It was June 18th and Europe was at war. The French army had marched through the region and wrecked havoc on many cities. The year was 1815. Under the leadership of Napolean they army marched against the "aggressor nations" as they were attempting to mobilize for an assault on Paris. In a town called Waterloo they found a great surprise: the liberators may have appeared unprepared but they delivered the final blow to Napolean's army.
The British suffered huge losses in the battle.
A financial market panic caused a liquidity problem.
Baron von Rothschild saw an opportunity and uttered his now famous and oft quoted (and misquoted) statement: "Buy when there is blood in the streets, even if the blood is your own." We call it contrarian investing. It is my personal style of investing and today, there is much blood in our streets. It is the blood of the American tax dollar - it is our own blood.
Is real estate a safe investment?
Historically speaking real estate is a sound investment. Most of all it is lasting. As a general rule real estate doesn't fall into the sea - although that does happen. Stocks go up and down in value, generally require all cash purposes, generally are not under your control, cannot be improved for better value, generally cannot be leased or tenant occupied.
Real estate can be all of the above. Financed, improved, let to tenants.
Many people do not know that you can hold real estate in your self-managed retirement accounts. IRA real estate investing has kicked up a few notches as of late and there is much opportunity on the market today which make this a very valuable prospect. Single and multi-family housing as well as commercial properties have dropped in value significantly nation wide.
While many people are unaware of this tactic at all most are unaware that your retirement account can be the source of the down payment and it can be the mortgagor to finance properties held in it. Yes, it is a fact. With as little as 30% down payment coming from your self-directed retirement account you can achieve a long term, conventional style loan, to acquire and hold properties in your retirement account.
The loans are slower to get closed but just about as fast to get approved. They are made to the IRA and the rates are very reasonable for non-recourse investment grade loans.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
Last night we had a "not-a-birthday-party" party for my wife's birthday. We made home-made pizza right there with everyone at the party and it was a blast! I found out my favorite girl-buddy is going to be a mommy and then we all did fireworks, which Lane Bailey will tell you is a household favorite trick. We ate and ate and ate and ate and this morning, thank God, I have gas.
Yes, my tank is full. You see we haven't had much gas since Ike knocked down production. By Federal law we have to use a special "Summer Blend" of low sulfur gas which has not been available, I suppose due to refinery difficulties, since Ike took them offline. But this morning with the final car at less than 1/4 of a tank we found gas.
Why do you care? Well, you may because I'm going to talk about being prepared and ALWAYS being prepared. It is, after all, the Boy Scout's motto: Be Prepared Always. I wasn't. For the first time in literally years all 3 of our vehicles had less than 1/2 of a tank of gas and my 5 gallon lawn tool supply had only 2 gallons. In all of my married life we have kept our cars topped off every week and that lawn tool supply completely full.
KEN I DON'T CARE, WHY ARE YOU MAKING ME READ THIS!?
Because it's all about being prepared, like I said. Two years ago, actually in August of 2006, we had a staff meeting. Oh we were "rocking and rolling" back then. Sixty loans a month wasn't out of the ordinary for my little 14 person staff. Nine originators. Yes, we were having fun. And we were spending money. My wife and I had just completed construction on our new home and we were stuffing it full of furniture and curtains and toys. But there was a smell in the air that made me say, "HALT." In that meeting I said, "this isn't going to last so every one of us need to start preparing for the change." I didn't know THIS was going to happen though.
And we did adjust to a more conservative spending policy in my home and business.
And I am SOOOO GLAD.
We started saving and cutting back on spending and quit (I do mean QUIT) eating out. It was probably those moves that have allowed us to stay liquid this long. We still have a little of that American disease in our blood stream called "Charge and Spend" but we've been pretty much weened from the credit card umbilical.
And now my final point.
Home mortgaging got out of line at the time the Fair Housing Act was amended so as to almost force banks and lenders to make loans to unqualified borrowers. Quite frankly if you disagree that's fine but I'm right. The year? 1988. That's when this started. That's when Fannie and Freddi guidelines were loosened and the secondary market followed suit.
On 8/8/2007 I wrote: The Baby, The Bath Water and The American Dream and in it I said, "And I am SICK AND TIRED of hearing the ENTIRE LENDING INDUSTRY BLAMED for capitulating and answering the cries and pleas of the nation with funding The American Dream. The talking heads shouted "equality!" "fair lending!" and the investors answered and provided EXACTLY what the masses demanded."
AND THIS HAS WHAT TO DO WITH KEN HAVING GAS?
I wasn't prepared. I was running on empty. Why? Because I didn't stick to my own operating policy by which I had lived for years. Had I done so would not have had a personal fuel crisis. Had I not let all of my vehicles get down to less than 10 galls of supply I would not have worried about when the tanker was going to come and I would not have written this post.
