Category Archives: Investing

Triggering My Hot Spot

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I have blogged about this before…it is really one of my “hot spots”.   This morning, not only did I receive an email from this company (oh, I mean SPAM) stating that this is information that I requested, which I did not, it is about something I am absolutely against: selling consumer’s information when they’ve had a credit report pulled to become preapproved.    [photopress:trigger.jpg,full,centered]

If you go to their website, they state, “Receive a daily feed of consumers in your target market that just yesterday had their credit checked for a mortgage loan approval.That ’s right, these consumers have just had their credit checked within 24 hrs, specifically for a mortgage loan approval! Now you can provide them with a pre-approval in just a few days for unlimited growth potential.”

Picture this, Mr. and Mrs. Homebuyer meet with a Loan Originator and sign many documents for the preapproval process including disclosure forms that their private information will not be sold. Within hours, they begin to receive relentless phone calls and post cards from other lenders.   It’s too bad the credit bureaus are not a party to this agreement and that it is legal for the bureaus to re-sale credit scores, addresses, phone numbers, debts, etc.

I’ll go eat a box of Valentine’s candies and go chill out in a corner somewhere.

 

 

There's No Love for the Subprime Borrower

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It’s all over the news, we’re hearing about major subprime lenders having to restate their losses and every day, lenders are coming into my office to inform us of changes to their guidelines.   This is all good, right?    It will be tougher to provide loans for home buyers who maybe should be spending more time to learn about budgeting and using their credit cards.    What about the people who are all ready in these programs?

First, allow me to explain the basic dynamics of these loans.  Many of these mortgages are zero down, 80/20s (80% of the loan to value for the first mortgage/20% of the value for the second mortgage).   The first mortgage is typically offers a fixed rate for 2-3 years with a prepayment penalty (the standard is six months interest) that matches the fixed rate period.   In addition, the mortgages may be interest only or amortized at 30, 40 or 50 years.    The rates on these mortgages are completely dependent on credit score. 

When I meet with Mr. and Mrs. Subprime, I advise them of their options of buying now using this type of subprime mortgage or that they can work on their credit, job history, etc. and buy later with a better mortgage program.   Because there are no guarantee of what rates will be (or maybe because they know there’s not guaranteed they’ll clean up their act) and because they want to buy a house now, they often opt for the subprime mortgage.   Once this happens, I heavily stress (or Jillayne would say, I lecture 🙂 —which I’m sure I do) to Mr. and Mrs. Subprime that they have 2-3 years to change their spending habits because once their fixed period rate is over, their mortgage is going to adjust and do so big time.    I let them know that I want them to be in the best position for a refinance into permanent financing (or to have a better mortgage should they decide to sell the home assuming they have any equity) and that the subprime mortgage they are using to obtain their home is temporary financing.  

Many of my clients in these mortgages have done very well and I’m proud of them.   They have taken the responsibility of owning a home and having a mortgage to heart.  I’m able to restructure the original mortgage and improve their situation greatly.   The concern is for Mr. and Mrs. Subprime who just didn’t get the hang of it.   They continued to charge up their credit cards, they bought or leased a new car to go in their new driveway and maybe a new TV, too.   They’ve been sliding ever since the holidays and are now having a tough time paying their mortgages on time.   Maybe they just have one mortgage late.   Their credit is rough at best.   Their fixed period (and prepayment penalty) is over and now they really need to refinance fast because their mortgage has adjusted for the first time—their rate is now 2% higher.  Their situation has gone from bad to worse.    With all the tightening in the subprime market, even if their credit scores and scenarios are the same as when they bought, there may not be a program for them to refinance out of now.   They will be forced to sell (hopefully they have enough equity to pay commissions and other closing costs) or to somehow manage to choke down their increased payments.

