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.

Reverse Mortgages

Reverse Mortgages, who Cares?

5 years ago I was uninformed and ignorant of the advantages of a reverse mortgage. I thought they were another exotic product designed to take advantage of the consumer and did not have a large potential for proper use. Notice the key words in the first sentence, uninformed and ignorant. Now I understand that the reverse mortgage can be the savior for the person who has lived with the mentality of having no debt, but in doing so owns their house and has no other assets. At age 62 or older they are faced with a fixed income that is no longer meeting their needs due to inflation or failing health. They own a home and want to be able to stay there, but no longer can afford to maintain the house or meet their financial obligations. There are other creative reasons to get a reverse mortgage, but for most of the population, they will allow people to keep their home and have some additional income to live off of.

Here is the information provided by the brochure created by First Integrity Mortgage Services.

A HECM — Home Equity Conversion Mortgage — is commonly

called a Reverse Mortgage. Reverse Mortgages were created in

1989 through the cooperative efforts of Fannie Mae, Federal

Housing Administration (FHA) and AARP. It is not coincidental that

these mortgages have gained in popularity as a larger portion of our

nation’s population has reached or is nearing retirement age.

What makes Reverse Mortgages so popular? Other mortgage loans

require payments from the borrower for the principal and interest.

A Reverse Mortgage provides payments to the borrower in the

method he or she chooses.

First Integrity’s Reverse Mortgage is insured by the Federal

government through FHA. First Integrity is an FHA Direct Endorsed

Lender, the highest certification FHA gives to any lender.

History of

Reverse Mortgages

Understanding

Your Goals

Older Americans have goals regarding how they want to

live their lives. They share common questions on how they

can achieve those goals. How many of the following goals

apply to you?

■ I want to maintain my independence.

■ I want to avoid becoming a financial burden

on my family.

■ I want to maintain the quality of my lifestyle.

■ I need to supplement Social Security and/or

pension income.

■ I need to pay for long-term health care for

myself or my spouse.

■ I need to pay off bills so I can enjoy my life.

■ My house needs remodeling so I can continue

to live there.

■ I want to pay for my grandchild’s education.

■ I want to prepay “final expenses”.

■ I want to retire early, but need a source

of income.

Who Is Eligible

For A Reverse Mortgage?

To qualify for a Reverse Mortgage, you must:

1 Be at least 62 years of age.

In the case of couples and co-owners, both individuals must be at least 62 years of age. If one of the individuals is younger than 62, that person’s name must be removed from the title in order for the older co-owner to be eligible. You should seek legal advice before making any changes to the title.

2 Be a home owner with equity in your home.

You may qualify even if you have an outstanding balance on your first mortgage. Single-family homes and qualified

condominiums, townhouses, manufactured homes, and two- and four-family owner-occupied flats are eligible.

Reverse Mortgages are only available on owner-occupied principal residences.

“I want my money to last as long as I will.”

What Are My Payment Options?

You decide how to receive the money generated by a Reverse Mortgage.

• 1 Upfront cash
• 2 Monthly payments for a term you determine
• 3 Monthly payments for life
• 4 Line of credit
• 5 Combination of any of the above

“My monthly Social Security check seemed like a lot of money when I first retired. Unfortunately, a dollar doesn’t go as
far as it used to.”

How Much Money Can I Get?

The amount of money you can receive depends on several factors including your age, the value of your home, the amount of built-up equity, and interest rates at the time of the loan’s origination. The older you are, the more you can borrow. Another factor includes the type of payment option you choose. A calculator that can help you estimate how much you could receive under different payment options is available at the AARP Web site.

(www.aarp.org/money/revmort).

How Much Does A Reverse Mortgage Cost? What Are My Upfront And

Closing Costs?