Had the Fair Lending Act not been amended in 1988, had we not changed our operating standards, we would not be in this financial crisis today - at least because of that issue. No blame here, just response to all those trying to lay blame "on this current administration". WE ALL DID IT! Every one of us who votes and every one of us who does not vote. We all participated in a little way whether or not we oppose the bail-out right now.
Can we please move forward and get this shortage over?
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
Because I have so much respect for so many of you here I had a difficult time writing this - but it's a huge background noise among lenders and brokers. I mean it, seriously, I respect you guys very much and admire the majority of you more than you know. I guess you know I'm prefacing something not so pleasant. Let me say this is a time for us all to work together and I truly want whoever reads this to have an incredible weekend!
Let me also preface with this: These words were very difficult for me to write and publish. Everything I do in this industry revolves around the client. If the client is not satisfied then I have failed in my job. Even when the client is uneducated and limited in home buying experience it is my duty to see that my employees treat them with respect and concern. Ask anyone who has every worked for me even if I terminated them they will tell you it is always Customer First.
I do not think, nor do my employees think, that all agents are like this series of events I am about to recount. Likewise all Loan Officers are not uneducated, greedy thugs who play putt-putt at work while they wait on those huge commissions to roll in. There may be a short one in Texas but he's rare. Please understand the point of my blog is to bring this to attention and make it a point of discussion. It is for leaders in the industry to take note and agree to do something about this attitude which, to your chagrin and mine, is all too common. I know how common it is because after closing several thousand loans I have dealt with it first hand and as an industry leader.
Not wanting to end my week on this note I will now vent and offer a challenge and state my campaign focus for 2009. I know a lot of you are not going to have favorable comments and there will be some feathers ruffled but this is something that, for as long as I can remember, has needed to be addressed on a global scale. Here goes:
I was just briefed on one of the nastiest encounters my office has ever had with anyone (buyer, seller, agents, broker, attorney, appraiser) since the day we opened. It seems the listing agent on a closing yesterday was very upset that the buyer did not use "her lender" to close one of my loan officer's old school friend's loan and did everything she could to make my loan officer and my company look bad in front of the other agent, the buyers and the attorney which we have never used. As far as the loan itself we compared GFE's and beat the "agent's lender" significantly on pricing and it was a very VERY difficult (and relatively small) FHA loan. The agent continually bashed us to the borrowers and got them all freaked out during the process. She harassed my loan officer from day one. I won't go into all of the details but I just listened back to the phone conversations (yes, when we say this call may be recorded we're not kidding) and this woman was extremely hateful and nasty from the very beginning.
It got worse...
At the closing table she made a completely rude and horrible scene in front of the buyers, the sellers, the attorney and the loan officer. She complained about every little thing including how long it took to close (16 days from the day we received the application - 11 days from the day we received the contract) and how horrific our fees were. She lied about her performance in the industry to try and make herself look better and verbally attacked my loan officer about our fees AT THE CLOSING TABLE. She repeatedly brought up how much better her lender would have done with the loan - you can only guess how I feel about that.
God bless the little 88 year old wife of the seller who said (and I paraphrase hearsay), "Honey, you've said about enough and if you don't want me to start on you about your commission and the way you have conducted business here you need to just sit back and relax."
I love real estate agents. My baby sister is one, my niece is one, my nephew is one and many of my best friend's are agents. I even used to own a real estate company and had wonderful experiences with all of the associates and agents. Today, all of the agents with whom I and my loan officers have a relationship are fantastic to work with and are invited to my home and our social events regularly. I won't let one moody little serpent ruin the punch bowl but I do think this needs to be addressed. In fact I have never required my LO's to go to the closing because this is so often how it turns out with the seller's agent.
Maybe there is a class that gives CE's for snotty attitudes from listing agents? Or was this lady just ticked because she wasn't getting her normal kickback from the Loan Officer?
Because of this very experience occurring a many times over the years I have my Loan Officers communicate only with the BUYER'S AGENT and only with written permission from the buyer on OUR form. We ask that the LISTING AGENT either contact us only once per day (not 7 times, not 4 times) or get their updates from the BUYER'S AGENT.
This isn't being written because it is a rare instance - in fact it is relatively frequent. Buyer's agents are almost always very co-operative and understanding and seller's agents are frequently not. I really want to know and understand why and fix it. Nobody on my staff is a rookie, we're not a "tiny" hole-in the wall company - we're a top performer in the state and our pricing beats every major lender or bank we know of. Our turn times are average and we have all sorts of communications tools and every conceivable mortgage solution available.
While reviewing, today, every encounter I have ever had with a broker about doing a marketing partnership I have become more determined to demand industry changes. Adding to that the things I have just learned from one of my ex-employees who went to a MAJOR national lender but returned to us I am even more determined to campaign for RESPA enforcement. Evidently there is something called an MRA or MSA which is an agreement this lender creates with real estate agents and brokers. If the loan is closed with that lender the MRA/MSA gets $500 to $2000 as a marketing agreement (here-say). In addition to that, as a Director of my company, I have been asked to pay as little as $5000 per month for a 350 square foot office and one of my reps was just asked to pay $18,000 per month to have an office in a big local brokerage!