I guess this post is a plea of sorts.  If you currently have a subprime loan (especially the type I described) please contact your Mortgage Planner to have your credit reviewed to make sure you’re on the right track to be able to refinance (or have a better loan for when you sell) when the time is due.   Do not assume there will be a program for you if you have not made significant changes to your spending and use of credit cards.   If you’re a real estate agent or loan originator, check in on your subprime clients to let them know of the changes in the industry…see if they need guidance to stay or get on track so they don’t wind up stuck with a higher mortgage payment, being forced to sell or foreclosure.

Web2.0 is About You

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Wonderful video from a Kansas professor…

(via ProBlogger)

I’ve been told I move a bit fast in my seminars (more than once!), but I found this guy to move at light-speed! Interestingly, if the video makes complete sense to you, then you will have no need for my presentation. However, if you’d be interested in learning a bit more about how consumers matter in this web2.0 world (i.e. “you matter”), and how you, as an agent, can flip this logic to use these web2.0 tools so that you matter (i.e. “brand you”), then I’d love to see you at my Seattle seminar on February 20th! (Or in Oakland, CA the next day!)

So far, the feedback from the seminars has been overwhelmingly positive. I was a little hesitant to make a big deal out of the seminar before I ran a few trials because my presentation is more-than-slightly unconventional and I started to doubt myself. It wasn’t until I heard from some of the attendees that it was one of the best real estate presentation they had ever been to that I started to feel more comfortable that I might be on to something big. 🙂 Also, both Jeff, Rudy and Brian give some encouraging feedback that will definitely keep me presenting at a few more seminars!

By the way, my presentation style was highly influenced by a short presentation given by Chris Smoak where he was able to move at the speed of light because the presentation moved with him. (Chris is the guy behind one of my favorite mash-ups ever, Bus Monster.) After witnessing Chris in action, I just knew I’d have to create a similar presentation some day.

Finally, Greg has been posting the audio from my presentation over on the Bloodhound blog (Part 1, Part 2). Personally, I think the seminar is simply too long for an audio presentation (it NEEDS the visuals!), but some may find it interesting, nonetheless.

Confessions of a Zero-Down Lender

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This is a two part (well so far I’m planning a second post…their could be more) series of a couple of clients (names changed to protect identities, of course!) who have purchased homes utilizing 100% financing.   Both parties utilized similar programs but they wound up in entirely different situations.  

Mr. and Mrs. Spender eagerly wanted to purchase a home.  They were tired of renting and had two kids with one on the way.   They didn’t have a lot of money in savings and their credit had a troubled past (some of it was medical and some was plain irresponsible).    They live paycheck to paycheck but they are anticipating receiving raises and bonuses from their employer.   Their credit report shows that they rely on their credit cards and you can see on their bank statements that they dine out a lot and spend their money on frivolous extras.  

Based on their credit scores, I was able to provide them with an 80/20 from a sub-prime lender who does not verify where their funds are coming from for closing and would allow for the seller to pay up to 6% of the closing costs.   I structured their preapproval with the seller paying all the closing costs.  In fact, at funding Mr. and Mrs. Spender receive a check back for a majority of their earnest money.

Not long after closing, the Spenders discover that the gas heater in their home was defective (apparently this was missed on the home inspection?).   It just so happened that the repair company they called to repair it had previously serviced it and informed the previous owners that it needed to be replaced.  Mr. and Mrs. Spender decided to take their Seller to Small Claims Court and their Agent attended with them.  I had asked them what the results were, here is their edited response:

“Yes we took them to court and even though we had all the documents showing that the (sellers) knew the furnace needed to be replaced and needed to be fixed the judge did not find that we had proved our case… so we got nothing.. (the Real Estate Agent) came with us and she was just as shocked…  She too was amazed that all the paperwork we sign to protect us from buying a home with flaws, the (Sellers) even stated and had to initial that there was no problems with the heating system and even though we had documentation to show that they knew there were problems and didn’t disclose it… we got screwed to be honest…. They knew.. They didn’t care… and the judge just wanted to get out of there… It was a joke…

Buyer Beware – New Construction Sites

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[photopress:images_1_2_3_4_5.jpg,full,alignright] I wrote an article earlier today about a scammer. I can almost appreciate the creative talents of an obvious scammer like that. But when it comes to the real estate industry, I just want to puke.