Many of the same costs associated with a regular mortgage apply to Reverse Mortgages. You will be charged an origination fee, a mortgage insurance premium by FHA, an appraisal fee, and certain other standard closing costs. In most cases, these fees and costs are capped and may be financed as part of the Reverse Mortgage so you have little out-of-pocket expense. The only fee you need to pay upfront is the appraisal fee.

Do I Need To Get An Appraisal Of My Home To Get A Reverse Mortgage?

Yes. Since the value of your home is a factor in determining how much money you qualify to receive from a Reverse Mortgage, an appraisal is required. We will order the appraisal from an appraiser approved by FHA. You will pay the appraiser at the time of formal application.

“I want to help my children and grandchildren now, not years from now after I’m gone.”

Do I Need An Attorney To Apply For A Reverse Mortgage?

Legal counsel is not required. However, we encourage you to seek the advice of legal, tax or financial advisors, as well as family members, before committing to a Reverse Mortgage.

What Are Some Of The Safeguards Established By FHA?

Reverse Mortgages were designed to be extremely consumer-friendly. There are limits on the interest rate and

the origination fees. FHA limits the interest rate and other costs associated with the loan.

There is a ceiling on the repayment amount. You never have to pay back more than the value of your home at the

time of repayment.

You receive advance disclosures so that you are made fully aware of the cost incurred in obtaining a

Reverse Mortgage.

“We’ve worked hard all of our lives. We want the financial freedom to enjoy our retirement years.”

Am I Required To Receive Counseling Before I Can Get A Reverse Mortgage?

Yes. Counseling is required for the FHA Reverse Mortgage currently available. This session is for your benefit. The counselor’s job is to make sure you are informed about Reverse Mortgages and other options. You can get the name of a qualified local counseling agency or a qualified telephone counselor by calling First Integrity (314-878-7900); The National Foundation of Credit Counseling (1-866-698-6322); Money Management International (1-877-908-2227); AARP (1-800-209-8085); or HUD’s Housing Counseling Clearinghouse (1-800-569-4287).

Is The Money From A Reverse Mortgage Taxable Income, And Will It Affect My Social Security Benefits?

Funds from a Reverse Mortgage are tax-free. It’s your money, not additional income. A Reverse Mortgage does not affect regular Social Security or Medicare benefits. However, if you receive a lump-sum payment from a Reverse Mortgage, any amount retained the month after you get it would count as a resource and could affect Medicaid eligibility. To be safe, consult a Medicaid expert.

What Is The Process For Getting A Reverse Mortgage?

The first step is to become informed by doing your research and talking with a Reverse Mortgage specialist at First Integrity. The next step is to schedule the counseling sessions with the FHA-approved counselor. After completion of this session you will be given a certificate of completion. This certificate will be required for the next step, formal application. Now you may fill out an application for the Reverse Mortgage with a First Integrity Reverse Mortgage Specialist. The loan will be processed, underwritten and closed. You will receive your first check the first of the month following closing.

Who Owns Title To My Home While My Reverse Mortgage Is Outstanding?

You! You retain title to your home during the period when you have a Reverse Mortgage.

Am I Required To Pay Anything During The Course Of The Reverse Mortgage Loan?

No. The flow of payments is reversed during the term of the Reverse Mortgage. THE LENDER PAYS YOU! However, you are responsible for keeping up payments on your homeowner’s insurance and property taxes, and to maintain the condition of your home.

“A Reverse Mortgage is an important financial tool in planning for our retirement.”

Are There Any Limits On How I Can Use The Reverse Mortgage Funds?

No. Borrowers have used Reverse Mortgages for any variety of purposes, including:

• Paying health care expenses

• Paying for long-term health insurance

• Supplementing retirement income

• Financing home improvements

• Financing home modifications

• Buying a safer automobile

Others have used Reverse Mortgages to:

• Purchase a boat or RV

• Buy a vacation home

• Pay off other mortgages

• Start a small business

• Pay off credit cards

• Travel

“I have always controlled my life, made my own decisions. I don’t want to stop now.”