(Interjection: I let a friend read this earlier today and asked him if he thought I should post this or not. He said POST IT! He's an agent. he is a prominent member of AR. He also asked to know more about these MSA's or whatever they are called. I don't fully understand them but from how it has been explained to me by an employee of the major national lender who inherited and uses them is that the agent and the loan officer enter into a marketing agreement and the company pays the marketing fee to the agent as a result of clients being referred to that lender and closing with that lender. Find an old HomeBanc employee to explain them to you.)
I guess I am weary from the battle. We're still open and still closing loans but having to deal with this insipid grief every day is really breaking my back. If nothing else it's the shear lack of respect many agents give to Loan Officers. It's why I have such a difficult time getting LO's to try and contact agents to tell them about the exclusive programs we have - they don't like being "snotted on" for a lack of a better phrase. Are there LO's that don't deserve respect? You bet. Are there agents who don't deserve respect? Obviously. But this is SUPPOSED to be about the CLIENTS. When things like this happen the poor client gets caught in a web of venom and disdain and leaves with a bad taste of the whole home-buying experience. And for these unfortunate folks it was their first time buying.
Is this an attack on everyone who is an agent? Heaven's no! Is it an attempt to say LO's are always right and agents are always a pain? No way not at all. It is a PLEA for BROKERS and MANAGERS to address this situation with the agents who use that company's and brokerage's name. Not even for the sake of the LO who busts their butt these days to get even strong loans funded but for the sake of the CLIENTS who get caught in the crossfire.
HERE IS MY CHALLENGE: Loan officers, all of you, and lenders, stop breaking the law by paying exorbitant fees in violation of RESPA. Big national lenders you know who is doing this and I am going to start pressuring for investigation. In fact with all of the activity in the southeast (allegedly) from HomeBanc and some very large RE companies I can't believe there aren't people who have lost their license forever and maybe even served a little jail time. Loan Officers STOP breaking RESPA by rewarding agents for sending leads to you - you are not a PART of the problem you are THE problem. BROKERS (RE BROKERS) stop violating RESPA by demanding your agents refer only to the associated broker who is paying your office rent or who have figured out another way to loophole a kickback to you. You, too, are THE problem and it's our wonderful clients who are suffering.
Brother and sister, I know this isn't going to win me any popularity points because it is going to hit some right between the eyes. Frankly, I don't care. I have dealt with this snotty attitude long enough, I have missed the opportunity to provide top notch services for some of the best buyers and agents in the nation and I'm fed up.
As soon as I finish my campaign to save buyer's and owner's ability to get a loan my campaign will be full force to demand investigations into lender/broker relationships and to demand a cessation to kickbacks, payouts and payola. It's a cancer in our industry and drives a wedge between the sales side and the finance side. You are either my friend or my enemy on this so please let me know with your comments.
And either way - do please have a wonderful, relaxing weekend. I'm going to go take my beautiful wife home and make her a nice candlelight dinner for her birthday.
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
When some people say "creative finance" they mean "mortgage fraud". You do it and I catch you and you pay. When I say "creative finance" I mean getting financing by thinking outside of the box but within the law. To help you get focused let's first give some examples of mortgage fraud that some people would class, wrongly, as creative finance:
1. Making a false statement on your mortgage application. This would include saying you occupy or intend to occupy the property as your primary. It would also include overstating your income, assets or employment. A very common piece of mortgage fraud is for an investor to say they receive $XXXX in rent every month when in actuality they receive $XXZZ per month.
2. Providing false income documents. These are very easy to disprove today but people still try them. They think because they go online and buy them from someone online there is some magic way to make them harder to detect. Uhm wrong.
3. Providing false tax documents. Yes we actually got a set of 1040's that were completely falisified. When the Loan Officer asked the borrower to sign a 4506T she asked to speak with me. When I asked her if it would be a problem she said, "Well, yeah." So she left and I sent her file to Agent Law at the Atlanta Field Office.
4. Borrowing the down payment from some other source and indicating it has not been borrowed. Which leads us to the correct use of borrowed down payment.
One great form of creative financing is to borrow your down payment from a friend, family member, your retirement account or any other source. If the money is borrowed there will need to be a letter explaining how it is to be repaid. If you borrow it from a family member they can ask for repayment however including "when the propery is finally sold or refinanced" or "never, it is a gift". The latter is what is called a "gift letter".
Most people falsely believe than you cannot borrow your down payment when in fact you can borrow your down payment. The catch comes when adding the repayment to your debt-to-income (DTI) ratio. If there is no repayment required or repayment is required when you sell or refinance then it does not affect your debt-to-income ratio. If you borrow from your retirement account and your payments back to your account are, for example, $100 per month then that 100 must be added to your debt. So long as your DTI still fits into the guidelines of the loan you will still get your approval.
