The Mortgage Cicerone - The Loan Attraction Coach - Con

MAYDAY! Are You Prepared For the New Appraisal Standards? Are Your Clients?

A New Post By Dan Melson.
Mortgage Loan Broker - California.
Read other posts by Dan Melson.

Effective May 1, 2009, most of you should know that New Appraisal Standards go into effect.
I've been doing some research of late, and the results aren't pretty. Appraisers are going to become essentially unaccountable for anything they do short of a blatant rule violation, but they're going to be able to levy extremely destructive charges that could destroy a lender at will.

I've got an article aimed at consumers going up tomorrow (March 26th) at 7 AM over at my own site, but there are some highlight concerns for Loan Officers and anyone else whose income potentially depends upon an appraisal. The big ones I see are:

• how the appraisal gets paid for (deposit or essentially jacking up margin)
• how the appraisal/deposit gets collected so as not to create issues with escrow account that will lose our license
• preventing accusations of attempting to manipulate value (it's got a doozy of a penalty!)
• getting clients to understand that we have no input on who the appraiser is or the value they return, and that we are unable to order a second appraisal (unless the lender requires it as a matter of standard practice for a given loan program)

Most of these are really going to need to get hashed out on a company wide basis prior to May 1 (MAYDAY!)

There is going to be a blortload of client, LO, and lender pain on this score, and we will be feeling it every time we get a bad appraisal, upon which there will be essentially only one check - that the appraiser cannot objectively violate one of their own rules. The burden is, unfortunately, going to be largely upon loan officers to educate the public into understanding of what the government has enacted, and how we are victims every bit the same as they are.

The only silver lining will be that the appraisers are going to completely own this disaster.

I may be significantly behind some others on looking hard at this, but the folks who were warning us back in November and December were more right than probably even they knew.

(Please don't blame this one on Obama. As far as I can tell, he's no more liable than any other Senator on this one score. It was the Bush Administration, pushed by the theatrical hearings held by Congress last year, that enacted this monstrosity, and I say this as someone who generally has a lot more esteem for President 43 than number 44. Even though I have no evidence he was personally involved, the buck for this stops on W's desk)

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Agent Fraud to Watch For - Termites

Many agents are aware that if the purchase contract does not specify a termite report, the lender will not require it.

Many agents also know that Section 1 work on a standard termite report is a loan-killer.  No lender is going to fund a loan while termites are in the process of eating the structure.  Therefore, the lender will require section 1 work to be completed prior to funding the loan.

But if there's no termite clearance required in the purchase contract, the lender won't ask.

Therefore, many agents are barefacedly committing fraud because they know there is termite work to be done, work that their clients don't want to do.

So what happens when the termites keep eating?  What happens when the buyer discovers that they need this work, only there is no equity, often due to the fact that the work needs doing?  Do you think they might be at risk for foreclosure?

Who do you think the lender is going to look at first for concealing this?

I work as an agent as well as loan officer, and I just had a listing agent propose this fraud completely cold in an email, as if there was absolutely nothing wrong with it.

Watch yourself.  Make sure your regular agents understand that this is fraud, and that in the case of a "successful" transaction where this does get funded, both of your licenses are going to be forfeit if the new lender wants to make a complaint, as well as you quite likely having to redeem the loan.

Lots of people only understand the immediate commission check, not the professional consequences that can flow from just one of these transactions going bad.  Not to mention what happens to the clients, who lost their home, whatever money they had put into it, and whatever portion of their life went into saving that money and recovering from such a loss.

New RESPA Rules Announced

They're not published in final form yet (Friday is anticipated), but they have been finalized.

So far, all I've got to go on is the announcement and fact sheet  and the new proposed forms (Good Faith Estimate  and HUD 1 ) but I've got to say that unless the new regulations have even more loopholes than the current ones, the environment has just shifted towards a better class of loan provider.

The better things are for consumers, the better they will be for us.

I'll have a more full discussion of what is known now up at Searchlight Crusade on the morning of the 13th.

Want More Business? Loan Modification!

A New Post By Dan Melson
Mortgage Loan Broker - California
Read other posts by Dan Melson

I'm getting signed up for a loan modification program and its training this morning. If you haven't done it, or don't know what it is, do some investigation and get yourself set up for it.

