Category Archives: General

Humble Pie: how to lose a customer(s), forever.

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Tuesday morning this week I spoke with an agent customer who called to speak with an employee who happened to be taking well deserved vacation time. The agent discussed sending over a transaction but only wished to work with this staff member. They had a great working relationship on prior transactions. After I indicated that our employee was away on vacation and that all e-mail sent to our employee would be forwarded to the appropriate staff, I offered to give an additional e-mail contact for Lynlee (owner) thinking this would put the agent at ease. The agent agreed and we waited for the transaction to come through. It did come through later in the afternoon and all staff members received the transaction virtually simultaneously with no problem. The agent’s e-mail remarks were generally, ‘here is the transaction with the attachment.’ No e-mail flags or return acknowledgement asked.

The following day around noon I received an e-mail from the agent. The agent stated abruptly that because there was no response to their e-mail they elected to move the transaction to the title company escrow department that was named on the purchase & sale agreement. To say that jaws dropped was an understatement and this situation was a first for Lynlee in all the years in escrow and for our office. Lynlee and I discuss how to diffuse difficult customers and clients all the time– something you have to have in your DNA if you wish to survive in escrow. She is a master of this just by her demeanor.

Immediately after receiving notice via e-mail that this customer was not pleased, I contacted the individual by phone. With my mind spinning I mentioned that we were confused, particularly after doing work for this agent before. The customer indicated that they moved the transaction because we had not immediately responded. Flustered, I focused on the act of the agent. The transaction was closing at the end of April and we had the transaction in our office for a matter of hours.

In the end, I asked Lynlee how she would have handled it any differently. She said, “first, apologize, and lastly, apologize. Then, get back to work on the important transactions at hand.” While I realize that it is impossible to please everyone, striving to please everyone is paramount. I lost my composure, essentially driving home the point by asking if this agent would like us to drop every other transaction we are working on to assist them with a transaction that never even started—a very poor decision on my part. In hindsight, I should have asked, “in the future, how would you like me to handle your communication and correspondence?

It may not be your business…but it is all mine!

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Two years ago, our company switched our loan operating system to Encompass, so I have data available for the past two years (closed transactions from March 2005 – March 2007).   I’m pretty surprised at the results after analyzing my purchase transactions and so thought I would share this with you.

Mid Credit Scores

3% had credit scores between 600-619

17% had credit scores between 620-679

25% had credit scores between 680-719

47% had credit scores between 720-799

8% had credit scores above 800

25 % of clients purchased with 100% LTV Financing (80/20 or 100% LPMI)

Average zero down mid credit score = 723

7% FHA Financing

  • Mid credit scores ranging from 644 – 744
  • Average FHA mid credit score = 720

39% had 20% or more for down payment.

The most popular loan programs for my clients:

  • 47% opted for a 30 year fixed conventional
  • 26% have 5 year fixed period ARMs

So what do I make of this?   The consumers with scores under 620 will have a much tougher time, if they’re able to purchase at all.   Especially without a down payment of 5% or better.   Depending on credit history (1-2 years of no late payments), they may be able to go FHA or VA for financing.   The 3% (credit scores of 600 – 619) of my clients who I helped with financing over the past two years, would probably need to go back to drawing board and work on their improving credit scores (and, more importantly, work on changing their credit/spending habits) before being able to obtain financing for a home.   With that said, out of the 3% who were able to buy, I’m only worried about two buyers who may not have followed my advice of working on their credit and revamping their budget (and one of them has a 5 year fixed period ARM).

The 17% (credit scores between 620-679) would probably fit into FHA financing.   Over the past two years, most of my clients would opt for 80/20 or 100% (LPMI) financing over FHA for the following reasons:

  • The upfront PMI (1.5% of the loan amount) is no longer refundable on new loans.
  • Monthly PMI was not tax deductible (VA does not have PMI) for loans originated before 2007.
  • The payment with 80/20s was lower than FHA.
  • Borrowers could keep the 3% down (required with FHA) in reserves instead of draining their savings.  