Another from of creative financing I am seeing today includes trading in your current house. Many builders are accepting trade-ins and allowing a portion of the equity to offset the purchase price. A builder friend/client in my area recently accepted the equity of a home as a trade in and the balance in cash. The builder ended up with a lower monthly payment ona vacant home and sold one with a higher monthly payment (his construction loan) and claimed a sale at nearly full retail.
Government housing grants and down payment programs. While seller funded DPA has been attacked and at least dealt a temporary defeat other less regulated forms of DPA still exist. Talk with your local mortgage broker (not bank or direct lender but broker) about your options.
Quit claim transfer. Although FNMA and FHLMC demanded an end to what they call "wrap around" mortgages or "subject to" deals the most important thing to them today is to get repaid. While the "could" call the not due through the process of activating the Due On Sale Clause (often referred to in error as the acceleration clause) it is highly unlikely they will do so in the current financial environment. Contact a local real estate attorney about how to structure these.
Seller financing. If the seller has the ability to offer true financing which means the property is titled in your name as the mortgagee and the seller becomes the mortgagor then you are doing a true seller finance. Many builders and big volume investors are in the position to do this today.
Family loan. If you are from a large family or have a family member with the means they may be able to purchase the property for cash (at a fantastic deal I may add) and let you repay them on terms just like a bank or lender would do.
Rent to own/Lease to own. I always recommend having a reputable real estate attorney look over the terms of the lease with you to make sure you are getting what you think. Unfortunately a trick of many investors is to wrap you up so tightly into a lease with an option to purchase that you lose your deposit and your tenancy at the end of the first term.
Why did I say call a broker instead of a bank or lender? Believe it or not in many states the broker is more regulated than the bank or lender. In most states, for example, lenders and banks can get a "pass" for being a federally chartered institution and their employees, too, are exempted. Most important to you at the borrower level is that once a lender or bank has said "no" that's the end of the line. Go to another lender or banker and start all over. With a broker the switch to a different investor can be seamless. There is also a false belief that all brokers cost more than all banks or lenders because brokers are "middle men". There is no basis in truth and a study of over 1,000,000 closed loans bears this out.
Whatever you do, shop. If your agent has recommended only one lender find the other two on your own. But do your homework and become an educated borrower. Many national advertisers are well known in the industry for bait and switch tactics. Read this recent post for a little insight there.
There are ways other than calling a broker, bank or lender to get financing that are ethical and legal. Stick to the law and ethics and you won't have to wonder who is calling or knocking on your door.
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
It happens. And if you don't have a very firm grasp of the onion like layers of the loan process it is very difficult to understand why. Therefore to begin let's look at the steps in the process of a loan:
1. Loan Officer accepts an application from the borrower. In the case of a local broker the LO is the person who will be your liaison for the duration of your file. For the national behemoths the LO is more like an operator who just accepts your order.
2. Your credit history is examined and a preliminary credit decision is issued. While this is not your approval it is erroneously referred to as an approval even by people in the industry to get you on the hook. When you hear anyone say you can get an approval in as little as 15 minutes you should hear the sound of the hook sinking into your mouth. What you actually get at this time is a "pre-qualification". It's not worthless but it's not worth a loan ... yet.
3. Your file, now known as a "1003 and credit" is exported into an underwriting engine either through a third party provider or inhouse. Most underwriting engines are provided by a mortgage insurance company, GSE or government program. A "conditional approval" is then received or some other level of approval or denial is issued. This approval is better than a pre-qualification but in the vast majority of cases this is still not good enough to let you stop working (as a borrower).
4. You are given a list of "stips" which are stipulations required to fulfill the approval. If you and your property can meet the stipulations of the approval then all is good! In about 40% of the files on people with good credit, income and assets, and a property acceptable you'll get to closing with no bumps. If, however, even one stip cannot be "cleared" the file may be "dead". Dead means the approval turns into a denial.
From step one to step four as many as 23 people touch the loan. No your loan officer does not work alone nor do they disappear when you hang up the phone only to reconstitute on demand when you need to speak with them. Just as real estate agents don't actually live at the Open House and you don't beam into existence just to do your job. The long road leads to the point that there are many "moving parts" to a loan most agents aren't even aware of. That is not a slam on them just like it is not a slam on most loan officers to say they have no idea how much work the average real estate transaction requires on the sales side.
A great rule of thumb is to wait for the words "Clear To Close". If you hear those words before you, as a borrower, have sent copies of your paystubs or tax returns, copies of your bank statements or an appraisal has been done then dismiss them as rumor and tell your loan officer/processor/CSR you don't believe it is possible to have a clear to close at this point. Exceptions include refinancing at the same lender where your existing loan is or refinancing from an FHA loan to an FHA loan.
