The Dark Side Part 2

So how do you avoid the “Dark Side?”

Let me first say that I believe that everyone should have the opportunity to make money. The Mortgage Industry is a great place to earn a living, provide for your family and help people make dreams come true. However, with every industry there are always people who are in it only for themselves. These people prey on others who are less educated, less intelligent and sometimes less qualified. When they do, they usually abuse the system, creating large incomes for themselves while staining the reputation of their entire industry. Not to mention that the people who are usually their prey are the people who need to have a lender who will treat them fairly as opposed to taking advantage of them.

Once a “B” always a “B”. When the sub prime lending market was in its beginning, there were borrowers who would not qualify for the “A” paper loans. On more that one occasion I would hear an account rep say that “B” borrowers don’t change their habits and they don’t learn their lesson. That may be true about some people, but I believe that people can learn to manage their credit and they can learn to manage their finances. All they have to do is have an honest chance!

So what is an honest chance? Well it is putting someone into a loan program so that they can develop a budget off of. It is creating a mortgage solution that will not penalize the client in a short period of time. It is not gouging them in fees when they do come back to you eating all of their equity up with refinance fees. It is treating people the way that you would want to be treated.

As we see mortgage delinquencies rise and foreclosures happening at an alarming rate, there is a change that must take place. But it is going to have to be consumer driven. Legislation is not the key. Education of both the consumer and of the mortgage sales people will be the basis of this revolution. The consumer must learn not to fall into the trap of working with people who spend tremendous amounts of money on advertising. Mortgage originators need to learn that if you are going to stay in this business for a career, relationships are a necessity. To nurture those relationships you must take care of people so that they want to come back and refer other clients to you.

Thank you to Tracy Nolan for referring Andy Revelle.

Thank you to Andy Revelle for referring Joshua McDowell.

Thank you to Klaus Bank for the referral of Sarah Stroup and Pete Wilkens.

Thank you to Libby Emmer for referring Rob Steinkuehler.

The Dark Side

The Dark Side

If you have read any of my previous writings you have seen where I have referenced someone giving in to the “Dark Side.” What is the “Dark Side” you ask? Well the answer is the lender; you pick them, who prey on the uneducated borrower. They spend a lot of money on advertising, radio, print, television, even the internet to attract the borrower with promises of a lower rate, lower payment, and no mortgage payment for 3 months, anything that they can say to make the phone ring. Enticements such as a free cruise or vacation if you close your loan with their company. Anything to get the borrower in the door and take advantage of them.

Now what do I base this on you ask? Here is the simple truth; we are all getting the money from the same place. It really comes down to who has the lowest overhead and who has the least amount of people getting a commission out of the origination of the loan. 95% of the time the loan is backed by a mortgage backed security that was put in place by Fannie Mae or Freddie Mac. When you go into the sub prime mortgage market, their loans are securitized also and a premium or value is place on the note at a certain rate. If the loan is sold at a higher rate, then more value is placed on the note or the seller of the note receives more money. On occasion a lender will secure a block of loans at a rate that is slightly below the market rate. In this instance they have guaranteed delivery of a package of loans that meet the secondary guidelines at that interest rate. When this occurs, the lender is making less than the normal premium for the sale of these loans and will use this as a loss leader to generate phone calls. Those loans that don’t meet the criteria of the loans for the package are the loans that the lender then makes their money on by selling their other products at a premium price or with additional fees.

What about the really low interest rates or the Option A.R.M.’s you ask? The Option A.R.M. is a fantastic product for the right person. However for most borrowers this is too complex of a loan for them to comprehend or to manage effectively. This loan starts with a low teaser rate, but that rate is only good for as little as one month, and then the rate starts climbing monthly. When the rate has fully adjusted it is usually about 1.5% higher than the current 30 year fixed. The catch is that the payment is set off of the initial interest rate and they give you 4 options on what payment to make every month. You can pay the minimum payment, which covers the interest only at the initial rate, you can make an interest only payment, you can make a principal and interest payment on a 30 year amortization schedule or you can make a principal and interest payment on a 15 year amortization schedule. The sales pitch teases you with the low rate and the idea that you can pay off your loan in half the time of a normal loan. What they gloss over is the fact that if you don’t pay the 15 year payment schedule every month and only pay the minimum, then you end up adding to the principal owed and create a negative equity position. In addition, this loan has origination fees and a pre-payment penalty which make it expensive to get and even more expensive to get out of when you realize your mistake. Now, if you are diligent and pay the 15 year schedule you can pay down the principal quickly, but most people do not do that. They see the minimum payment every month and only pay that. At the end of a year, the minimum payment adjusts 7.5% while the rate has increased and the negative equity gets worse each month. If you are someone who gets large bonuses each year and can pay down the equity balance, this loan will work for you. Pay the minimum each month and at the end of the year, recoup your losses by paying down the principal balance of the loan. However, if you are not one of these people, run from this loan.

More on the “Dark Side” next week.

Special thanks to Peggy Kohl for the referral of Mike Kitson.

Thank you to John and Jessica Doll for returning to me for a refinance.

Congratulations to Melanie Cooper and her team for joining Keller Williams Realty. I wish you the best of luck on your growth path!!!

What is bugging me?

What is bugging me?

As I continue to write pre-approvals for people who have no intention of using my services to purchase a home I am faced with the dilemma of playing the game or playing my own game?

One of the services realtors expect now is for lenders to offer free pre-approvals and then once the client gets their pre-approval they go shopping for a perceived better offer. I don’t want to prevent people from shopping and getting a good deal, but I also don’t want to provide my service without some expectation of getting a chance at earning their business. Within the last 2 weeks I have provided this service to the realtor and their client when both knew that they would never use me for their loan, but because I am more available, i.e. nights and weekends, they called on me to get the pre-approval done so they could get their contract accepted. Once the contract was accepted the clients would not even return my phone calls to attempt to give them an interest rate quote. Aside from being rude, it is poor business practice for the Realtor to expect a lender, one that they should consider a business partner to work for free.

If I decide to play the game by my own rules, then I run the risk of chasing off the potential client and Realtor. But am I better without them? I am not ready to answer that question, but for now I will take my chances with Karma and believe that when I do good things for people, good things will happen to me.

Special thanks to Mary Brown for the referral of Mathew and Jill Cobb.