This is a "doing well by doing good" program. Truthfully, the majority of the immediate income will probably be because I am also a Realtor, and this will get my foot in the door for listing the unsavable properties - mortgage modification will not help everyone. But for the sixty to ninety percent of the people who can be helped will certainly appreciate me taking them into a program that saves their homes, and enables them to stay in the property, make their payments on time, and eventually be able to sell for a profit when the market does turn.

I am excited about this because the past two years I have had nothing that can be done for those people who ignored my advice or never heard it until it was too late, and bought a more expensive property than they could afford. Loan Modification won't help all of them, by any means, and it's not likely to be enough revenue by itself to keep someone in business. But the peripheral and long term benefits of offering something like this and saving someone's home and financial future should be more than lucrative enough to have basically every loan officer who can signing up. Indeed, one of my motivations for publicizing this is to motivate every mortgage provider I can to find a good modification program and offer it to their clients, in order to better compete for business in today's tough market.

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Client Interest or Referral Income

A New Post By Dan Melson
Mortgage Loan Broker - California
Read other posts by Dan Melson

Haven't posted anything in a while, but this one is a Cicerone.

Just checked over at  Bloodhound for the first time in a few days, and found a post wherein an agent talks about:

When it comes to choosing which lenders to keep on your short list, referrals are certainly important and past performance is great, but I also highly recommend you ask a single, all-important question. Whether interviewing a lender for the first time or seeing your regular lender, stand straight and tall, look them in the eyes and ask this question:  “Mr/Ms Lender, by recommending you to my client I am also commending my commission to you.  In other words, I am handing you $5000, $10,000, $20,000 of my money in hopes of getting it back in a couple of weeks.  Why should I do that?”

Here's the first question: During the era of Make Believe Loans, is there anyone who was originating this who didn't face such a question?  Was there anyone who didn't face such a question with the intent behind it clear: That if you didn't deliver a loan that enabled the transaction to close, regardless of the consequences to the client, it would be the last time you ever saw one of their clients?

That attitude is alive and well, and quite often it doesn't even realize what it's setting everybody involved up for.  Some agents simply do not understand some of the implications of such a question, and will be glad when you tell them.  Others, however - the vast majority in my experience - are going to react badly when you tell them "As currently contemplated, this purchase appears to be beyond client means"

So here's the critical question, and you'd better answer it now if you haven't before, because you're going to get it again: When there's money on the line, am I going to have the integrity to say, "This transaction shouldn't happen"?  Are you going to do what is right for the buyer - your loan client - or are you going to keep quiet to keep that referral money coming in?

Here's one thing to keep in mind.  Lenders are scrutinizing defaulted loans to a degree they never have before, and this is going to be pretty much a permanent feature of the business.  So when the loan goes sour, who's on the hook for that loan?  It's quite likely that agent is going to walk - or be offered immunity in exchange for spilling all they know.  You're the one in the cross-hairs.

I strongly suspect that the LOs with the fortitude to say, "no" to a particular transaction are going to be all that's left before very long.  It's not going to be easy.  But that's the way to survive for more than another month.

Blogging and L'Hospital's Rule

A New Post By Dan Melson
Mortgage Loan Broker - California
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In 1694, Marquis L'Hospital agreed to pay Johann Bernoulli the sum of 300 francs per year for the rights to his mathematical discoveries, which is why one of the major theorems of differential calculus bears his name:  L'Hospital's Rule

L'Hospital never claimed to have invented or proved the theorem, but he was the one who first described it in print.  He also thanked Johann Bernoulli for his assistance in his book, and it wasn't until 1922 that solid evidence was found that Johann Bernoulli was in fact, the one who had proven the theorem.  We're a little bit more careful about who gets credit for such work today, and while someone in L'Hospital's position is allowed to make what use of it they will, as major corporations who hire researchers do today, that researcher gets the public credit for having solved the problem.  Indeed, there was a time when L'Hospital's reputation was pretty bad, for having "stolen" Bernoulli's work.

What's this got to do with blogging?

A few days ago, I was informed that one of my articles (Straw Buyer Fraud) had been plagiarized.  I sent email to the owner of the site and the hosting service, and it was removed.  But the owner blamed her assistant for having done the plagiarization, despite the fact that her own name was on the article with no mention of the assistant.