Of course there are always exceptions and a good mortgage broker will often do a lot of things you never know about in the course of getting your loan to close. They may take care of some of the stips on their end without your input or knowledge. Yes I *always* recommend dealing with a broker or a lender who also brokers. Why? A denial from a lender like Countrywide or Wells Fargo is a denial for you. A broker or brokering lender, like my Novation Mortgage (licensed to do home loans in Georgia and Florida and commercial nationwide hint hint) can simply move your "file" to the next investor and get it closed without you ever knowing provided the interest rate does not change. A high volume broker can save you money, time and much stress.
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
The majority of news "sounds" bad at first hearing, reading or seeing. There is alot of truth to the fact that there is bad news today - scary news.
But take some joy because here are FOUR absolutely wonderful POSITIVES about today's economic situation:
1. Housing prices are lowered in the vast majority of markets.
For all the people who could not afford the home they wanted 24 months ago the news is great. With 20% down they can get a home with fixed rates in the high 5% range. (Our rate today in Georgia with no bait and switch misleading ads or quotes is 5.875 with an APR of 6.010 - for the AVERAGE borrower. Your rate may be lower or your rate may be higher based on the risk you pose to the lender.)
2. Rural property loans are still available with no down payment for qualified home buyers.
For the nay sayers the problem today is not "these crazy no down payment loans" the problem, in part is loans to unqualified buyers through non-conforming (sub-prime) loans. The people those loans were made to did not deserve the loan. These USDA insured loans are made ONLY to people who can demonstrate their ability and willingness to repay. It is not a sub-prime loan made to someone with bad credit, shaky income and a home they can never afford. Rates are low and fixed. (Available in Georgia and Florida by calling 866-946-0120)
3. Bank REOs are everywhere at literally 60 cents or less on the dollar of actual value.
These are not just for real estate investors. They are for anyone looking to buy real property. They also are not limited to residential properties - many commercial properties have also been returned to the bank through foreclosure and deed in lieu. I will be covering this more and more in the BlackBelt Real Estate Investor's Workshops and Seminars as time rolls on. Just download the free e-book called "Ten Mistakes Every Real Estate Investor Makes" to get started.
4. We WILL recover and this is no time to be afraid to buy the home you need.
The people of the United States are not all greedy, arrogant, ignorant, fools. Just most of us. The few who are not will now do our best to take over while the rest stand like deer in the headlights. There is no reason to have any fear about buying a home today. Even if the value were to decline another 10% over the next two years (which in light of current events is highly unlikely) it is still better than throwing your money down the apartment rent waste disposal. And, AND the value will eventually recover. Values have consistently climbed over the long term since people started keeping track.
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
I have respect for Dave Ramsey. His plan for everyone to be debt free is a good one. Although he and many of his disciples are like hard core vegetarians who believe their way is the only way and anything variant is highly foolish I do believe that the non-mega investor can live and should live debt-free.
But this is not my point - and I'm not here to shoot at Dave Ramsey. I am writing to put the situation into perspective and to demonstrate that people, like Dave, should not be on national television speaking out of their class.
This morning I happened to see the first few minutes of the Morning Show with M&J and among the guests was Dave. The only statement I heard him make was, "We would be fine either way - with or without this bailout. The banks are fine and the FDIC is fine."
Wow.
Incorrecto, Dave. Falsimus maximus.
Very few people know how close we are to total global collapse. We're not talking about a collapse of the American economy - we are talking about a tipping point in the global economy which actually could lead to a paradigm shift in world powers. Not necessarily the super-powers but certainly 2nd tiered nations. I still may not agree with the bailout but I have yet to hear another plan. And I am just about to stick my head into the Halls of Congress for the remainder of the day and will try and disseminate what we learn from today's testimony.
Yesterday I spoke at Emory University at the Real Estate Investor's Institute and the questions and viewpoints told a terrifying tale: even the "cream of the crop" is scattered in their understanding of the depth and breadth of this situation. According to Stephen Friedman we are so close to total economic collapse that $700B is a small price to pay.
How much is $700B? Well, if we split it up amongst all 110,403 members of Active Rain we would each receive $6,340,407.42 - and if we split it amongst all 1,731 members who are currently online we would each receive $404,390,526. It is also enough to give every human on the Big Blue Planet $70 each. Every US resident $2,334 each.
By the end of today, Monday - September 22, 2008, we should have a better idea of exactly how much this will cost and where it will go. We're getting ready to hear proposals from both side starting in about 2 minutes so I'm writing fast.
I think 700B is too little if we're going to do this. I would expect 1.2T would me the more accurate number. IF we turn the redistribution over to the private sector based on bids we should easily recover 80% of our investment within about 5 years through sales of assets. What I will be listening for today is how any new FRT (resolution trust) is formed and empowered and what happens to 2nd, 3rd and other subordinate encumbrances on the assets we are about to purchase.
FOR YOU on the sales side this will mean almost instant acitivity. For you on the lending side it will take a few weeks to shake it out. Well, here we go - the gavel is going down.
I'll be back later today!
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
It happens. All too often if you ask me. A borrower believes they are doing the right thing by shopping around. They call one of the big guys who advertise on TV. They call a local bank. They call a local lender.