This information is just a reflection of my purchase business from March of 2005 to my closed transactions as of today.   Historically, I have served more south King County families.   Just over the past year, with my move to Seattle, my business is beginning to expand to Seattle and Bellevue areas.

Before reviewing this data, I was certain that a larger percentage of my business was zero down or subprime.  Now I can see that I’ve done many zero down/subprime “prequalications or preapprovals” and they just didn’t pan out…but the effort that goes into a preapproval almost feels like you completed a transaction…especially for a subprime buyer. 

Again, I don’t represent every lender…just little ol’ me!  😉

Winds of Change; The Rise and Fall of the Subprime Market

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This is part one of a series of blog articles on the subprime mortgage market correction. In today’s article, I will briefly sketch the rise and fall of subprime loan products and their relation to predatory lending practices within a capitalist system.

When I first entered the industry in 1985, Conventional loans were the cream of the crop. There was no risk-based pricing. Everyone received the same interest rate on their conventional loan whether they had great credit or a few late payments. Homeowners with very poor credit, lack of job stability, zero cash reserves, and unverified source of funds to close, were not approved for a mortgage. It was a very big deal to decline a loan. As a mortgage loan underwriter, I was told our job was to make loans, not decline loans. We had to try our very best to help our company figure out a way to help the homebuyer. Declining a loan was serious. We had to state rational, good reasons why a homebuyer did not qualify. That all changed with the introduction of risk-based pricing into the mortgage lending market.

20% down
10% down
5% down use to be considered very risky.
3% down buyers were directed to FHA loans
0 down use to only be available to veterans
0 down seller contributions to closing costs is currently the norm for first-time homebuyers.
0 down seller contributions, pay-option ARMS, interest-only, negative amortization use to be available only to the most savvy and credit-worthy of homebuyers.

Hard money which was re-named subprime lending moved in the same direction. Subprime started out years ago with high interest rates and a very large down payment required. In our capitalist economy competition heated up and we saw a relax of credit standards in the same direction; from high down payment to 0 down, which coincided with the introduction of risk based pricing. The more risk, the higher the price.

This ended up pushing a huge amount of homebuyers into the market, and infused the industry with a tremendous amount of job growth in the lending, banking, title, escrow, appraisal, and real estate agent arena. Corporations must earn a profit (within the bounds of the law) so corporations continued to push for profit growth. We live in a democracy (although my econ professor believes we live in a system where corporations control our political system.) It doesn’t matter which political party holds power: Democrats or Republicans. BOTH parties push homeownership onto the American public as the dream every person in America ought to be able to achieve. Government-sponsored, low down payment homeownership programs sprung up all over the country. On a side note, it might be an interesting topic for a longer post to see how those homeowners are doing default-wise.

About four to five years ago I started seeing a lot of real estate agents structure offers for 0 down clients + seller contributions to closing costs. The mortgage products were out there being marketed by wholesale lenders to street-level loan originators.

In the classes I teach, I continued to bring up the question: “What happens if the house doesn’t appraise?” The agents answer, “The house will always appraise; we’re in a rising appreciation market.” My follow up question is, “When you create a new Comparative Market Analysis (CMA) a couple of months later on a similar home just down the street, don’t you want to know if that sales price included seller contributions?” Everyone answers “yes,” but at that time, there was no way of obtaining that information short of calling the former real estate agent. Some agents return phone calls of this nature, some do not.

With little regulatory oversight in existence for mortgage brokers and consumer loan companies, (although they argue that they are HEAVILY regulated) the mortgage brokers, consumer loan companies, and the wholesale lenders have had a field day with profits. ALL the real estate agents I talk to, and I meet thousands of real estate agents every year, with regards to predatory lending considered this a problem of the mortgage lending industry, acknowledging that there “could” be effects on the real estate market, but without actually feeling any of those effects it was always someone else’s problem.

Our state regulators DO have money set aside to go after the most egregious cases of predatory lending and mortgage fraud. However, government was never intended to police every single deal written by mortgage brokers and consumer finance companies. There is just not enough government re$ources available to do this, and there never will be. In Part Two of this series, I will outline possible solutions that go beyond harsher government regulations.

