Real Estate Financing...

I've said before that I communicate via the written word best, when I am crying.  Before I can properly tell the story, you should know where I came from.  This isn't a sob story, this is a perspective that you may be inclined to follow.  I'm making this public (meaning you don't have to be an Active Rain Member to read this) because my guess is there are folks who could benefit from what I'm about to write.

I come from a middle class family.  When I left and went about my own way, there were challenges at each horizon.  I've lived in attics, fielded collection calls, owed money that I couldn't possibly pay back... at least right away.  I lived on Ramen Noodles, slept in puddles of God's tears, and drove my parents crazy because I didn't want to do things the 'easy' way.  I did things and do things my way, we'll see how that works out after it is all said and done.

Tonight was something I was looking forward too.  The Pittsburgh Steelers are on television and it's wrestling night on the USA Network.  I spent the weekend with a girl that I don't deserve.  Gosh... I'm lucky.  But those things took a backseat when I got a phone call from a fellow Active Rainer.  You see, this person has much more experience in the mortgage industry than me.  This person thinks for one moment that I can maybe help matters.  I gotta be honest, I've felt like quiting this industry.  It's been more than rough and supplied me with more gray hairs than Sam Elliot can shake a clever catch-phrase at.  I was told about two hours ago that one of my peers, in this industry, wanted to end their life because they can no longer afford to live it.

I don't know much about this world or life but I do know one thing: it's between the ears.  I can't sit hear and tell you there is a God that will make things okay or your every fear will end in due time.  In fact, I'd probably be the one to tell you that this life, this world... is tough and should be.  We'll be okay, humanity tends to have that going for it.

Before you dive on the sword, listen to my words.  It isn't worth it, there are people that care.  And even if nobody cared at all, we are more than money and better than poverty.  I will hold your hand my man, through thick and thin.  It will be okay, don't let this shit fool you... be tough, especially in the moments where you feel the weakest.

We live in very interesting times economically, and those will end.  It's between the ears and beneath the neck.  Relax and listen to this song...

if nothing else, I will welcome your family into my home. 

*This is some interesting stuff, you must register by tomorrow.  Read on...*

Our friends over at one of the three major Credit Reporting Agencies (TransUnion) ran into a bit of trouble recently.  It has been alleged that TransUnion improperly sold consumers' personal data.  That could mean that your information was sold to various companies who could then overview your information and solicit you for such things as Mortgage Loans, Credit Card Offers, heck... credit of any kind.  If you applied for credit in the past twenty years or so, this could apply to you.  If you pay for everything via cash or have Mafioso ties, this may not apply;-)  Here's the link.

Imagine that, Credit Reporting Agencies making money on the side selling leads.  This is good news for consumers though, and free credit monitoring is key in this.  Typically, one must pay for this type of monitoring service.  Due to this ruling, you have several options and having your credit monitored for free is one of those options.  There seems to be a possibility that you could receive cash via a settlement, but I wouldn't count those hens just yet.  Here is the link to register.

**Remember, you must register by September 24, 2008 to receive these benefits.**

Please visit the above links for more information and to register. 

Yesterday consisted of many phone calls with clients about an abundance of things.  One call and client stood out from the rest though.  That particular client is on the fence in wanting to lock their rate.  While they are well aware that rates can change daily and even hourly, they have their fingers crossed that rates will nudge down just a tad so the rate they receive can be the talking points at many a dinner party and business functions.

As we were talking about rates, the market, our dissertations on world peace, who is going to win the Steeler/Eagle game this Sunday, and the like... the conversation took a turn.  Please note that this gentlemen was a shopper; he had said he had talked to over 15 companies in two weeks before deciding on me.  Here's where the conversation turned a bit interesting, and I'm paraphrasing:

Me -  So, I gotta ask... what made you choose me over everyone else?  Truth be told, we all have similar if not the same in products.  Especially for your situation (money down, excellent credit, can document his income, etc.)

Client - Oh, that's easy.  You had the best rate.

Me - Really, that's the only reason?

Client - Well, you answered all my emails and returned all my calls very fast.

Me - So, service came into play?

Client - Oh yeah, absolutely.

Me - What if you had to choose between service and cost (rates, fees, etc)?

Client - I'd choose both.

Me- Of course you would, we all would.  But what if it was one or the other, not both?

Client - (Paused for a bit) I guess I'd feel more comfortable knowing that I was going to have service, someone to speak with and who would be there every step of the way and after if necessary.