There are generally 5 reasons why a loan officer stops answering calls and emails:
1. They are dead. This is an acceptable excuse. 2. They quit or were fired. In this case someone else should have contacted you. 3. You are impossible to work with. In this case their "me" should have called you. That's my lovely job. 4. They lied to you and nothing they told you can happen.
How to know when your loan officer is dead.
Call the office and ask if they are dead. If the receptionist says they are dead - they are probably dead. Ask for a new loan officer.
How to know if your loan officer quit or was fired.
If the receptionist says they quit or are "no longer with the company" - ask for a new loan officer.
How to know if you are impossible to work with.
If you have no or very few friends, are on your third marriage and none of your ex's are dead, if you think everyone sucks and all professionals are idiots - seriously, go somewhere else. Oh, if you think getting the lowest interest rate is all there is to a loan - do the same. Call the loan officer who ...
How to know when your loan officer lied to you
This is not fool-proof but it's a good measure. (A) Never shop for interest rate or closing costs first. Those are very important but not by any means the most important. The most important is getting YOUR rate and YOUR closing costs. Yes, almost every deal has a different number based on YOUR scores, YOUR property, YOUR income, YOUR assets, YOUR job history and a few more YOURS. Besides, if you don't qualify the interest rate is pretty much a moot point (B) Be suspicious of the loan officer's rate if it is lower than what you would see advertised at Bankrate.com - Bankrate has become more accurate over the years even though their accuracy is only an aggregate of what we call "lowballer". (C) If you call ANY mortgage company and ask for a Good Faith Estimate and they send you one without asking any questions ... it's probably not yours and it is DEFINITELY not accurate.
When is a Good Faith Estimate Accurate?
A GFE should ALWAYS come with a Truth In Lending (TIL). You should never trust a GFE until you have submitted all of the documents requested on the "findings", an appraisal of your property has been completed and submitted, your credit history, income history and assets have been validated and a few more little things have happened.
Ken - You're A Scammer and a Liar
Hmmm. So I believe in providing honest and accurate information to my clients. Sue me for being honest and accurate and not sending you a good faith estimate until you have completed an application and I have examined your credit. Here is the REAL truth: a GFE/TIL is trash until the application has been approved. I have NOTHING to hide. I will not publish my closing costs because the government considers that COLLUSION and PRICE FIXING. But I will tell you when we compare our ACTUAL APR's to the APR's you see advertised on Bankrate - we're right there in the game. So how can it be that I occasionally lose a client to an interest rate 2 points lower than mine? (Hint: not ONE TIME has one of those loans ever closed at the quoted rate without some other HUGE factor like discount points or a rate buydown coming into play.)
So how are you supposed to shop?
Do your homework. Understand rates and how they are affected. One simple litmus test is to call around and ask for a rate quote. If they spout off an answer without asking you ANY questions - hang up. Here are the minimum questions you should be asked: Is this for a residential or commercial property? Are you buying or refinancing? Is it for your occupancy or an investment? (Don't lie - that's mortgage fraud). What is your credit score? Are you self employed, 1099'd or W2'd? Have you been on the job for at least 2 years? If not, how long have you been in this line of work and have you had two years of consecutive employement? What is your average annual income? Will anyone else be on the loan with you? -All those same questions for them. Is this a single family home detached? (Condo, quad ...) If purchasing how much down payment will you be making? What is the sales price of the home? If refinancing what do you think the value of the home is today? What is the payoff on your existing loans? How much do you want to borrow? ... at the very MINIMUM they should ask you these questions to deliver an accurate guess.
You can't believe the big guys just because they are big. I got a call from a lender (a big one that loans country wide) offering me a 4.5% rate locked for 5 years. Sounds good, doesn't it? So I played dumb. The operator who called me doesn't know me from Adam so I say, "Wow! Aren't rates in the 6's?" He says yes they are but because we are so big and we do so much volume we have programs the other companies can't do. "Really? Tell me about this loan then."
Cutting to the chase: He knew I had equity and this is a refinance. I'm currently at 5.375% so he had to find a lower number or I'm not interested. 4.5% is lower than 5.375% even if it's only for 5 years - I agree. Since this is a refinance and I have equity in my home I won't have to "bring anything to the table to close". I let him keep talking to see if he told me why. He didn't - in fact he started asking me qualifying questions.
"Wait a minute", I said. "You mean you don't know if I'm qualified for that rate but YOU called ME and offered me a rate???"
Mmm, hmmm. So I asked what the qualifying score would be: 720. And my maximum LTV? 75%. And when the rate adjusts in 5 years - what is the cap? 3%. Mmmm, hmmmm. And since par is currently 6.25% on a jumbo loan how does the loan get to 4.5%? Oh we buy the rate down for 5 years. "Who's we?" We, it turns out, is me.