You really don't want to do this.  There are legal reasons, ethical reasons, and business practice reasons.

First off, legal reasons.  I'm not an attorney, but my understanding is putting something out there with my own name on it is a claim of responsibility.  If there's a legal complaint, any assistant I have may be a witness, but they're not going to be named in the complaint.  Furthermore, what's going to happen to your credibility when it comes out in open court that you're not the one who did it, despite your name being on it?  In the scientific or academic community, you would be basically unemployable, even leaving aside the issue of plagiarism.  Even in the world of real estate, court documents are open public records.  Your clients can find them on search engines via searching your name.  Furthermore, it's very possible you could fall afoul of your state's ethics requirements.  Neither of these two developments is conducive to your further career.

Second, give credit where credit is due.  If I had an assistant writing my articles, they would be entitled to credit for it.  It's still my site, and I can do what I want with their work - after all, I paid for it.  But the name on the post or article should be theirs.  This is nothing more or less than due acknowledgment for work well done.

I'm well aware that there's a lucrative little pocket industry of ghost writing blogs for people who want blogs but don't want to put forth the effort.  If you're considering this, let me ask you what happens when a potential customer asks a question on the article, and you have no idea what they're talking about?  Say good bye to credibility.  Not to mention that the ghost written stuff is pretty much cut and paste pablum.  Successful blogging requires an individual voice that customers can identify with.  If you're having someone else do your writing, you are defeating the whole purpose of having a blog.  The customers might call, but they're going to vanish when they figure out you weren't the one who wrote whatever it was that spoke to them.

So if you're going to have a blog, write it yourself.  If you're going to have someone else write for it, put their name on what they write.  You'll still get credit for it, without the client expectations of being quite so familiar with it.  Furthermore, if there are any allegations of impropriety, your level of responsibility is much more manageable.  You honestly didn't know until now, and it's not out there under your name.  You haven't claimed credit for it, and therefore responsibility.  Nonetheless, your website is still going to get the search hits, and your potential clients will still be interested in you, even though your assistant wrote it, because you shine in the reflected glory, too.  Furthermore, it shows not only your clients but your employees that you're not someone to hog the credit for things that go right, while placing blame for what goes wrong elsewhere.

As for the plagiarist?  I find don't find her denial of involvement to be credible.  Far as I'm concerned, her name is mud.  I'm not going to reveal it for anything less than a court order, but I have occasionally gotten requests for referrals in her city.  Future requests are definitely not getting her number from me.

Wholesaler Removes Declining Market Designator From San Diego

A New Post By Dan Melson
Mortgage Loan Broker - California
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Along about 5pm I was finishing up in my office, and got an e-mail from one of my wholesalers that they were removing the declining market designation from San Diego.

They're not doing 100% loans, but we do have 95% conventional conforming again. Since this is the first loosening of lender standards, this will cause an incremental boost in demand.

Instead of being a harbinger of doom, it's kind of nice to be in a leading edge market when there's good news I can share

5/1 Hybrid ARMs Rock!

A New Post By Dan Melson
Mortgage Loan Broker - California
Read other posts by Dan Melson

I've been mostly dealing with issues on the real estate side in the last couple weeks.

But here's a question:  Can you persuade someone who wants a thirty year fixed that a 5/1 is a good idea?

Here's a refinance question I got this week

$600k loan at 6.25%.  LTV is between 75 and 80, and we're looking rate/term (no cash out)

Refinancing at 6.25 on a thirty year fixed (with all adjustors) would cost the client a little over $4000.

Refinancing at 5.875% would cost (mutatis mutandis) about $11,000, for a savings of about $2200 per year.

Refinancing at 5.5 would cost about $18,000, saving roughly $4500 per year.

Considering that most folks (these included) refi about every 3 years, none of these make sense.

BUT

5.875 on a 5/1 is Zero points, with me making just over a half in YSP.  Would I spend $3500 (about) to save $2200 per year in interest for up to five years?  Yes.  That makes sense, especially when most folks refinance every three years anyway.

for 5.5, it's about 0.8 points.  Spend $8-9000, save $4500 per year.  Still good!