Me - Novel idea, eh?  That's so overlooked and misunderstood by consumers about the Real Estate Business.  There's this fixation on cost and few realize the importance of service.

Client - How about you, do you shop that way?

Me - Very fair question.  Tell you what, I'll give you two examples.  As a Mortgage Broker, I deal with a variety of Wholesale Lenders and Banks.  Historically and even presently, the ones I use for the majority of transactions I close don't have the best rates.  Actually, they may be an 1/8th or a 1/4 higher in rate at times.

Client - Really, why wouldn't you use the ones with the lower rates to get us better deals?

Me - Oh, I've used them in the past.  The service with them was pretty bad.  I wouldn't get return phone calls or emails for days and that concerned me.  When I quote and lock a rate, I do so for a certain amount of time.  If the service is lacking, that may delay closing. It can jeopardize any rate I quote or lock, increasing the likelihood of the deal falling through.  It's one thing to quote the best rate, quite another to close at it.

Client - That makes sense, I'm still VERY rate sensitive though.  I'm sure you can understand that.

Me - Oh crap, rates just went up 2%!

Client - Oh NO!

Me - I'm kidding. 

Client - You almost gave me a heart attack!

Me - I just wanted to loosen things up a bit.  The other example I want to give you is an example I have used before.  It is my homeowners insurance agent.  I shopped around before buying my home and he was probably the 4th cheapest out of the five companies I shopped around with.

Client - Wow, that seems like a financial mistake to me.  You are spending more money that you have too, Jason.

Me - And I'm also getting what I pay for.  My insurance guy is there whenever I need them, I'll shoot him an email and he will call me right away.  He was referred to me by one of my best friends.  There's a trust factor there, as well as a service factor.  I was and am willing to pay for that... it's more than worth the price for me.

Client - I understand what you are saying.  So, does that mean I have to pay you more.  I'm also VERY fee sensitive as you well know.

Me - Nope, I'm charging the same as I said at the beginning.  The point I'm trying to make is that for your future mortgage needs (while I hope you would come directly to me) if you do shop again, service is something you should take into consideration just as much.  In my experience, service and trust tend to go hand in hand.  Those two factors will also help ensure you get a good deal and the straight scoop every time.

Client - So, I guess I'm getting off cheap considering ...

Me - Yeah, you are getting a killer deal.  But, it's worth it for me to earn your business and your trust.

Client - I appreciate this, I really do.  And your patience through this has been pretty impressive.

Me - It is a virtue and you are very welcome.  Thanks for saying that.   Oh wow, rates went down 2%!

Client - Shut up

Yes, let us now enter into the wonderful world of paying points (or not paying points) when getting that loan to buy or refinance a home.  Before I go into my piece of advice though, I should explain how I make money as a Mortgage Broker (wait for shameless plug..........) here in beautiful Allentown, Pennsylvania.

On the mortgage side of things, we make our money one of two ways.  Wait... I'll reduce this to how Mortgage Brokers make their money.  I'll let Mortgage Bankers, Direct Lenders, etc... be transparent about their profit margin (though it is eerily similar;-).  As a Mortgage Broker, I make coin by either charging fees on the Good Faith Estimate (Broker Fees, Origination Fees, Processing Fees, and the like) and/or in charging a higher interest rate in which case the lender pays me.  The latter is what is known as Yield Spread Premium.  Mortgage Brokers disclose it, Bankers don't have too.

Still with me?  Let's say my company wants to average 2% on every transaction we close.  I can charge you a 1% origination fee on the Good Faith Estimate and bump up the interest rate a smidgen so the lender pays me 1% on the back end.  Or, I can charge you 2% origination on the Good Faith Estimate and give you what is known as the par rate (which is simply the very lowest wholesale rate you can get without paying discount points directly to the lender to buy it down further.)  Let's say that you want one of those "no fee loans"... then I'll simply bump up the interest rate so that the lender pays me the 2%.  When you deal with a Mortgage Broker or Lender, everything is negotiable.  I've made loans for 1% and some for up to 4%.  That depends on a lot of factors, to be discussed at a later date.  Do also remember, my time and service are not negotiable.

What does all this mean?  Unless we go back to the bartering system (in which case I have a killer set of fine china)... we are all making money in our respective professions.  So, now that you get the gist of how we make our money, onto the wonderful world of paying points and whether you should or shouldn't.

