I got a call from an old friend of mine shortly after the New Year. He wanted to consolidate his 1st & 2nd Mortgages into one loan at a reduced term, a financially savvy decision for sure. So, onward we went with the process.
Now, this young gent lives in a rather eclectic neighborhood with properties that tend to differ in appearance, size, & condition. His property happens to be one of the nicer ones in the neighborhood, which tends to make its worth not as ideal as one would like. None the less, the appraisal was done and came in at a rock solid 290K. The comparable properties were there, all except for a less than desirable abode across the street that had sold recently for 215K. The appraiser noted it in the report and while it hurt the value of our subject property, the 290K was still as solid as Lou Ferrigno in the movie "Pumping Iron."
Well good old Murphy's Law came into play and the lender came back with their own search saying the value was only 230K. Holy slap in the face Batman! After the initial fury of wanting to briskly walk a few hours and give their Appraisal Review guy an Atomic Wedgie, we stepped back and got the facts.
It seems that another property sold literally right after the appraisal was done. It was just down the street and it sold for 240K. Uh oh.....that's not good:-( So, the appraiser had to re-do the appraisal making note of this new comparable property that just came into play. We went from 290K to 260K. It didn't kill the deal by any means but it did introduce the dreaded PMI.
While it didn't help that they sat on the appraisal way too long for my or my amigo's taste, upon hearing this he became agitated. To a large degree, I completely understood. His payment would be going up $78.90 and he would have that dreaded term attached to him for at least 2 years. That said, the deal was still a no-brainer across the board, making total financial sense. But my amigo, a smart guy but stubborn like me, was going to throw in the towel and forget the whole thing. Our conversation on the phone was relatively brief. Normally, with any other client, I would point out the very reasons it made perfect sense to get it done even though it wasn't as ideal as it was initially on paper. In this case, I didn't do that.....not initially.
After getting off the phone, I noticed the error of my ways. I then sent him the following email.....
Hey (Name witheld to protect from prank calls from other AR members)!
Thought I would shoot you an email to summarize our conversation & the specifics of the transaction regarding the refinancing of your property: This will prove helpful in sitting down with your wife tonight at dinner.
- Because the appraisal of your property came in lower than initially anticipated, the loan to value ration is over 80% (88.8%) necessitating a mortgage insurance premium of $78.90. Once the balance reaches 80% of the fair market value, that premium can be removed. Approx. 24 months, an investment of $1893.60.
- By reducing the term of your loan to twenty years, you are saving over $120,000.00 in total monthly payments over the life of the loan. Additionally, the principle reduction with each payment will far exceed what you are seeing on your current mortgages. In other words, equity in the property will be established faster than in your current mortgage situation.
- The rate of interest is being reduced nearly 2% vs. your second mortgage, and .625% on your 1st mortgage.
- As it stands, you are paying $167.95 on the principal each month on your Second Mortgage and $227.31 on the principal each month on your First Mortgage. Your first payment on your new loan reduces your principal $507.40 off the bat.
As a fellow amigo, I would be doing you a disservice if I were to not outline the facts of the matter. That's my job. Because we're friends, I'm not pushing you as hard as I would most of my clients to have them see the proverbial light, but at the same time it is my job to look out for your best interests from a Mortgage Standpoint. It's unfortunate that the sale of properties in your neighborhood adversely impacts the current value of your property. However, the overall savings to you afforded by this transaction far out weigh the negative impact of a 78.90 monthly payment of mortgage insurance for a couple of years. Let me know what you think.
Sardi
I made a crucial blunder initially in not imposing my expertise to make sure he made the right decision for him and his wife. Instead, I played the part of a buddy and not a true Mortgage Consultant. If I hadn't stepped up to give him a piece of my expertise, I wouldn't be doing my job. When it comes to dealing with friends, family, former clients or with anyone with whom trust is earned....part of our job is to make sure they don't make bad decisions. No action is sometimes the worst decision of all.
We'll see what happens....