Every one of us in the industry WILL feel the effects of the subprime collapse. We might feel it in more or less intense ways, some of us sooner, some of us later, but this will affect us all. From Rhonda having to make those difficult calls to homebuyers to real estate agent’s homebuyers who were approved last week and now those loan products are now no longer available.

On the up side, the industry might experience a rush in homeowners seeking to refinance into fixed rate mortgage loans which will lead to an increase in business for title, escrow, appraisal, and lenders this year. Mortgage brokers and consumer finance companies that blatantly ripped off consumers will not see repeat business. Those customers will go elsewhere, as they should. Mortgage brokers who have ONLY done subprime will find it challenging to become approved as an FHA lender as FHA has many rules to follow including the requirement for loan originators to be W-2 employees and many brokers pay their originators as contract workers. Consumers are sick and tired of bait and switch advertising and hopefully won’t fall for it this time around. Those companies will go down, their loan originators finding jobs scarce since their only training has been hard-core, script-memorizing, pressure-laden sales tactics. They have specifically chosen to be in subprime for the money and only the money. They will exit the industry and find another unregulated industry.

Treating home buyers (and refinancing homeowners) only as a tool to maximize profits is one business model that is no longer growing profits at previous rates. These companies are refi machines built on marginally to blatantly deceptive direct mail or email campaigns and they exist in every market in the United States. The market now sees a decline in profitability and in a capitalist system, profit drives morality: what’s profitable is good, what’s not profitable is bad.

Brokers, lenders, and banks that have always operated their business with a foundation of treating consumers with respect will survive and thrive. By respect, that means declining some loans because sometimes this is the most respectful thing to do, and yes, real estate agents, this WILL affect you, no matter what price range or neighborhood you’re in.

It is way past time for a mortgage market correction and I am hopeful that our current subprime crisis will lead us to a better place in the mortgage lending industry. I for one welcome the winds of change.

Part 2 of this blog article will examine the deeper relational-structural issue at the foundation of our current mortgage market correction and propose possible solutions.

A look behind the Shack, Part 1: Speed Kills

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Really, in the world of the web, slow speed kills. And most people only think about the length of time it takes a website to load when it is taking eons to show up. For static sites, meeting the magic four second page load time isn’t too hard, but for sites with lots of “dynamic content” (fancy menus and whatnot) and maps, it becomes sort of a trick.

Many (most?) fancy real estate search sites are plagued by slow load times – see the real estate 2.x person’s site reviews to see scathing analyses of how long it takes to for many sites to load. In light of this, we took great pains to make our site both feel and be speedy and, if I don’t say so, I think we’ve been pretty successful. On my old-ish computer, the Seattle real estate page typically loads in under 10 seconds (we could still do better on this!) and house detail and nearby pages typically load in under 3 seconds.

One of the tricks we employ is we don’t actually shuffle visitors from a complete page to a completely new page, which means we don’t have to reload the time-consuming Google Map or any of the stuff on the sidebar. Instead, we load little subpages within the site using AJAX (which is, I believe, a dumb acronym). When you click to see the details for a house, we only load up those details and leave the side and top of the site alone and intact. When you click back to the map tab, it’s already there waiting for you because it was just hiding behind the house information.

There are some other tricks that are much more technical: before we launched in December we did a bunch of optimization to cut down the time it takes our database (with over 30,000 western Washington properties currently for sale) to find and spit out the houses that match each search. Currently it it returns the ‘shacks’ that match your search within a second of you dragging the map around – the rest of your wait is the time it takes to actually send and display that information on your screen.

The dynamic updating introduces a can of worms of it’s own, including longer development time, but we think the tradeoffs were entirely worth it.

This is the first in a series of “Behind the Shack” themed posts. If you are especially interested in one aspect of ShackPrices.com, let me know and I’ll try to write about it!