Whether you are buying a home or refinancing a home and plan on being in that home for a long time, you are probably better off paying points to get the lowest rate possible.  Why?  Quite simply, the money you will save with a lower rate will recoup that fee and then some.  Plus, you'll be paying a bit more towards your principal balance.  Brief example as follows:

• You are taking a loan of $200,000 and you plan on being in that home for at least 10 years.   Let's say with no points you can get a rate of 6.25%.  But, if you pay 2 points ($4000.00 or 2% of the loan amount) you can obtain a rate of 5.75%.
• On a 30 year fixed mortgage, your principal and interest payment on that loan with a 5.75% rate would be $1167.15.  Conversely, your payment with a 6.25% rate would be $1231.43.  That's a savings of $64.28 a month.  That's a annual savings of $771.36.  Well, to recoup the fees you paid to the man or woman behind the mortgage, you'd have to be in that home for at least six years.  Make sense?

On the other hand, if you are only going to be in your home for a short time, you may go a different route.  Let's say you are buying a home and really only have enough money for the minimal down payment and applicable closing costs.  In that case, you may ask your loan officer (until I get a badge, I hate that term) to waive his/her fees on the front end.  That will translate into a higher rate.  But it will also keep you from dishing out more money at the closing table.

Let's say you want to refinance your home to get some cash-out for home improvements.  Perhaps you plan to turn around and sell the home a year or two down the road.  In that case, it may also make sense to pay a little bit of a higher rate and reduce fees on the front end so you aren't eating at your equity with those costs.

Again, consult your Mortgage Professional and run the numbers.  If you need one and are buying in or refinancing in Pennsylvania (shameless plug ahead.....) I'm your boy man.  Situations are different and your loan program should reflect what makes the most sense for you.  This is truly a case by case basis.  What makes sense for Uncle Henry or Neighbor Jane, may have nothing to do with what makes sense for you.

I've outlined some brief examples of where paying points may make sense and other situations where... well, not so much.  Understanding how we make our money is important.  Understanding how to make the best use of yours is even more vital.

I wrote this comment on a fellow Blogger's Post back in May.  I simply re-worded this very famous prayer/piece of poetic prose. 

God grant me the passion
to blog & help my audience & my pocketbook;
the courage to write for myself;
yet keeping the consumer's best interests as my reason for ultimately being here.

Living one blog at a time;
Enjoying one blog at a time;
Accepting un-featured posts as the pathway to peace;
Taking this Blogging World
as it is, not as I would have it;
Trusting that to the consumer I will do right
if I remain selfless;
That I may be reasonably happy in this Blogging Life
and supremely happy with my contribution
Forever in the next.
Amen.

Damn, I still have a lot of work to do...

... and I can't help but to think of this comedic montage:-)

There's some things that are forever timely...

Speaking with many folks, whose experience outweigh mine, does much to help me learn in this business.  When you couple that with the fact that I try to digest everything I can written about this industry (past or present)... it makes me a tad smarter about the industry than the day before.

As expected, there have been many articles written on the government's bailout of Fannie Mae and Freddie Mac.  Of course there are different takes, opinions, facts, & misleading information... in this day of 'free market journalism' and off the cuff thoughts and perspectives.

What I'm not going to do here is hang my experience on the wall and tell you this is the light.  What I'm not going to do in writing this is give a concrete & undebatable answer.  What I will tell you is that the savvy exchange of ideas may lead us not into the capitalistic promised land per se (at least right away), yet may just allow change we can all touch and feel... one moment at a time.  Before I go on, I know the word 'change' is thrown around like a pigskin on Sunday... but in good confidence I assure you... WE need to take this industry back!

People have expressed on many levels and in many political circles that they want less government in our lives.  Well, as of Sunday, they are a tad bit more prominent in our lives than they were... aren't they?  When the government stepped in and paid for the crisis going on in Fannie & Freddie, the consequences will probably be that the United States Government, who flipped the bill, will be passed on to the U.S. taxpayer.  Color and convict me wrong, if that doesn't happen.

