Confessions of a Mad Mortgage Consultant

Don't Shop Til They Drop...

2005-11-05T06:44:00.000-08:00

On Thursday I had lunch with my good friend Paul. During the course of our conversation he asked what most people ask a mortgage broker about. He asked about rates.

Often a stranger won't ask me about rates, for fear of getting overwhelmed with 'sales talk' about mortgages. Paul happens to know that's not my way, so he asked. What I told him I later summarized in a new web page, How to Find the Best Interest Rate.

Check it out.

The Way You Pay Depends on How Long You Plan to Stay

2005-10-28T08:04:00.000-07:00

Are you needlessly spending hundreds of dollars more than you need to each month for your mortgage because you have the wrong loan type for your circumstances? Understand your options, and their costs. Don't make a 30-year mistake by making assumptions.

If you’re like most people, you've probably been bombarded with advice by well-intentioned, although clearly ill informed people, that a 30-year fixed mortgage loan type is the only loan to consider. To dispel a long-standing untruth, a 30-year mortgage is not necessarily the best alternative for a mortgage.

In fact, this is the most expensive loan type available.

Why? The fact is that 96.5% of homeowners sell and move, or refinance, within 7 years of taking out a loan. So why force a lender to commit to providing a 30-year fixed rate mortgage when you could 'buy' a 7-year interest rate commitment at a lower interest rate?

The latest trend of 40-year loans might fit you even better. Or perhaps an adjustable rate mortgage with a 5- or 7-year fixed interest rate. Either way it translates into lower monthly payments for you. True, borrowing the money over a 40-year period or with an adjustable rate could result in you paying a heap more of interest if you keep the loan for more than a few years, but if you move out or refinance during the first few years, as many people do, then you’ll be coming out way ahead, financially.

So think twice before going ahead with that 30-year mortgage. It can cost you much more than other loan options.

To better serve you...

2005-08-20T08:50:00.000-07:00

I've decided to use a forum in addition to this blog to enable you to communicate and interact with me. The forum allows me to better organize questions and answers. Please go to http://www.lightning-mortgage.com/Forum/ for more information.

Retirement Account vs Bad Debt Payoff?

2005-05-03T09:44:00.000-07:00

I have a borrower who made mistakes with his finances. He fell for one of these scams advertising 'debt solutions.' The idea was that a person could stop paying their creditors and instead pay these solution providers. Loans would go into default (they don't mention that, by the way). Then this so-called debt solution company would negotiate a settlement of 30 cents on the dollar with the original creditor. At least, that was the plan.

For some deeply in debt, the idea of paying it off with just a third of the money owed is quite attractive. It is such an attractive thought to some that logic is tossed out of the equation. Needless to say, the company went out of business, liquidated its assets, and is now long gone. My client couldn't even sue to recover any money he had paid this company. Now he has $25,000 bad debt keeping him from being able to qualify for a home loan. The only way I can help him obtain a loan is for him to pay off the bad debt. He has $12,000 in a 401k from a past employer. Using the money to help pay off the debt will allow him to eliminate his debt and therefore buy a home.

Should he touch his hard earned retirement savings? Some people would say not to. I believe his savings is an illusion. One has to look at his net assets, which right now is near zero because of the debt. Interest and penalties will continue to accrue on the bad debt at a rate much higher that his 401k is earning, too. So the longer he waits, the deeper a hole he will dig for himself.

That, and his credit scores will permanently be affected by the bad debt unless they are paid. What would you do?

Lucio Bolt

2005-02-23T07:04:00.000-08:00

As you can probably tell, I spend a lot of time working on this web site. Most of the time it is on modifying or fixing something that doesn't warrant much comment. One change that is taking place right now bears comment, though.

Lucio is that new caricature making his way on some of my web pages these days. They have all been created by Daphne Nanga, of mangofarm.com with very little input. If you need some great web graphics work, make it a point to contact Daphne. She can take an idea (like I had) and transform it into a nice end result.

My hope is that Daphne will continue doing her fine work so that Bolt will show up on many more of my web pages.

Weather Forecasts and Interest Rates

2005-02-16T08:04:00.000-08:00

In my book, real estate gurus rank right up there with weather reports. You just can't predict them with any degree of certainty! Remember, all of the forecasts about rising mortgage rates? Yet, rates on 30-year mortgages fell for a sixth consecutive week in the first 45 days of the year.