For a point and a half ($12500) they can have 5.25%, saving about $6000 per year.  Not only are their payments way lower but if they keep it four years they're $12,000 to the good on the cost of the money, never mind the payment difference.

no matter how you slice the 5/1 here, you're paying for the loan in two years, leaving the last three to be pure profit for the client (they can keep it after adjustment, but you and I know nobody does).

There's a lot of folks out there at rates where a thirty year fixed doesn't make any sense - but a 5/1 ARM does.  And the spread between the two seems to be getting wider again.  Your client gets not only a better rate, but five years of insurance that the rate won't change.  Since this is way more than most people use, the 90% of people who are in this position really aren't giving up anything.

Not to mention you've got a tickler for when you're ready to do another loan.

(and before anyone asks, I'm not seeing 7/1s and 10/1s drop like this.  Since the spread between the thirty fixed and these is usually *much* smaller than the 5/1 spread, I find it hard to recommend either one of them.  More than once I've had to catch a thought about 10/1s being a small reward for wimps before it got out of my mouth.  Especially given that the national mean time between refinancing is still less than three years)

Zillow Mortgage: follow up observations

A New Post By Dan Melson
Mortgage Loan Broker - California
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I've been quoting loans on zillow mortgage in what would have otherwise been my wasted time, and watching what others quote.

Observations:

1) No matter the characteristics of the loan that gets asked for, most quotes seem to be A paper conforming full documentation rates - and lowballed on the points as well.

2) I have yet to see FHA costs addressed at all, by any other quote provider

3) I have yet to see quote caveats provided by any other quote provider

4) Zillow does not appear to be effectively monitoring their quotes forum or their feedback.  In at least one case, I'd bet money that a top of the line review was a sock puppet.

5) I have done roughly 15-20 quotes.  Real loans, that I could actually lock and guarantee price (assuming the client was telling the truth) and deliver in 30 days or less.  Zero calls, zero emails.  I'm seeing identical quote requests circulate at intervals of a few days, with no apparent action  on the part of the requester.

6) I'm going to be nice here: Perhaps given a bit more time, the enforcement mechanisms will shake themselves out.  It has been less than a month.

7) Nonetheless, at this point in time, Zillow has done precisely nothing to separate themselves from all the other on-line quote sites, and it does not appear that they are likely to do anything to make them any more worthwhile than any other such site, from the point of view of either consumer or mortgage provider. 

Quite frankly, I appear to have wasted the $25 sign up fee.  Not that it's the first $25 I've ever wasted.  But if you're quoting something real, Zillow mortgage does not appear to be living up to their hype.

If They're Working For You, They're Your Responsibility

A New Post By Dan Melson
Mortgage Loan Broker - California
Read other posts by Dan Melson

I am disgusted.

This morning I got an e-mail from an alleged professional blaming a rather significant failure on a member of his staff, taking the tone that he personally was blameless.  This person is evidently pulling down quite a good living by the size of the operation.  Nonetheless, he has just lost any respect I might have had for him.

Ladies and Gentlemen: These people work for you.  You were supposed to train them.  You are responsible for what they do - and what they don't do.  Their behavior, for good or bad, is your responsibility, and reflects upon what you do or do not teach, what you do or do not enforce.  They are proxies for you.   Think of them as your extra hands, at least as far as your customers care.  They are there to do the more or less routine work so that you have time to do other things.  They are people in their own right, with minds, feelings, families, etcetera, and everybody makes mistakes sometimes.  But that doesn't let you off the hook as far as your customers are concerned.

As far as your customers care, you did it personally.

Failing to own such problems is a second failure, taking the original error and compounding it.  It's not about blame - it's about good business practice.  Not to mention that any blame there may be for anything that happens in your office automatically accrues to you.  That's what being a boss and having staff is about.  You think the commanding general at Abu-Ghraib was down there personally posing naked prisoners with hoods?  Nonetheless, she was quite correctly demoted and cashiered for failing to stop it.

The Army understands leadership responsibility.  Do you?

If a member of your staff makes a mistake, either actively or one of negligence, own it.  "I apologize that we did this to you.  I will fix it by (how), and I will fix the problem in our system so that it does not recur.  I should also thank you because this brought to light a failure in my organization, but I am sorry it happened at all."