What's done is done.  Here's a few things I feel will help move forward in a more direct, appropriate, and positive direction... the very reality we are living in:

• Real Estate is local.  Simple example, what's going on in the market in Portland, Oregon may or may not shadow what is going on in New Orleans, Lousiana.  It even breaks down to neighborhoods.  You may find one block where homes are selling for $150,000 and walk two blocks down the road and find homes selling for $350,000.  That's why it's so hard for a major national machine like Zillow to be an accurate barometer of your home's worth.  It's a neat tool and you get a cool satellite image of your house, but take the property worth with a grain of salt.  I believe that Credit Reporting Agencies should also be local!  While that's not a cheap proposition, I think it is an appropriate response to yet another tool that now has become a tail wagging man's best friend.  Before my time in this industry, Credit Reporting Agencies were local and any inaccuracies or problems could be fixed with a phone call to a local office that was answered by (and get this novel concept) a LIVE person.  Try getting through to a live person if you call Equifax these days.  If credit & credit scores are going to control the lending atmosphere in the way that it is currently controlled, make them do it from a local level... which ensures a greater chance at accuracy and intimacy.
• If you want to regulate, do it consistently.  What's good for the goose bank is good for the gander broker.  Do you realize if one is Federally Chartered (in they have the label of 'Bank' in their palms), they fall under different rules than locally based lending institutions?  I'm not spilling sour grapes here, I'm drinking grape juice.  It ain't tasting so good.  I don't mind and even advocate licensing and full disclosure and transparency.  You'll get that from the broker, but not the banker.  If you are going to regulate, do it consistently and across the board.  I dare one 'banking entity' to debate me on this one.  I'll go work for a bank right now and express the same opinion.  With inconsistent laws and regulations, comes inconsistent delivery of product and service to the very people that make up our capitalistic market... Consumers!
• How about appraisers, giving an educated guestimation on the worth of your home?  Do you really want a National Appraisal Company who doesn't intimately know your particular area... stapling a value to your property?  Nah, not me.  Give me that educated guestimator who is local and truly knows the area.  Back to Ma & Pa shops, you pay for service and a familiarity in the area that their service is involved in. 
• Give me lenders who are more focused on local areas.  Give them responsibility and accountability to the money they are lending to folks.  While most of the mortgage money is bought by Wallstreet, let's give accountability a chance.  Tell Wallstreet to take a backseat to local entrepreneurs who can profit by being a monolithic entity in their area.  I know many folks with a lot of money who probably would like this idea.  If you have no real interest in the transaction, you have no real accountability!  That's the problem.  You want a bail out, give me a break.  Failure is a potential reality in anything you do in this world.  As you let them potentially reek profits and success, let them also reap the very opposite if it comes to that.  That's Capitalism!  It's the same risk every small business takes when they decide to throw caution to the wind.  When that wind blows, which it will, you either adapt or die. 

To Mr. & Mrs. Government,

Let us all, adapt or die.

Sincerely,

A Local Kind of Guy

If you want change in the Real Estate Industry, go Local across the board.  We are a country within a country.  We are people within the people.  We need to take our industry back, one community at a time.  National Companies have their place, but they've really gotten into waters where they are way too mainstream.  I don't believe that to be healthy in many ways at all.  Our government serves a purpose, to protect us... not to own us.

Real Estate has almost always been local, I think Lending should be the same.  All thoughts, agreeable or not, will be addressed.  Like the first pitch at your preferred stadium, I'm throwing this out there...

Same song, different pitch and time.

It's no secret that today's lending atmosphere is much different than from years back.  I've been seeing a few things things as of late that are a tad bit concerning.  I'll get to that in a moment.

I wrote a post  recently that outlined some basic things that the consumer can do to streamline the loan process and get to the closing table faster.  Lenders are going through files with a fine tooth comb these days.  In fact, they're scrutinizing loan files more than they ever have... at least in the seven years I've been at this gig.  Here's a few things I'm seeing that are concerning and need to addressed:

Shopping up until the very last minute:  I'd venture to assure you almost everybody wants the lowest interest rate and no fees.  I will be writing a post in the near future of how us mortgage folks make our money.  But, for purposes of simplicity, I'll save that subject for a different time.  What I am seeing is folks who are shopping (and often times nickle and diming) lenders up until the last minute, and then when they make a decision... rates may have changed, product guidelines may have changed, and all the nickle and diming that was done actually costs you more.  It may cost more in rate and/or may cost more in the product you're looking for even still being available.  While everyone wants the best deal, that usually is attained by establishing quality relationships and a mutual sense of urgency to reach the common goal.  My advice is don't be talking with ten different lenders, you're liable to get so much conflicting feedback and quotes that it will do nothing but confuse you and the whole process.  Pick about three lenders who give you a good internal feeling.  Make your one choice from there.  The best choice won't necessarily be the lowest rate or fees, or the person that tells you what you want to hear.  A quick example of this is my Homeowner's Insurance Agent.  I guarantee he's not the cheapest in town but when I emailed him yesterday to call me, my phone rang two minutes later.  That's service and that's why he's my guy.  Shop with service and urgency in mind, as well as those dastardly rates and fees.