Sell Pays – Buyer Deducts – Get out those HUD-1's

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[photopress:tax_1_2.jpg,full,alignright] When the Seller Pays the Buyer’s Closing Costs, the Buyer still gets to deduct those that are tax deductible.  Discount points to buy down the interest rate, may be a selling point for the seller, if interest rates are holding people back from purchasing.  Back in oh…about 1994 or so when the market was weak, sellers were offering to “buy down the rate”, and the IRS passed a rule saying seller paid discount points were tax deductible by the buyer, even though the seller paid them.

I have had accountants argue this point with me, saying it is not so.  But it is.  Those of us in the business back then remember it well, as it was retroactive, and we pulled all of our old HUD 1’s out and sent them to our clients with the new law, so they could file revised returns.

“The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller’s.”  This quote is from an IRS site.  The actual rule is not as clear as this consumer friendly explanation. 

Of course, consult an accountant about this, and also about the real estate taxes you may have paid to the seller as reimbursement, and not to the County direct.  Get out those HUD 1’s and bring them to your tax preparer along with your income and expense reciepts, if you purchased a property this year.  And if the seller paid your closing costs, make sure you have those costs itemized on the HUD 1.

Any closing costs that are tax deductible, not all are, are deductible by the buyer, even if the seller is the one who is paying them for the buyer.

Is this the new look and feel of Ballard?

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We stopped in at the Lock & Keel this weekend with some friends and got a chance to see a newer side of Ballard. I recall from only 10 years ago what a sleepy little town feel the downtown area had before all of the newer development happened. That, and all the old Ballard jokes.  Granted, I like the new stuff too but going out can be a dodgy experience.

Anyhow, we were playing pool and having a beer all the while surveying the very eclectic crowd within the bar. There were lots of tattoos and piercings – which is not a big deal nowadays and is actually standard attire for the 20-something set. I have to say that “Scott from Kent” was certainly airing a lot of testosterone with a lot of that in the form of screaming like a Marine out on his first leave since making it through bootcamp. And he looked like a Marine. Then we had “Andy” who was a soft spoken Sacramento transplant (got here 2 years ago) lamenting the (usual) lack of friendliness of Seattle-ites as he hadn’t made hardly any friends or contacts in those two years since he’d moved here.  He was certainly doing his best to become a buddy to all of us (we had about 7 of us together) and we did enjoy playing pool with him we just weren’t about to invite him over to someone’s house late at night after having met only 2 hours earlier.

Then there was the bearded salt-and-pepper haired middle-aged attorney in the flannel button down shirt whose gut hung out the bottom of his layered t-shirt. We found out that he defends child molesters for a living and he was more than happy (unfortunately for us) to share some of his stories about work. Apparently he missed the facial and body language cues that would have clued him in to how disgusted we were by his chosen line of work. We kept trying to get away from him but he just kept coming around. Creepy.

While the venue is big enough to hold a lot of folks and the beer is good you have to keep an eye out on who wants your attention in this bar.  Next time I’m going to Volterra or some other place for the higher end version of Ballard that I like better.

If it smells, it doesn't sell – planning for pets in home sales…

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There truly is an adage in the real estate industry of “if it smells, it doesn’t sell”. A great article for dealing with pet odors is at this link.

This is something that, as a real estate agent, I run across frequently. With the number of cases of asthma and allergies rising in the US it’s even more important that pet owners be good about cleaning odors and allergens from their homes before and during the time they sell.

Allergies are pretty common and if a person walks in your house and is hit with the smell and/or allergic effects of a pet you can bet that this is where the home tour ends. No one will push their way through an allergic or asthma attack to see your house. A thorough cleaning is in order and you’ll want to be super-vigilant during the time your house is on the market to keep hair and dander levels down. If it makes sense to replace the carpet before going on market, and maybe sending the pup to a friend or family member’s house for a week, you should consider it.

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Plus, some pet smells are in more than just the carpet. If a pet has had a long history of soiling a carpet it is very likely that the wetness has penetrated to the subfloor which will also need replacing before the smell can be eradicated.