The initial "don't want them to make a decision that they regret and then have the friendship ruined" thought crosses my mind when working with friends and I have to do a mental check. It's tough wearing both hats. BTW, I think it could have been fun pranking your client. Let me know if you reconsider and decide to expose the innocent bystander's info ;-)
-Colleen
Joe - I don't drink mocha's but you can buy me a beer:-)
Colleen - It's tough but who would you rather trust in such an important transaction? Can't give you his number but I'll gladly do some legwork and we can have fun with some of the other AR contributors:-)
Jason - It is difficult when we are dealing with friends and family. Point is our friends and family use us because they trust us and respect our advice..we should always give them the straight poop, even when we think it might even hurt our relationship.
I will await to read your part two ....
Jennifer - I will do so my dear:-)
Sandra - The straigh poop, well said...lol.
Joe - Fair enough!
Jason,
I've read a few appraisals and I've never seen a reference to a movie, with out saying the property was used as a set. "The appraiser noted it in the report and while it hurt the value of our subject property, the 290K was still as solid as Lou Ferrigno in the movie "Pumping Iron." is down right strange! Be glad the investor had it reviewed.
You owe every applicant your opinion, you're a professional!/? You can't stop stupidity! After you've clearly ad repeatly expressed yourself, if what they want isn't illegal or immoral do it at least the client will get a good stupid deal. Left on their own the client will get the stupid deal and screwed!
It is never to late to express yourself. Most mistakes can be corrected right up until the loan is recorded. Being a refinance you even get three days to correct this after closing. Give them your best advice, but understand only a liberal politician thins you can protect everyone from their own stupidity! You can't that's how the liberal got elected.
Bill
Jason,
Sometimes outlining it on paper, the way you did with your email, helps someone to see the advantage in going ahead.
We walk a fine line between being 'pushy' and being helpful in our industries, and I believe that honesty and laying the facts out as they are, is what we owe our clients and the way to serve their needs best.
Looking forward to seeing the outcome....
Jo
Jason,
After reading this email you made me want to pick up the phone and call to say "yes."
I'm sure he'll appreciate the impact of the numbers the way you laid it out to him.
Bill - Hey man, picking on liberal on my post again I see:-) In the 36 years you've been doing this, I'm surprised you've never seen a reference to Lou Ferrigno in an appraisal. In some areas, he's a comp all by himself:-))
Jo -Anne - Especially when you are communicating with your significant other, I feel it easier and more understandable to have it in black and white. It helps ensure you are making the best decision.
Ricardo - Sorry brotherman, not licensed in Cali. If you buy a second home in Pa, give me a ring:-)
Jason,
I may have seen Ferrigno mentioned. It wasn't a SFR but rather an all you can eat restaurant. What the appraiser said was that if a certain large movie star could be keep out coast would go down and profits up $10,000 a year raising the value $87,250. Personally I though it was Dan Blockered they never said, but then you can't nock anything Bonanza related in Incline Village.
I didn't mention any liberal by name, just a belief that it takes a village.
Bill
Thesa - Well put, decisions should be educated ones...not ones out of frustration. He's a smart guy though, he'll make a sound decision that's best for him.
Bill - You are a freaking riot! By the way, the name is Jason or Sardi or whatever. What happened, Belonger on your mind again? Speaking of that village idiot......:-)
Hay You,
Sorry about that!
You do know I,m one of the worlds worst spellers. The problem with spell checker is that if what you wrote is a word it doesn't know it's the wrong word.
Bill
Jason, I challenged an appraisal yesterday, the appraiser was from out of area. You have to live in Ann Arbor to
"get it". I came in 5000.00 below but the appraiser sent over comps in a different school district. This particular appraiser also used and deducted the house because it was on a "traffic street". True but if you knew Ann Arbor the homes closest to downtown and the Univesity of Michigan come in high over 200.00 on every street, it doesn't matter. I sent over comps on the same street from 500 to 1 million. My house we're closing on tomorrow is 320K.
Sometimes we have to defend or challenge an appraisal.
In your case... well you were honest and that is all that matters. Let us know.
From what I'm gathering from news reports, it's no longer a matter of having qualified buyers. It's now a matter of finding a mortage company with some money.
Geez. How bad can this mess get?