What Is The Interest Rate On A Reverse Mortgage And How Is It Determined?

The interest rate varies by the type of Reverse Mortgage you choose. For the FHA Home Equity Conversion Mortgage (HECM) the interest rate is adjusted either monthly or annually (whichever the borrower chooses) and is based on an index called the “One-Year U.S. Treasury Rate” which changes weekly. The rate is published in many financial publications. For monthly adjusting Reverse Mortgages, the interest rate charged on the loan for the next month is equal to the current One-Year Treasury Bill Rate plus 1.5% margin. For annually-adjusting Reverse Mortgages, the interest rate charged on the loan is equal to the One-Year Treasury Bill Rate plus 3.1% margin. The interest charged on the Reverse Mortgage is accrued (added to the amount owed), since there are no payments. This amount is due when the loan is paid off.

What Happens If I Move Out Of My House After I Get A Reverse Mortgage?

A Reverse Mortgage comes due and must be repaid when the borrower dies or permanently moves out of his or her home. Similarly, if you sell your house, the Reverse Mortgage comes due.

What Happens When My House Passes On To My Heirs?

Once your home is passed on to your heirs, the Reverse Mortgage comes due. Your heirs may either pay the balance due on the Reverse Mortgage and keep the home, or sell the home and use the proceeds to pay off the Reverse Mortgage. If they sell the home the heirs get to keep any excess equity from the sale proceeds.

Where Can I Get A Reverse Mortgage?

First Integrity is one of a select few lending institutions in the nation approved to offer Reverse Mortgages. Because we are a St. Louis-based hometown lending institution, the entire process — from application to underwriting to closing — takes place locally.

Why Should I Choose First Integrity?

First Integrity Mortgage Services stands head and shoulders above other mortgage lenders. First Integrity is a Mortgage Banker, not a broker, and has experience in all areas of mortgage lending. First Integrity offers unique benefits on Reverse Mortgages, as well as other mortgage programs, that most other lenders can’t match. We are St. Louis based, so we are your hometown mortgage lender. We offer personal service — when you call us, a “live” person answers the phone, not a machine. We’re authorized to underwrite loans for FHA, VA, MHDC and Fannie Mae® (see www.firstintegrity.com). Where First Integrity really stands out is the quality of service we provide. Our goal is to build long-term relationships with our customers, who give us a 99.38% approval rating. We’ve also received the Better Business Bureau’s Online Reliability Seal.

Thank you for exploring your Reverse Mortgage options with us at First Integrity Mortgage Services. We hope this brochure has been helpful in your financial or estate planning.

For a Reverse Mortgage specialist to assist you in determining your individual circumstances, please contact us at 314-878-7900 or e-mail us at info@firstintegrity.com. Please feel free to include a trusted advisor or family member in the process.

Special thanks to Bill Cooper for the referral of Bob Swanbum and to Brian Kohlberg for the referral of Emily Baumann.

Consumer Credit Counseling

What happens to your ability to purchase a house when you go to Consumer Credit Counseling? Well if you are like most people, you are under the impression that your credit is improving because you are making timely payments and the creditors have stopped calling. However this is one of the biggest mistakes that a person wanting to purchase a house can make, assume that the creditors are happy getting a portion of what is owed them and not all of what is owed them.

Here is what happens to your credit score when you negotiate with a Consumer Credit Counseling. If falls like a cliff diver in Acapulco! The counseling service takes the money you pay them each month and depending upon the service they either pay a portion to all of your creditors or they pay the debts off in the order that they negotiate on your behalf. Thus, the creditors are not getting the money you originally agreed to pay them and they report you as late on your credit report. Not only late once, but they start with the first 30 day late and then each month they continue to report you as 30 days late. In the industry we call this a rolling 30 day late, but what it does to your credit score is destroy it. Just this week I had a client call who thought his credit was fine only to find out that his credit scores were in the low 400’s. That is so far below the acceptable level to get a home loan that it will take him years to recover.