I'll stick with my pragmatic way of doing business: I just look at the current rates and give borrowers choices they can make today.

"All You Need Is Love "or "Happiness is a Warm Gun?"

2005-02-11T18:27:00.000-08:00

LOS ANGELES, (UPI) -- Ameriquest, the largest sub-prime U.S. lender, has been accused of allegedly fabricating data, forging documents and hiding fees.

The company, touted as an industry model, denies any wrongdoing.

Citing public records, interviews and dozens of consumer lawsuits, the Los Angeles Times said Ameriquest customers filed more complaints with the Federal Trade Commission from 2000 through 2004 than did those of two of its biggest competitors combined.
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Gee, aren't these the same guys who sponsered the Super Bowl half-time performance of Paul McCartney last week? It's too bad that these so-called 'leaders' couldn't work in a more ethical manner.

Warning: May Result in Bankruptcy

2005-02-04T11:12:00.000-08:00

Blame is heaped on people not managing their finances well, and overzealous mortgage brokers trying to make a quick buck, as the chief cause of bankruptcies. But a Harvard Study reports that 47% of bankruptcies are a result of medical bills due to illness or injury, even when people have medical insurance.

While the home financing industry is far from perfect, it is a shame that the medical insurance industry is not properly serving its customers. People seeking medical assistance are often in no position to shop around and find the doctor or treatment that is the most cost effective. The cost is not the first question. Of greater concern in the heat of the moment is whether the patient can be cured. How can insurance agents avoid over-insuring policy holders yet protect them from a catastrophic medical emergency from ruining them financially?

Some of the drug commercials broadcast on television these days seem to have side effects worse than those medical conditions they are meant to treat. Is bankruptcy another side effect to some of those patients?

Take Two and Call Me When the Mail is Delivered...

2005-01-29T08:40:00.000-08:00

Whenever I work with people on loans that are nearby I like to attend their closing, when possible. This one was a good reminder for me that buying a house is one of the top three most stressful situations for most people, ranking just behind changing jobs, and divorce. The buyers were stressed. All the planning, all the strategizing and revising of strategies ran together in the buyer's mind after awhile.

What added to the stress is that in the midst of all the last minute changes that were going on, the lender sent a Truth-in-Lending notice in the mail for a loan program that was part of the original strategy, one having an interest rate of nearly a point higher than the final loan program agreed to. It had arrived just two days before. The borrower's confidence waivers upon opening the envelope. "5.625% interest!? I thought we agreed to 4.75% interest..."

Well, of course we had. But in the lag of mail-time of original estimates to the borrower (sending borrowers copies is a Regulation Z requirement) has turned an act meant to protect consumers into an another source of confusion and uncertainty. This, of course, adds to the stress felt by home buyers. My job as a mortgage consultant includes an element of calming home buying fears. That's also why I go over the terms and conditions of the loan many times before closing. But the stress of home buying seems to affect people's memories!

Once the buyers saw their loan documents did include the correct interest rate, they both breathed a sigh of relief. And by the time they were done signing the closing documents they were both laughing again.

Just what I like best: helping clients reach their dreams of home ownership.

Another great experience on-line...

2005-01-29T08:12:00.000-08:00

I starting blogging with high expectations. Wanted to share some of the great on-line experiences I've had. It sure is an investment in time, to have an opinion expressed in a way that doesn't bore all you readers. As Mark Twain once said, "If I had more time this letter would have been shorter." It makes sense to me to also share experiences outside the mortgage world.

I've been busy. Installed a new printer. It is simply amazing how much paper is generated by each loan. Copies and copies of everything! Trips to Kinko's can become very expensive after awhile. As we grow, like any business, our finite capacity gets overwhelmed from time to time. So the quick fix is to use somebody else's free capacity for conducting business. That's how Kinko's became added to our standard mix of business processes. One new loan. Then two new loans. Suddenly we find that a month's trips to the copying store costs more than a brand new printer!

Buying products online is so convenient, too. I had a really great experience. a new HP 9120 color printer/copier/scanner/fax/photo memory card printer. Two trays: letter and legal sized paper. Network ready. Slick as all get-out.

Ordered it Thursday from http://www.compuadds.com. Free shipping. Friday morning a deliveryman knocks on the door. Unbelievable! I just had to mention this wonderful service.

Homeownership Back at Record High

2005-01-28T10:47:00.000-08:00

The U.S. homeownership rate ended 2004 at 69.2% -- a record level first attained in the second quarter, according to the U.S. Census Bureau.