Jason,
Very hard to separate a friend from an arms length transaction...I'm glad you though to treat it more on the business end...so maybe you screwed up:)but you didn't but I'm sure they will put something together with you.
two different appraisers have called us in the last two days to get our take on something they were appraising. always think that is cool. we've also got a few of them that use the stats on our outside blog... which saves them time, and they are accurate.
like your work here, and like getting the hulk and batman into a piece. also thanks for your comment on our odds of selling a home article we just did. this and that are most appreciated.
looks like a lot of beer is coming to you from this one,
best
Good job, Jason! I'm sure your amigo will appreciate it once his head stops spinning from the disappointment. It's hard when you have the nicest house on the block because all the others will drag it down.
But keep after him - he'll figure out that you have his best interest at heart and you are the professional.
Jason,
My money is on you for this one... just plain good advise... by the way I owe you a least a case of Milwaukes's finest... saved two loans for me this week... thanks man
Rick
Jason,
I'm glad you went back and clarified your position as your amigo's mortgage guy. I always take my professional friends' advice more closely to heart than that of someone I'm not close to. I know my friends aren't going to hurt me...at least I hope they wouldn't. Good catch there, amigo. I hope it turns out for the best.
It's tough sometimes with a friend. I know that I am having trouble bringing my self to push a friend of mine on getting a house. Although I think he would eventually forgive and be glad I gave him the shove, I know him well enough to know that he needs his time.
That's the advantage of knowing someone that well... we know what can motivate them.
Hey Jason.. I actually had a hat that I kept at my desk in the years I was in the auto business...I had it stitched to say"Trained Professional" on one side and "Trusted Friend" on the other...My advice was normally the same on both sides, but the act of putting on a hat seemed to help bridge the situation...
I now run into situations where I could use that hat again...Good job on the follow up..I'm sure he was able to follow your logic..it just make sense that way!! $$
Bill - No problem my friend, I always enjoy seeing you around.
Missy - In this case, the appraiser is as local as they get and quite frankly, the best in the Leigh Valley. Lenders are using the old fine tooth comb with appraisals these days and to me it's a tad too much of an aggressive knee jerk reaction to what has and probably will continue going on. Worthy borrowers tend to suffer from the mistakes of others.
Dan - I ran one of those as well....we shall see.
Lenn - The money isn't the problem in this case, house values in the neighborhood seem to be.
Marc - Oh, I'm one of the masters of lousy English. Ain't that a shame:-)
Neal - Thanks for all your support. You are like the bra I never had:-)
Gary - And the beer couldn't come at a better time......Super Bowl Sunday is on its way!
Carol - Thank you for your kind words. I think he inherently knows that.
Monika - You are right there. I will do so...
Rick- I'll take Beast Ice, only the best for Sardi!!!
Andrew - You and me both....amigo:-)
Ginger- Well, I guess you could certainly say I have groupies, lol.
Lane - I've done numerous transactions for friends, this is the first where there were any issues as all. Nature of the beast...
Hey Kontis, thanks for your nice words! You have a great weekend Jeannie:-)
Krista - Be nice to your husband dear:-)
Jon - Wow man, thanks. Come to think of it, I do need an agent...up for the gig?
Sis - Update will occur shortly.
Matt - Thanks man, true be that.
Mike - I want that hat!
*UPDATE*
Jason...
Thanks for the note.
We understand the how this situation will save us over $120,000 in interest, but the additional $78.90 a month is a bit too much for us at this time. With the addition of mortgage insurance, additional cost of increased home owners insurance, our Lower Saucon tax just went up 33%, and the rising costs of things "now", like fuel and such, our monthly output would be too high to live comfortably. For now, I must pass.
Keep my file on hand. We soon get bonuses and raises. Values in the neighborhood will come back soon.
For now, I think it's best to keep my situation as is, and pay a few hundred bucks when we can, towards the 2nd mortgage. We'll revisit this as things get better.
That was the email I got. What can I say, you can't win them all. Hopefully the Market & The Interest Rates are where they need to be when he feels more comfortable in getting something done. While I personally feel it's best to act now as it is risky to wait and bank on the unknowns, I hope I am wrong for his sake.
do want your package sent to office? LOL
Rick
Sardi is going to love that I found this :)
Jason is a true professional. He kept me in the loop the entire time.
As my reply email stated, that extra $78.90 per month makes the monthly payment too much for us.