I stopped into a new construction site yesterday to evaluate it for one of my clients. There are four people in the room. A guy sitting at the site plan talking to a young asian couple and a woman standing a bit on the side. I see the guy giving the “hard sell” about two and only two “available” lots. I’m standing back and looking at the site plan and I see about 50 available lots. Only two of them have “available” stickers and 6-9 have a sold sticker. So doesn’t that mean all the ones with NO sticker are “available”?

For some reason the young couple doesn’t “get” this, but I just keep my mouth shut and wait and watch. Can’t quite figure out who the woman in the room is yet. The guy tells the young couple something about how Tuesday or Wednesday is the deadline for them to get one of those two available lots. They thank him kindly and leave to think about which one they want, if they want one at all.

When they are out of earshot, I ascertain that the woman is an employee of the builder before I step up and say, “I’m here to help one of my client’s pick a lot. Where are those big electrical towers I saw when I drove up, but don’t see on the map here?” At this point point the woman gets obviously “annoyed”. I continue to ask questions about all of the good lots. The woman keeps trying to push me at the two “available” lots. I ignore her and continue to evaluate the better lots in the development.

As I’m leaving I ask about the other developments nearby. The guy knows nothing. The woman gives me the whole run down of the builders other projects.

Then they tell me that HE is the agent for the SELLER and SHE is the on-site agent for the BUYER. What a JOKE! She is obviously the closer of the two. She obviously works for the builder and knows more about the builder’s stuff than the guy posing as the “seller’s agent”. What a “Good Guy; Bad Guy” scam that is! Nauseating, isn’t it?

I have one final question. What is the commission to a Buyer’s Agent who isn’t “the builder’s hired closer/buyer’s agent”. He says “FULL COMMISSION”. I say, “What is FULL”. She says 3%. I say, what does the buyer get if they have no “Buyer’s Agent”. She says, they get ME. LOL What a hoot. I said so the buyer gets nothing if they have no agent? No price reduction? No upgrades? No something for the builder not having to pay an extra $21,000?? Nope. Nada. Not an option. I ask if the buyer had lost the opportunity to have an agent if they had “signed in” already. They said no. Great News!

So I leave, I go to my client to evaluate the property they will be selling. I tell them there’s an extra $21,000 on the table for us to include and negotiate, if they buy that new construction (which they had asked me about), or even if they buy a different property. My fee will be less if they buy the new construction, of course, because they were the ones who asked me to go there in the first place to check it out. Well, no. They just said they were thinking of buying in there before I even met them, and didn’t ask me to check it out.

So by poking my head into the New Construction site, even though they hadn’t asked me to, I found an extra $21,000 that would have been left on the table. Turned out they will not likely buy there, at least not before considering other options. My gut says if the builder is willing to pay 3% to an agent, even though the agent wasn’t with them when the buyer first went in to the new home sales office, there’s probably something wrong with the place.

Every not lot sold in a new construction site is available. Maybe not today. Maybe they WANT to sell two at a time because it squeezes the buyer more into making a quick decision. But if it Ain’t SOLD…I’ts AVAILABLE, regardless of the little stickers. No sticker equals available.

ARDELL on "Where is the 2007 Market heading?"

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My prediction has been, that the 2007 Market will be similar to the market of 2006, that being strong and upwardly mobile.  Not necessarily as strong as 2005, when interest rates were lower, but on an even keel with, or better than, last year.

To determine momentum of the market, I look at absorption issues, and reduce the study to a somewhat predictable and mainstream market segment.  To keep apples to apples, I target that portion of the market with the highest number of sales in a year’s time.  The results are almost startling, with regard to upward momentum since the first of the year, and even better than I expected to see. 

Where “in escrow”, which is both STI and Pending, is much higher than “for sale” and/or closed in January 07, the forward momentum of the market is strongest.

