened to me when the Pay-Option Arm was first rolled out and I lost a potentially returning client:-(

6)  Stated Income Loans.  Here is a conversation piece.  Stating Income is not combining the income of the borrower and the spouse and using that as the income because the significant other has horrible credit.  This was an early mistake and I think still is made (knowingly and not) to this day across the industry.

5)  Credit is more than just scores.  Just because a client has a 515 score doesn't mean you can't get them bought conforming.  I wrote a blog on this awhile back.  Not to open Pandora's Box, but when reviewing your client's strengths as a borrower...just because they have a low score doesn't mean they don't get bought conforming.

4)  Disclosure!  This is another early mistake.  Let your clients know how much and why you make money on each loan.  Enough said.

3)  Attend Closings.  If it is a purchase-money transaction and the wire is a little late, or money to close is off, no matter who dropped the proverbial ball, if you aren't there......the chances of criticism being deflected towards your direction are great.  I've had a couple of instances where for one reason or another I wasn't at the closing, and while the majority of the time things went smooth....the instances where they didn't bit me in my keister.  It is also important to be there to make sure everything is exactly how you explained it to your client and to help answer any outstanding questions.  This is our duty as mortgage professionals on the financing end.

2)  Value of the Subject Property.  Here's another conversation piece.  While I have never intentionally pushed values, oft times I have mistakenly not asked the right questions to get a good & accurate barometer of what a client's house is worth.  This is crucial. 

1)  Being everything to everyone.  Like many I assume, early on I was hungry to get whatever business I could.  No matter the situation or scenario, I tried like the dickens to make sure I had the direction for every inquiry's ideal destination.  Whether is was a client who wanted a residential blanket loan, no money down commercial financing, etc.....I took on all comers.  And while it is easier to pick and choose, so to speak, your battles if you have a nice and steady influx of business and healthy pipeline, in the long-term your business is better served if sometimes you simply say, "That isn't what we specialize in here."

  Every once in awhile in this industry, I am amazed at the marketing efforts put forth by companies I see all over the board.  I try like heck to make sure I always take notice of mail, television, radio, flyers, etc, all designed to induce customers not only to refinance, but to do it with that particular firm.  Some are ingenious, some creatively misleading, some tacky and downright lame, and some are downright unethical. 

I got a call from a client just the other day who bought their home almost two years ago.  Because of a sketchy job history, beat up credit file, and to ensure the best deal for the borrower going into their first home purchase, I put them in what it called a 2/28.  Essentially, it allows the borrower to qualify for a better interest rate that is fixed for two years and typically adjusts after.....and more times than not, not down!  Because of their equity position, it was a good idea for the borrower to do just that.  Their rental history previously had always been stellar, they just had some credit demons from the past that they needed to correct and allow time to rectify.  So, in two years, when the time came to refinance, they would be in a good equity position and as long as they were good little boys and girls with mortgage payments and other applicable credit....their plan to lock into a lower fixed rate and a shorter term was good to go.

I've been on a regular contact basis ever since as I always try to do, emailing them reports on how to build a better credit report, making sure life is swell on their end, calling to see how the heck they are doing, and sending them a Christmas Card, the whole ball of wax.  The plan, come June, to refinance their mortgage into more ideal terms.

That call from that client came as an initial shock though when the voice on the other end said, "Jason, I don't know what I should do, I got a letter from my mortgage company and my rate is adjusting!"  I knew that couldn't be the case just yet so I asked them what exactly made them think that.  To which they retorted, "I just got a letter from them saying that it was!"  Okay....hmmmmm.  I told them to bring in the letter and the envelope and we'll see what is going on.

The following is almost verbatim what that letter said, though I've taken out the name of the particular mortgage company to protect the innocent...or maybe guilty?  Of note, the letter came in an envelope that you typically associate with something coming from the government (tax forms, lawsuits, etc). 

John Smith

1669 E Walken Street

Allentown, Pa 18109

MORTGAGE NOTIFICATION

***PAYMENT ADJUSTMENT***

Loan Amount:             $82,000

Lender:                       Sunshine Home Lending

Mortgage Holder:         John Smith

Property Address:         1669 E Walken Street

                                  Allentown, Pa 18109-2316

                               FEB 2007*                        APR 2007 - PROPOSED*

Principal Payment   $76.84                                  $0.00

Interest Payment    $468.71                               $222.08

Monthly Payment $545.55                                 $222.08

Your monthly payment reduction beginning April 1, 2007 is estimated to be $323.46. 
You are being contacted by RipUoffMortgage Corp. so that you may benefit from a reduced monthly payment.  In order for your new payment to be processed before your April 1, 2007 payment date, please call before March 23^rd, 2007 to confirm your new payment.   RipuoffMortgage Corp. cannot begin processing your new lower payment until you call:

Etc, you get the drift I hope.  The fine print at the bottom of the solicitation if you understood the jargon, was that they were basing the payment off the often times infamous pay-option ARM.  My concern wasn't that though, as much as it was the somewhat astute approach at getting a potential client in the door.  In fact, I had a problem with the fact that this company's letter came in the appearance of an official government document.  Ingenious, perhaps?  Unethical, maybe?  You decide.

I think I already have.