Signed,
Jason's Customer referred to in this blog.
Hi Jason - you handled this just fine, and your friend's reply back, and his comment just above mine, shows you did the right thing. Good job, my friend!
MWA!
Ann
Hey Jason, how soon before the lower Fed rate filters down to the user level.. I was talking to a buddy at Wacovia, and he said they have not updated thier products yet to show the newly discounted rates...
To bad about your bud...I know how precious every deal is right now...Peas
Ah...Jason, You didn't get the answer you hoped for, but you kept your friendship, and he thinks your a true professional! : )
Not bad, not bad at all.....
Jason, the guy is hardheaded. You were right and everyone of us, including your friend, know that less than $100 bucks a month is only a deal breaker because he wants it to be.
Hey Jacobson, I was freaking kidding!:-)
Rick -
BeerPackagesisare always welcome at our office. Speaking of which, the next post I write will be entitled...."BEER""Packages."Jennifer - He's a smart and seasoned guy....he'll be fine....
You....freaking you! Mr. Customer/Amigo...you've done well for yourself my friend. While this makes sense, I totally respect where you are coming from on many levels. I'll be here for ya, you know that. Now refer this chap some business:-)
Wayne - I don't overstep my bounds, I'm not an accountant. Yet, you are right.
Ann - MWA back at ya. He's a cool guy, even though he doesn't listen to me:-) Hi Mr. Customer, MWA to you too!
Mike - It's all about volume baby!
Sandra - Ahhh shucks, he's just saying that....
Bill - It's his decision...I respect that. Nobody knows his life better than him.
Kay - That's a
hellheck of a point, similiar to my customer's take on things. For some people, that's the right way to go.Jason... interesting... when I deal with friends and family, I am even more forceful in my figures and numbers. I ask them... do you trust me and my knowledge expertise? My brother-in-law and I just had this conversation, because I am refinancing them for the 2nd time in just 4 1/2 months.. and I am saving them $152/month. They basically are listening to me after I gave them their break even point, because I know their goals.
In any case, as some have said, it can be different when dealing with friends and family. I guess I take it even more personally and they know it.... but you did come to it and gave him good information... okay, not sure if I am babbling here.... but what are you doing in at 9 pm on a Friday....
Michael - You never know....
Danny - The Great One? You've been watching too many 'Rock' Movies I suppose:-)
JeffBelonger - You always babble man, that's part of your charm:-)The facts speak loud and clear and putting them in writing for your client was a prime example of taking care of your client.
Oh how I love war stories!!! Remember when I said one of my faults was not talking straight? This is always a danger when dealing with your buds, as you pointed out. Your e-mail to him was excellent, and far more appreciated than beating around the bush. I think this market has definately taught me how to give bad news and then my recommendation on the best strategy..
By the way, is it the policy of Cakewalk Mortgage to rhyme their blog headlines??????
Sale Pending, Praying for Lending
Get Ready to Rumble, Rates Are About to Tumble
Hey, I think I'll go write Big Girls Don't Cry And Lenders Never Lie
Jason,
I can't comment on the other post but I'll tell you I grew up with a group of people and we followed all the doors even though Morrison had already passed...loved the wiskybar! Here...you got an extra comment here for there:)
Michael - Actually, to my knowledge it didn't even hit the MLS until after the appraisal was done. I think it was just a case of very bad timing.
Cynthia - Sometimes black & white make it easy to understand and fully digest.
Linda - True that. I won't ever make that mistake again.
Janet - The marketing campaign of Cakewalk Mortgage will set the Industry ablaze. Just think, our own commercial on next year's Super Bowl!
Diane - Bending over backwards is pretty much status quo at this point, there can be no other way.
Christy - Say hello to the Bad Guy:-)
Jessica - He did, it's not the time for him right now....we'll re-visit down the road.
Patricia - Thank you! You are so right!
Neal - We have a lot in common my man.
Kathy - Perhaps someday....
Kathy - They do deserve that and I should of treated it the same as I would any other client.
Jason,
It sounds like you are a real professional. Good job in handling the unknowns.
Andy
Ok Jason,
Its been 2 weeks. What did your amigo decide to do?
Palm Springs Mortgage Guy