So how much will this buydown cost "us"? Well, it's 2% per year for five years so about $65,000. Mmm-hmmm. And if I pay off my loan some other way within that five year period, how much of my pre-paid interest (buy down) do "we" get back?
He didn't know. He guessed however much was left. HE WAS WRONG - they would keep it all.
Oh, then there were the almost 3% in lender/closing fees. So another $19,500. No I didn't need to bring anything to closing because they would be increasing my loan amount by $84,500.
So how are YOU supposed to know when the loan officer lied?
ASK POINTED QUESTIONS AND INVESTIGATE THE ANSWERS Assume that if their deal sounds too good to be true it is. Ask other professionals what they think. PROSECUTE LIARS WHO LIE TO YOU ALL THE WAY OR BAIT AND SWITCH YOU. Sue them. Seriously. If loan officers and banks got sued more often for lying to clients to get them to "sign on the dotted lign" this would be a better country.
A couple of days ago I shared a story with Jeff Belonger how I offered a client a 6% rate on an FHA fixed 30 cash out loan on a $165,000 refinance on a primary duplex. Closing costs INCLUDING all lender fees, appraisal, pre-paid taxes and insurance were about $6700. Not bad at all. The client stopped responding to me until I caught him on his cell phone. He had decided to go with a larger MUCH larger bank who quoted him 5.625% with NO closing costs and the bank would buy his rate down to 4.25% for the first year - costing him nothing.
Jeff is probably still giggling. I'm still waiting for the client to call me back because I made him promise to remember that he was given the truth and a fair deal by me and that the other company lied to him. The problem is when that happens it usually is discovered too late. The offending company then says, "Oh, we're sorry. Here are the real numbers and they are about what the original guy quoted but we can close it for that." So instead of the client doing what I would call the "right thing" and coming back to the honest lender with high integrity, they go ahead and fuel the fire - thus proving dishonesty works in America if you do enough television and radio advertising.
It's called BAIT AND SWITCH and, evidently, it still works. While I don't have any information to provide to the FBI I see it happen regularly and it's always the company with the high integrity that loses. So my advice to you? I have none. I lose deals all the time because some other person lies and I refuse to and I will fire a loan officer before they can hang up the phone if I hear them do it. In fact if you call me and ask for a rate I give you a speech followed by a request for a loan application. If that's not how you want to do business, fine - call the liars. Their ad will run while you are on your way home tonight.
See you at the polls in November. Vote for higher taxes and more regulations - vote Obama/Biden.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
If you are a sick individual, as I must be, you have all 3 C-SPAN cable channels going all day, Bloomberg on Satellite and your web browser pointed toward the WSJ. Just typing that makes me want to go wash my hands.
Today's action word is illiquidity. It is not, by any means a new word, just that the market has increased the use of the word over the last several months until today. Today it is in the mouths of even congressmen who have poor control of the English language. One "gentleman" from Massachusetts is bringing me a slight chuckle every time he attempts it.
But why is it in the news and, more importantly, how does it affect me, Ken Cook.
For the past several months my call to close ratio has gone from about 10 calls to one close to about 20 calls to one close. These are inbound calls and not applications. We are currently closing a horrendous 1 in 11 from applications (online, inhouse, phone, etc.). Now to put it into perspective we have long specialized in challenging transactions. The focus of our business is real estate investors as buyer and seller. So we have always contended with things like title seasoning, condition of property and alternative credit.
On the other hand, to keep it in perspective, Lower My Bills, a seller of self-generated mortgage leads, tells me their average is 1 close in 33 leads so all in all we are doing okay. It's just that calls are down by 60%. Which brings me right back to the word of the day, illiquidity.
What the Administration did today was accepted on Wall Street but certainly will be funded by Main Street unless and until Wall Street repays. Dare we place a mark at 4 years from today and revisit to see (a) how much this ends up costing and (b) how much of it has been returned.
Do I think it was needed? No, I think we should have let the economy crash. But then I am a gardner, fisherman and hunter and I live in somewhat of a compound. Am I kidding? No. I believe we should have let it play out. No I am NOT a Marxist - no am I a Weberian. I believe in PERSONAL responsibility and in delivering the consequences where it is due.
But Ken, if we let the GSE's and AIG and the other banking and financial institutes fail it will cause mass failure of the global economy. THAT'S RIGHT! IT WOULD! And by God it would be a long time before the neo-genii made, or were allowed to make the mistakes again. THIS ONLY PROVES THE IGNORANCE OF THE PEOPLE AND THE GREED OF THE FEW MAKES FOR A BAD SCENARIO.
They keep calling it "the perfect storm" and I'm about to puke from hearing those words.
I have always and will always continue to shout that EDUCATION is the lasting answer and LEGISLATION is the lasting cost. So, once again, the American citizens who have been cautious with their investments and concerned about making their payments on time are on the flag pole in their skivvies paying the price for LACKADAISICAL LEADERSHIP (House and Senate not withstanding), UNEDUCATED CITIZENRY (and too lazy to give a crap) and USELESS EXISTING REGULATIONS NEVER ENFORCED.