The 'hurry up and close' mentality:  The line is ringing and I pick up and hear a frantic voice on the other end.  "I need to close my loan in the next seven days, can you help me?"  Hmmmm, that's just not the way it is these days folks.  Believe me, we DO want to close your loan as fast as we can.  Heck, we don't get paid unless we close loans.  But give yourself and us some time, especially in this atmosphere.  Underwriting turn-around times aren't as quick as we'd like right now, so get that mentality out of your head.  Instead, know that it may take more time than it has in the past and work together as urgent as possible, to get to the magical world of the closing table.

You don't really need that documentation from me, do you?  I don't ask for supporting documentation for health reasons.  What is needed or asked for, is what I get.  That gets the job done.  One of the best ways to ensure that your loan closes in as timely of a manner as possible is to work with the same sense of urgency as we do.  While I don't usually ask for skin graphs at the time of application, if that's what the lender wants to close the loan... I'll get it.  Okay, I'm kidding on that one but I hope you get my drift.  Delays in getting documentation will create delays in closing and in turn could adversely affect the very terms of the loan that you were initially quoted.

In a changing atmosphere, adaptation is key.  Right now, all of us have to adapt.  Knowing this and doing this will save a lot of frustration from all ends.

UPDATE!  One of my favorite writers from the Mortgage Side of things must have been thinking along the same lines as me.  Check out Janet's Post!

Here's a song to get you through the post;-)

Whenever I'm asked to do this, I cringe at first.  While I want anybody who reads this or me to be informed and educated about everything involving mortgages, I also want to make it an easy read.  Mortgages aren't the most exciting thing on God's Green Earth.  Yet, they are a part of the very Real World your parents may have told warned you about.  To some, I'll be preaching to the choir with the following sentence.  If you truly want to learn about finances, mortgages, money, buying a home, what to do with the one you currently own, and don't want to pay $19.95 for the course to do it... read these folks:

Leading off is a post I found interesting, if not simply enlightening.  Sue Botelho explains the value of our profession and I think it is important for folks inside and outside of our industry to understand.    Consideration For Realtors

Ken Cook is one of the most revered individuals here for those of us in the business.  Personally, I wasn't and am not big on Down Payment Assistance... but Ken presents a pretty astute article shooting my belief down.  I still hold true to my belief, but this one is an excellent article by a guy who I don't think gets enough recognition.    Opposition of Down Payment Assistance

When impassioned, the following individual is the best writer I've read from the mortgage side of things.  Blogging has caught on in parts of the Real Estate Industry, especially with REALTORS.  Janet Guilbault makes a clear distinction though.  The Mortgage Folks are missing the boat, making fun of the waves.  Janet reiterates what may be the wave of the future in... When Your Company Your Blogging is "Disturbing", Your SEO is Working. 

Folks want hardcore but when they receive, little do they interact.  You want to talk money, talk to this guy.    Emotions and Finances (Including Mortgages) Should Not Be Mixed.

I love competition and smart people.  I think this individual represents both.  Frankly, there can never be too many good folks in our profession.  Michelle Chamberlain makes the grade, I give her an A.

Check out... "You Think Mortgage Brokers Are Bad???" 

FHA is the soup du jour in regards to Mortgage Products.  May I introduce Fred Chamberlin who dispels and educates with this simple & provacative post... "Dispelling Common Myths About Participating with FHA"     

"An Open Letter to the Consumer" by Jeff Belonger.  If you are applying for a mortgage, whether you are buying a home or refinancing the one you live in, you may want to check this one out.  Seriously, this kind of stuff saves a lot of headaches along the way...

Transition & Change is a natural retort to any market like ours.  I believe Lewis presents an open-ended curiousity on how to make sure the true producers are the ones you are going after.  Mr. Poretz, your article makes perfect sense to me...  "Mortgage Broker Fees."  

Again, not my cup of tea but you should read Gary.  Good guy, solid knowledge of the biz. 

As far as that $19.95, you are probably better off here for free.  Actually, it will cost ya.  It's called time... well spent.

In Remembrance - One of our own passed away recently and her contributions to this forum were

amazing and will remain so.    Here's a post that just hints at her brilliance.  Take care Karen, we'll see you soon enough...

Robert Ashby is next....

There will be no recreations of any type regarding the titles or content of this group or Review without the permission and expressed written consent of the Group's founder

Mortgage Pro Week In Review - Copyright 2008^{©  ~ Which means, I wrote this...for better or worse.}