Seattle has too many new properties not reflected in the stats (i.e.”1 of 8 townhomes”), as does high end.  I am using the market segment I find is best for prediction purposes using the MLS, that being Redmond (98052 only), Bellevue, Kirkland and Bothell (98011 only).  I am also using “up to $650,000” as that is the segment with the most properties changing hands in a year’s time, based on the stats I did on a running basis last year.

I also use this market segment because I can readily visualise the properties involved, and so my conclusions are more valid than areas like Tacoma or Snohomish or even all of King County.  The segment I use, accounts for both strongest and weaker markets and “residential” vs. condo.

98052 – Redmond – 37 residential for sale, 40 in escrow and 18 closed in Jan. 07; 44 condos for sale, 69 in escrow and 19 closed in Jan. 07.

98011 – Bothell – 40 residential for sale, 37 in escrow and 18 closed in Jan. 07; 15 condos for sale, 28 in escrow and 15 closed in Jan. 07

98034 –  Kirkland – 35 residential for sale, 29 in escrow and 27 closed in Jan. 07; 32 condos for sale, 37 in escrow and 25 closed in Jan. 07

98033 – Kirkland “proper” – 23 residential for sale, 15 in escrow and 19 closed in Jan. 06; 50 condos for sale, 62 in escrow and 21 closed in Jan. 07

98004 – Bellevue – 4 residential for sale, 2 in escrow and 1 closed in Jan. 07; 27 condos for sale, 21 in escrow and 8 closed in Jan. 07

98005 – Bellevue – 5 residential for sale, 4 in escrow and 2 closed in Jan. 07; 14 residential for sale, 40 in escrow and 8 closed in Jan. 07.

98006 – Bellevue – 17 residential for sale, 13 in escrow and 9 closed in Jan. 07; 20 condos for sale, 14 in escrow and 6 closed in Jan. 07

98007 – Bellevue – 5 residential for sale, 9 in escrow and 5 closed in Jan. 07; 6 condos for sale, 12 in escrow and 16 closed in Jan. 07

98008 – Bellevue – 18 residential for sale, 20 in escrow and 11 closed in Jan. 07; 1 condo for sale, 4 in escrow and 4 closed in Jan. 07

98005 is a bit skewed, as Woodbridge and Oasis are long escrows, so 40 in escrow is not reflective of a less than 30 day market activity.  New construction in escrow will always throw off momentum stats.  That is why I don’t do the high end this way when I am looking for “people’s recent decision to purchase” forward momentum.  There is some of that in others, but not as much as in 98005.

I also break it down this way, so people can see where they might most likely find a single family home priced under $650,000, or where they might most likely find a condo at an entry level price.  The highest numbers will equal the highest ongoing availability, or whether you are looking “for a needle in a haystack” in that area.

2007?  If you list it, price it well, it looks good and is priced under $650,000…it WILL sell.

Quick Update on Loan Originator Licensing

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Since I’ve covered Loan Originator licensing before on Rain City Guide, I thought I should provide this update.   Apparently DFI is loosening up on their previous decision to not allow LOs to take loan applications if they did not submit the required information prior to the original January 31, 2006 deadline.  

So if a Loan Originator did not follow the new simple rules before January 1, 2007, they can still practice business if they just complete DFI’s online application, the MU4 form and submit their fingerprints for the background check.    As a Licensed Loan Originator who was able to take time out of my busy schedule to comply with DFI’s requirements, I’m just a little concerned and I hope this is not a trend.

 

 

Children, Can You Say "Suitability"

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If Congressman Barney Frank has his way, all mortgage originators will have to utter those words in the back of their minds when considering loan options for their clients.   Frank is not just any member of Congress, he happens to be the new chairman of the House of Financial Services Committee and his top priority is to create national laws to protect consumers from predatory mortgage practices.