2005-01-27T08:58:00.001-08:00

Coincidental?

2005-01-27T08:58:00.000-08:00

From NPR: "An all time high of 6,680,000 used homes found new owners last year."

Wow. That's a lot of loans!

From Originator Times: Quicken, Ameriquest, New Century, Others Rely On Spam - "If you have an e-mail address, you have witnessed for yourself the proliferation of spam that entices consumers with rates so low it’s laughable or promises that there is a loan regardless of the applicant’s current debt or credit situation. But have you ever stopped and thought what legitimate mortgage company would actually advertise in this manner?"

I guess that's how they get so big. Me? I'd rather stay smaller if it means not conducting business in an unethical manner.

How to take a perfectly good thing and break it...

2005-01-19T15:33:00.000-08:00

Technology. Sometimes it gets the better of people, (or "How to take a perfectly good thing and break it").

I've been using SBC's DSL connection to connect my office to the Internet. Used to have a cable modem connection, but DSL is cheaper on a monthly basis and has very similar actual network throughput. Sure cable has a higher theoretical speed, and that's what their marketing department wants you to believe, but the truth is the workstation to remote web server speeds using DSL or cable are about the same. My web site is hosted by a company I'm very happy with, ipower.com.

The point of this post was because my office was unable to connect to the Internet yesterday because someone decided it was time to upgrade (install new software) the local SBC DSL router. Unfortunately, it didn't work. In fact, it caused a service outage to all customers connected to the router. If that wasn't so bad, no one in their DSL support organization seemed to be aware of the planned upgrade, or the fact that it did not work. The result was that the office was down all day and no one at SBC seemed to be able to figure out why we were down.

Very frustrating!

This is the kind of lending experience I refuse to permit any of our clients to have. In the dark of our status? Not getting answers about something (like a mortgage) that impacts the rest of your life? I want to make sure you are getting the answers you need. Luckily, our company is nowhere the size of SBC. Luckily (for you) someone in the office will always know the status of your loan. Yes, there are times when a loan is stuck somewhere in the Underwriting department, and we won't know if all the conditions have been satisfied for your loan until Underwriting is finished processing the loan, but we'll keep on top of the status for you.

Cleaning up Credit After Identity Theft

2005-01-13T13:43:00.000-08:00

One of my clients was a victim of identity theft. The FACT (Fair and Accurate Credit Transactions) Act of 2003 was designed to help Americans better monitor their credit reports, and spot identity theft. She is very near the end of the ordeal, which means she's almost done fixing her credit report. The FACT Act is certaining helping her to regain her life. But one of the 3 credit repositories, in this case Equifax, has still not erased the erroneous data on her credit report. This is preventing her from obtaining a home loan.

As a mortgage consultant to my clients I advise them to take certain steps so their desired outcome will become a reality, relieving the burden and pointing out quicker pahts where ever possible. After that, it is us to the individual to take ownership of the problem. This particular client has been very persistent and has taken the bull by the horns.

To fix specific errors with Equifax, I had told her, the recommendation is to first try going directly to www.equifax.com, which she has already tried. Here are some ideas on what to do next.

Since that isn't working, consumer groups like the Privacy Rights Clearinghouse at www.privacyrights.org, Consumers Union at www.consumersunion.org (specifically http://www.consumersunion.org/issues/creditmatters.html), the Identify Theft Resource Center at www.idtheftcenter.org, and the California Public Interest Research Group at www.calpirg.org can be of great help and can offer you advice about getting your credit report fixed.

Capital Gains Exclusion Rules

2005-01-09T15:50:00.000-08:00

I spoke with a client yesterday. She had bought a house in January, 2004, in a city that was more affordable than the one she was living. She is a first-time buyer. For the location, the $240,000 price was a good value. Now a year later, she has decided that the new city doesn't meet her needs. She doesn't like the town. The property has appreciated, and she thinks she'll be able to get $270,000 if she were to sell.

Problem is, the capital gains tax exclusion rules, (see IRS publication 523) require a seller to live in the home for 2 of the past 5 years, except for a few exceptions, like a job relocation. Unfortunately, my client circumstances don't fall into a category that will result in an exclusion. Is she forced to remain in the home for another year? No, but she'll have to pay income taxes on the gain.