We’ve found that it also makes sense to have a plan in place to handle how your pet will deal with the stress of having your house on the market. Some dogs and cats have difficulty with strangers and that’s exactly who’ll be tromping through your house at all hours of the day while you’re at work. Letting “Fido” or “Sam the cat” run around loose is not the best idea because the pet could get out and get lost. Animals tend to sense the changes that are coming because of the increased activity around the house so preparing ways for the pet to be soothed and kept safe will make for a better experience for everyone. If you’ve crate trained your pet then you’ll be ahead of the game in getting your pet prepared for the visitors you can expect while waiting for the perfect buyer to choose your home.

From the new buyer’s perspective (and an agent’s) it’s not fun to walk into a house just to be met with a dog that you don’t know if it will be aggressive. Plus a portion of the population is also phobic of dogs – no matter the size. If the dog hears the agent getting the keys and unlocking the door most likely, if left loose in the house, the dog will be at the door. If barking is involved it’s possible that the prospective buyer or agent may say “let’s just pass on this one” for fear of what could happen as soon as the door is opened. Believe me, liability is an issue we all have to deal with on a regular basis. Just because your pet is usually very sweet and loving to you doesn’t mean that it will be to every stranger that comes into the house. Most pets are territorial by nature and you don’t want to get hit with a lawsuit for a dog bite just as you’re trying to sell your house. The number one insurance claim each year for residential property is dog bites.

A new item that was brought to my attention too regarding keeping houses clean and free of pests is dander and pet food sitting out without being in closed containers. A client of mine recently had an infestation of carpet beetles invade their home. The pest control folks told them that it was likely a combination of pet dander, hair, and open pet food that brought the little critters in. Specifically, the pest that showed up are carpet beetles. Read more about them here: Entomology info on carpet beetles  Be sure to put your pet food into sealed containers; either metal or plastic. Plus, the general smell of pet food isn’t too pleasant to humans so you don’t want that wafting through your house while you’re trying to sell it.

Pets are a wonderful addition to any home and family but they need to be considered just like any other family member and they need to be part of your planning when you’re ready to sell.

Email Overload – 50,0000 emails

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[photopress:images_1_2_3_4_5_6.jpg,full,alignright] I’ve done some simple math calculations and it seems that I have a minimum of 30,000 incoming and outgoing business emails in a year’s time. That’s just me personally, and not my partner or anyone else. That is business only and not including JunkMail or emailed property flyers or ads from Title Companies for Clock Hour classes, so I’m adding 20,000 for the crap to the 30,000 known to be business.

Big file emails, like Rhonda’s done in html, can be very short, like “Hi!”, and yet be large file size.

Sometimes short emails have a huge conversation string attached, and those can get pretty big too, even though the current message is “OK”.

Just adding this info to the now long “Disk Space” comment thread. I don’t imagine Gmail to be a good option for that much email. But I could be wrong. There must be different answers for a 50,000 email a year person, than a 5,000 email person…no? So thought this estimate of email usage might be helpful. This also does not count the emails I send directly from the mls with property links. Just those using my Outlook for email on the laptop.

Thank you for all of your suggestions so far. No “low disk space” warnings today! YAY!!

Disk Space vs. Memory – Laptop

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[photopress:pho.gif,full,alignright]I’m Pulling My Hair Out over LOW DISK SPACE!!! I need your help!!

Given the volume of emails I get with huge contract attachments, I keep getting “low disk space warnings”. I’m cleaning, I’m defragging, I’m erasing stuff I really don’t want to erase. STILL GETTING “low disk space” warnings and sometimes freeze ups.

I was going to get “more memory”, but was told that won’t help. Memory and disk space not the same.

I was told to get a memory stick to store things in, but I don’t get that. Once I put the memory stick in the laptop to work on whatever is in the stick, won’t I have the same problem?

Will deleting big Publisher files help? Word files? I’m at my wits end.

One thing I do know, if I go out and trade up to more memory and I STILL have disk space problems because more memory is not the answer, I’m going to shoot myself!

Your help appreciated. When I get five different answers I don’t know what to do. But maybe if you guys sort through all the answers, I’ll get a concensus opinion at the end.

Thanks.