Recently, on The Perennial Borrower post, I was asked by RCG readers how do I determine what loans are right for clients with all the options that are available in today’s mortgage marketplace.  It takes a great deal of determining what the available financing options are, what their financial plans are and then what mortgage makes the most sense, or is the most “suitable”.   This doesn’t happen automatically for every borrower with every loan originator.   Which is why states like Washington are now licensing Mortgage Brokers and Congress is looking into the same on a nationwide basis.  Currently, when we have subprime lenders calling on our office, they promote “how low they can go” in the borrower pool.   55% debt to income ratios are common–heck, you hardly have to be re-established out of your bankruptcy if you don’t mind the interest rate.  Can’t document your income, assets…don’t have a job but your credit is good–fantastic, we have a loan for you!  It’s true, there are a lot of mortgages that seem crazy and while they may not make sense for some, they do for other clients.  Suitability.

According to Kenneth R. Harvey’s article last Saturday, “…a new national standard might require loan officers to determine an applicant’s suitability for a particular loan program based on:

• Employment status, income level, assets and likelihood that income or employment could change;

• Other recurring expenses and the effect they could have on the borrower’s capacity to repay;

• The potential for higher future monthly payments based on the structure of the loan.

A suitability standard might also ban brokers and others from steering less-sophisticated borrowers to higher-cost mortgages than they qualify for, such as pushing them into complicated higher-rate subprime loans when they could qualify for prime rates and simpler programs.”

This sounds great…however; there is always another side to the story.  NAMB is concerned this could “lead to accusations of discrimination.”  I agree, I mean, are loan originators to provide IQ test to borrowers before determining if they truly understand a more sophisticated loan?  Who are we to judge?   Many times, this surprises me, I may not physically meet my client.  The entire transaction may take place over the phone or internet.  You do get a “feel” for whether or not a person understands the mortgage product by the questions they ask, but how do you really know?   If you’re a borrower who wants an option ARM and a lender (deciding you are less-sophisticated) insists on giving you a 30 year fixed, have you been discriminated against?

2007 should be a very interesting year in the mortgage industry.

End of Month Fireworks: LOE's and YSP's

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(LOE) Letter of Explanation:

Can a loan officer draft their own letter of explanation (typically to explain issues on a credit report or some other circumstance) on behalf of the borrower? Is this ok, ethical or worse, fraudulent. If they can draft the letter and the borrower signs it, is it acceptable at that point? If underwriting became aware of this, even though the borrower signed the form indicating that it is a true statement, would that fly? My wife and I are arguing over this, but we don’t know the answer.

YSP (Yield Spread Premium):

There may be some agents that do not understand this, so I’ll let the loan officers explain its meaning and various uses.

Recently, a borrower at a signing was given a brutally clear disclosure/explanation of the YSP as part of their loan package. It disclosed how the YSP could be used to assist the borrower in paying for closing costs, or buying down the interest rate or used as additional compensation to the loan officer for INCREASING (this “increasing” verbage was on the disclosure and not used here for effect) the interest rate over what the borrower could have received. This disclosure actually stated the interest rate on the note and the specific amount of the compensation going to the broker over and above the 1% loan origination. I’ve never seen such a clearly explained YSP disclosure. Many lenders do not have a YSP explanation disclosure as part of the loan documents.

Did the disclosure or the loan officer (LO) kill the transaction (with borrowers who had sterling credit, pushing the envelope with a 3 yr. pre-pay penalty AND the YSP)? I really would like comments because my guess is that the LO will blame the lender. In this case, the borrower was highly concerned (there is a better word for it , but concerned will do) and promptly called the LO to discuss the situation and I’m speculating that the conversation also touched on why this disclosure was not given when they made loan application or on the GFE. The borrowers promptly signed the rescission and left. Although I am somewhat aware of up-front disclosures on the lending side, perhaps someone in the business could shed light on this. Obviously, you cannot know loan fees until the lender, loan program and interest rate is chosen.

Lastly, should any escrow firm be entitled to a full escrow fee for fulfilling their job and recovering any third party fees incurred during the escrow period? Any escrow/title/attorney folks want to comment on that?