So here is what I aim to do: Take the money and run. Hey, I didn't make this mess and even though I can fix it that is not my job! So, for the next several months I am going to close as many loans as I can. Buying or selling in Georgia or Florida? That's my neighborhood. Countrywide doesn't care about you, Wells Fargo doesn't care about you, Ditech's parent just spit on you. If you are in need of real estate financing in Georgia or Florida call me. You want to talk politics? Okay, but just call me.
I am hanging up my bid for the Presidency.
See you at the polls in November. I dare you to vote for inexperience in a time like this.(Unless you spend at least 4 hours a day studying politics, reading the Congressional minutes and watching C-SPAN - don't bother to try and convince me Barack Obama is not the worst of all the choices. Unless you like higher taxes and more regulation.)
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
It is most likely the minority of you already know this short story. My early digressions from the central point will be how true the statement that the market runs itself. This is the first time in our history that Capitalism "ran itself" into a more "centrally planned economy" than usually occurs on the brink of bloodshed. America, the great capitalist nation where for centuries it has been proven that a free market society can flourish and dominate. Except for that thing back in 1837. For those of you not old enough to remember Google Specie Circular.
We the People, of the United States of America, now own 40% of existing mortgages and 60% of future mortgages. We also now own 80% of one of the largest risk managed portfolios in the world through a company which has been aggressively recruiting me. If anyone from AIG is reading this that figure I gave you stands. We the People, of the United State of America, now have the greatest need to understand the mechanics of polity and investigate deeply, and personally, the backgrounds, ethics, MO, and track record of every person who places their name on a ballot and to do so with an open mind. This is the era in which Rome, er the US, could stumble. Remember - the Senate killed Rome.
World banks came together last night and injected approximately $247 Billion into the world banking system which operates on the US dollar. It is, an astounding figure, but the proverbial drop in the bucket. Not to diminish this injection we can say that it is the equivalent of about 1/2 of 1 day's US GDP. Fortunately this injection is not going into the GDP but that is what it is.
Where is Max Weber when you need him?
How are real estate agents and brokers affected by the market today? In one major way - depleted liquidity in the capital funding market translates into less loans for qualified borrowers.. This is why We the People bought Fannie, Freddie and AIG. Depleted liquidity means less homes which require financing are being sold. One fight for this is to contact your Senator and Representative and ask them to vote YES on HR 6694 (or whatever it becomes). The House already passed in in a verbal vote. To learn more about it visit http://dpagroundswell.org - it's your future, too.
Let's backtrack a dozen years to the days when the outcry was, "underserved markets". Underserved they were and because they had not demonstrated their fiscal responsibility. You had to have 10% down (in most cases) to purchase a home. You needed a credit score of at least 640. The left (mostly) had shout downs, sit ins and marches because "our people" were not getting the same credit as "those people". Well, they got it but not one person heeded the shouting from "my people" during the run up to failure. Now you see why "those people" did not deserve to have the same access to credit as "rich people". (If you think for one second any of those are an inference to skin color, race or ethnicity don't be a fool. I see numbers on paper. Nothing else should matter.)
The Capitalist market (operating closer to Marxist) did something really really stupid for the country but great for the early investors and fantastic for most C-level partners.
How to thrive? Align yourself with a noteworthy mortgage BROKER or lender who also brokers, deal only with CASH BUYERS or people who have a true pre-qualification from the mortgage BROKER you work with. Why BROKER instead of Countrywide or Bank of America or Suntrust or WaMu? Simple: NO at those companies is a final answer. A reputable broker or brokering lender (like my Novation Mortgage) is not locked in to one source. It is still possible, due to contracting standards and varients with the GSE's and other investment organizations to have different guidelines at different high level investors. Brokers and brokering lenders can submit files to more than one high-level investor. Right now we start with ourselves and work outward until we find the right home for a loan that meets the needs of the borrower. If we cannot fund the loan in-house we shop our outlets to whom we sell until we find the acceptible solution. The big national lenders are funding far lower a percentage of applications now than companies like mine.
BIGGER USUALLY DOES NOT MEAN BETTER - find a local expert in your community. If you are buying or representing a buyer in Oklahoma, why are you using a lender from New York (where you'll be nothing more than a line in a spread sheet?) If you are buying in Georgia why use a lender from Washington (where you'll be nothing more than a commission check for some telephone operator?) Use community based lenders and brokers who live, work and participate in your community. People who know how to argue on your behalf because they know the market. People who will use or recommend your services in the future.
You thrive by networking.
Right now less than 40% of the funding is available from what was available 24 months ago today. This means 60% of buyers are out of scope - cannot make credit purchases on real properties. How this affects the market is possible sales are diminished. Are they possible sales that would have contributed to moving the market forward or farther degrading the market? I have an answer but I have already written a book and I have to get my head into the House Chamber.
Got questions? Ask!
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