So what is the way to avoid this? Well first I have to question the wisdom of a person going to consumer credit counseling trying to buy a house. There is a good chance that this person has not learned how to save money and is living paycheck to paycheck. That person should not be buying a house. If you find yourself considering consumer credit counseling, first evaluate how you spend your money and what else you can do to make more money; get a second job, work overtime, what ever it takes to start making enough money to meet your needs. If you can’t find a solution that way, then call your creditors yourself. Get written agreements from them working out a payment plan that includes them not reporting you as late on the credit report. If that stills does not work, then consider filing Chapter 13 bankruptcy. A Chapter 13 will keep the creditors from reporting you as late. If you refuse to file Chapter 13, then go to consumer credit counseling, but know that you will put yourself in a position to not buy a house for at least 2 years after you finish paying off your creditors.

Thanks to Christopher Boedenfeld for the referral of Chris Stabile.

For more information on getting a “Mortgage Fitness Checkup” please contact me at chrisscheer@firstintegrity.com.

Mortgage Fitness Checkup

When was the last time you had a “Mortgage Fitness Checkup?”

For most people, their house is the single largest investment that they will ever make. In most cases it is also the single largest amount of money they will ever borrow. In addition to that, each and every day they are bombarded with advertising from companies trying to get them to refinance their first mortgage, second mortgage and in some cases even a third mortgage. Why is it that the majority of these people don’t invest the time to visit with their professional mortgage banker or broker to review their mortgage. If life happens, and it does for most of us, don’t our plans, goals and family situations change on a regular basis? All of a sudden the spouse wants a pool in the backyard. They want the basement finished. They want to go back to school to get a better job. Their company is planning on moving its headquarters and that may mean a career change. No longer are we dealing with people getting a 30 year fixed rate loan and paying all 360 payments to pay the loan off.

Most people are keeping their mortgage for an average of 3-5 years, even after the last refinance boom that ended in 2003, over 65% of the people who refinanced or purchases during 2002-2003 have refinanced or will refinance all or part of their mortgage in the past 12 or the next 12 months. Why is that you ask? Two reasons: the first being that many of those people took advantage of the historical low interest rates and financed into adjustable rate mortgages which are now coming up on their first adjustment period. The rest are people that I have previously mentioned, life happened to them and they decided to act. It is that simple. So what are the benefits of a “Mortgage Fitness Checkup?”

Benefits of Mortgage Fitness Checkup

• Determine clients’ current financial goals pertaining to mortgage payment.
• Review interest rate with current market.
• Discuss new programs that have been introduced in last 12 months. Educates borrower to help them from falling prey to the “Dark Side.”
• Prepares potential buyers for upcoming opportunity to purchase.
• Prepares potential investors for the opportunity to build wealth through real estate.
• Prepares current homeowners for possible moves, including assisting in developing strategies to maximize equity in current home.
• Provides credit theft screening.

How long does it take to complete? Depending upon the clients’ questions, a Mortgage Fitness Checkup can take as little at 10 minutes or up to 1 hour if the client wants to spend time strategizing ways to create wealth by using their mortgage as tool. For more information on the Mortgage Fitness Checkup, contact Chris Scheer at 314.223.9824 or chrisscheer@firstintegrity.com.

Special thanks to Bill Cooper of XO Communications for the referral of Sonya Kennedy. Also thank you to Amy O'Brien of Agape Construction for the referral of Juhn Mendin.

Bridge Loan Scenario

So now that I had this big idea to write a blog, now I get to find something to write about more often then once in a blue moon. After spending the day writing loan applications and finding solutions to challenges for borrowers, I am not sure that my creative juices are flowing. But since we have now had this blog for a week and only one person has had the courage to post anything on the blog I am not sure that creative juices are necessary. Either way, the exercise of writing is the most important thing. I think that as I write these blogs I will have the opportunity to learn more about the loans that I encounter, learn better ways to help borrowers and possibly learn new or better systems for delivering loans.