She's in a 23% tax bracket. So the $30,000 gain (if she indeed can sell it for $270,000) would result in approximately $6,900 in federal income tax. If she were to pay a realtor commission of 6%, the cost to sell will be $16,200. Her plan was to sell it without a realtor, just like she bought it. She'll have to decide if spending $6,900 on selling the house is worthwhile.

My opinion is that she'll be making $33,100 on the sale of a house she doesn't want to live in, and she should do it if living in that city is not where she wants to live. Don't focus on the tax burden, focus on the net profit. These are all estimates anyway. My advise would be to try selling it for a month and see what happens. Worst case she can't sell it. If she receives an offer, then she'll have to weigh whether the gains less the resulting gains tax nets her an amount she's satisfied with. Until she puts her house up for sale and receives an offer, she's just speculating.

Home Buying When Relocating

2005-01-07T17:26:00.000-08:00

One of the complications with relocating when switching jobs is that you have to find a new place to live in addition to becoming acquainted with a new company to work for. If you want to buy a home in a different state (or even a different country) the usual and customary practices you are familiar with may not apply in the new state or county. How do you complete the transaction from afar? How do you find people to help you? That's one of the many calls I received today.

If you need help in purchasing a home while relocating, perhaps I can help you, too.

Home Buying Jitters

2005-01-04T13:09:00.000-08:00

Home Buying Jitters. I spoke with a client today who is a first-time buyer. He's rather concerned about the impact of his new house payment will have on his net income. Like most people, he was viewing his take home pay as it is today--without having the benefit of piling on tax deductions--and trying to fathom how he'd be able to make the payments. I reminded him that he'd want to change the number of deductions the Payroll department uses to calculate his net pay to compensate for the higher monthly payment.

Refer to IRS publication 936, Home Mortgage Interest Deduction for the official statement. Since it is "tax season," it's a good time to look into to what deductions you are entitled. Interest payments on mortgages are one of the best deductions the average American can make. My reminder calmed his jitters.

Termite Report Takes a Bite Out of The Purchase Agreement

2005-01-03T09:59:00.000-08:00

Have a client buying in Hawaii. It was smooth sailing...until the termite inspection report came in. Seems that there is a lot of termite damage that needs to be addressed prior to closing. Otherwise the property won't qualify for being collateral to the mortgage. It doesn't matter if the buyer is willing to accept the property in its present condition.

Lenders are concerned with 3 things:

A borrower's history of repayment (partially revealed in the Credit Report)
A borrower's ability to repay the loan (a continued source of income)
The collateral used as a sort of insurance against loss of the borrower does not repay the loan (the property being mortgaged)

From a lender's perspective, protection again making a bad loan is to have collateral that can be seized. Lenders don't want your house. Worst case scenario, if you default on the loan and they foreclose on the property, they want to be able to quickly sell it and recoup the majority of their loss. If the property isn't worth as much as or more than the amount owed, then it will have to be sold for a loss.

So now the buyer and seller must negotiate who is going to pay for the work, and how that affects the price of the home. This is where realtors can really help you. They are apt to be better negotiators, or at least know the common practices for resolving such issues.

Confessions of a Mad Mortgage Consultant

2005-01-02T18:17:00.000-08:00

Confessions of a Mad Mortgage Consultant
Yesterday, on January 1st, a new loan application came in. While I won't comment on every application, that it was the first to come in in 2005 makes it noteworthy. New purchase, although not much else has been filled out. I'll have to call and obtain some details. Still trying to get this blog working as I expect it to be, so this will be a good test.

2005-01-02T14:20:00.000-08:00

Hey maybe I should work for one of those big, boring, banal banks. Their motto, 'Wait in line, all the time.' Passbook savings, checking, safe-deposit boxes, IRAs, time deposit CDs, the works. After years of growing up in the corporate world, I know how to get around it. But I just find it so predictable, so limiting. You see, I like to help people and the corporate structure seems to be devised to do quite the opposite. Mad? Certainly in the eyes of those people still working at the bank.

So I'm here as an independent. More interested in getting the job done than with climbing the corporate ladder. Don't want to do it all. Don't want to open up Christmas Club accounts, or credit cards. I'd rather do one thing, help people with mortgages. Who does that benefit? Why, you, the customer. Instead of pushing the latest loan of the week that my bank has decided is most profitable, I'm pushing the best loan for you, my client. Out of hundreds of lender products, I'm looking for the best fit for you.

I'll chronicle highlights here in this blog. If I get too high and mighty, please tell me. After all, I'm doing this to obtain comments from you.