One of today’s challenges dealt with a Bridge loan. A common challenge facing people who want to buy a new house but have not sold their old house is how to do so and tap into the equity in their current home. The client today had a home that has been described to me as a fixer upper, in other words, will be put on the market at below average condition. The house they wanted to purchase was being sold by owner and the buyer needed to act quickly before the seller listed the house with a realtor and then raised their price to compensate for the need to pay the realtors commission. In listening to the referral source describe the situation a bridge seemed like a possibility, but I was concerned about the expense. When you get a bridge loan against your current home it is a refinance. Thus there are expenses incurred to acquire the loan along with the fact that the lender is not making any money doing the loan so you will usually have to pay an origination fee. Then you are limited to only borrowing 80% of the value of your current home. With a house that is going to be in below average condition, I had fears that we would be having the client spend $2,000 to only be able to get to 8-10 thousand dollars. After interviewing the client and then reviewing their credit I decided upon the path of least expense for the borrower. It will require a step stone process, in other words we will do the original loan just to get them into the house, but as soon as they can sell their current house, we will use their proceeds to pay down the new loan and refinance into a lower loan to value and either lower their cost of mortgage insurance or eliminate it altogether.

Now you ask, would that cause expenses to refinance? It would if the client wanted to purchase the absolute lowest interest rate, but with the ability to use our income for selling their loan after we refinance it, I can use that income to pay the closing costs on the future refinances. Over the last 14 years I have seen too many people tell me that they wanted to pay the closing costs and then within 3 years they were back at my desk looking to refinance because the rates had fallen, they needed to access the equity in their home, they want to put an addition on to the house or even worse they decided that they can afford the old house payment and now they want to move to a bigger house. Thus whenever I have a client with an open mind I will always suggest to them that the right path is to take slightly higher interest rate and let us pay their costs for them.

Seems simple enough but then the referral source wanted to know why we were only going to do one loan and not two loans on the new house or an 80/20 loan. Someone had told them that they could avoid mortgage insurance by doing the 80/20 loan. However we had a challenge that the borrower would not qualify for the 80/20 since they would carry too much debt for their income. In addition, mortgage insurance is now tax deductible. The after tax expense of the mortgage insurance versus the 80/20 would leave the client better off paying the mortgage insurance now. Then when we lower the loan to value with the refinance after they sell their current home we will lower the cost of the mortgage insurance or eliminate it. With the 80/20 the 20% loan will be there at the higher rate until it is paid off through the use of assets or another refinance.

So now it seems like we have the mortgage planned out. We now have to get the seller to pay the borrowers closing costs and pre-paids so that they don’t use up their available cash with expenses related to the purchase. By getting the seller to take a higher sales price and pay the above mentioned costs at closing out of the proceeds of the sale we are able to keep a nice cash reserve for the borrower so they can afford to make two house payments for a month or two if they have challenges selling their current home.

There you have it! Another solution to another client with a unique circumstance. Just an average day in the mortgage industry. If that was all I had to do then it would be easy, but fortunately for me, that was one of 4 loans originated today. I also had an investor tell me that their underwriting turn time for refinance loans is currently 15-20 days. After I finished laughing, I sent a scathing e-mail to the account representative to remind him that this is not the year 2003, or 1998 or 1992, this is 2007 and any company that is experiencing those types of turn times does not know how manage their business and if these numbers are factual that he would not be getting any more business from our company. On top of that I spent 2 hours working my database sending out mailings, making phone calls and scheduling “Mortgage Fitness Checkups.” When you throw in the occasional banter with the other sales people and office staff, I can honestly say that I had a full day at the office.

Thank you to Todd and Julie Hall for being a repeat client. Also deserving of mention is Dustin Smart who is going to be utilizing my services again to refinance his home.