The Mortgage Cicerone

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
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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
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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."

Zillow's New Mortgage Quote Forum

A New Post By Dan Melson
Mortgage Loan Broker - California
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My take on Zillow's new mortgage match service: I am going to try it.

I have, on more than one occasion, made plain the problems with online quote services

Here is the first question Drew asked me for their article Neither it, nor the answer, found its way into the finished product, for tolerably obvious reasons:

What are some online resources consumers should be using to find loan rate information?

None that are any good, as in the sense of providing good relevant information that's applicable to specific cases. There are many loan quote forums that will quote you a rate. They quote you a low rate or a low payment to get you to contact them - and that's all that it is, a teaser. I have literally gone right down the line in two different comparative quote forums, contacting every company and asking for quotes that comply with the standards they are supposed to quote to. Not one company was even prepared to quote me what they were advertising. Nor did the forums themselves do anything when I complained - they are not interested in policing the quotes, as to do so risks losing some hefty income when the companies quit subscribing to their service. The few companies that advertise honest rates that are really available have given up on those forums in disgust - they attract clients in other ways.

Nonetheless, I'm willing to give Zillow the benefit of the doubt.  Why?  Precisely because of the way they have handled their "zestimate" service.  It may be useless for the purposes of buying and selling, but they have done their dead level best to make it suck less.  They may be trying something for which the medium is not suited, but they've spent a lot of money and programmer time trying their best to make it work.  Internet mortgage quote services are nowhere near as intractable of solution.  It's just that nobody has wanted to do it correctly yet.

I'll give Zillow credit for wanting to do it correctly.  Whether or not they carry it through is something else again.  But they've earned a certain amount of respect for their willingness to try to correct perceived problems.  I'm reasonably confident they will want to make efforts to improve

The internet being what it is, I understand about their "one way transparency" policy.   I, among others, have been unstinting in my criticism of the way on-line quote requests are handled (even if they weren't actually a quest for quotes, as in the linked article).  Furthermore, the vast majority of internet users are very guarded about their privacy, and if lenders could contact them directly, they would be unlikely to use the service.  I believe that Zillow evaluated the trade-off between more people being willing to try the service, and more transparency on the part of consumers, and made the choice that results in more people - potential customers - willing to try the service.  If the loan originators who are complaining about this stopped and thought a moment, they'd realize they're complaining about increasing the size of the potential market.  Bullet.  Foot.  Not much assembly required.

This isn't to say I think the service is perfect: It most decidedly is not.  One thing I think Zillow needs to add is a space for each and every lender to detail their quote policy, so that consumers know what is and isn't included (I like to quote all inclusive costs, others do not), as well as limitations on the value of their quotes.  My margins are such that if wholesale rates rise, there is no way I am going to be able to honor any quote I make four days later.  Zillow also needs to make something very plain that they have not - that all rate quotes are subject to change until locking.  That needs to be graven in size forty bold font on the top of every page in the category.  Trying to ignore this is a guaranteed failure for both consumers and originators.

Zillow is also going to need an arbitration department, or at least committee.  Many consumers will complain about things they themselves with the cause of.  "Sure, I said I make $8000 per month and it's really $2000, I said I have a FICO of 804 and it's really 408, but they didn't honor their quote!." I don't believe Zillow is ready for either that, or the lender who says, "but everyone knows there's two points of origination, and the title company and escrow fees are not my fault!"  In the former case, that person should have no credibility to make a rating, and in the second, that originator should be unceremoniously branded as unworthy of professional status.  Time will tell if Zillow has the guts to undertake those actions, or if they're going to take the low road of passing all allegations, no matter how thoroughly it's been debunked.  If it's the latter, they shouldn't be surprised if the professionals that gravitate to them tend towards the low end of the reputability spectrum.  My reputation is valuable to me, and to others.  I will not have it libeled, and if Zillow does anything less than ruthless purging of incorrect information, I won't hang out waiting to become a victim.

Several people have already made the point that Zillow is going to begin charging at some point.  Well, duh  At that point, I'll make a decision as to whether or not to continue participating.  I'm hoping they use this initial period as a way to work the bugs out.  I can stand to risk $25 and some of the time I'd otherwise spend surfing the internet to no particularly good purpose to see if I can pick up a few loans I wouldn't otherwise get.

A couple suggestions: Give the consumers more information on the prospective lenders.  And since it's consumers contacting >lenders, there's absolutely no reason why lenders shouldn't be able to participate immediately upon sign up, albeit marked "provisional".  If the consumer can verify enough information to feel comfortable contacting a provisional lender, they should be able to.  This also would have made it easier for would-be reviewers to work.  I was invited to their pre-launch briefing, but they dropped the ball despite my best efforts to be included.  Not precisely a great omen, but mistakes happen.  It's how we with problems that defines us.

This could be a really wonderful thing, for both consumers and originators.  On the other hand, it could be the worst disaster since this one.  How Zillow behaves in handling the issues will determine which.  I can lurk and participate a little around the edges, and see how things shake out.  I don't need to know right now.  I can gather evidence before making up my mind.

If it's not for you as an originator, don't feel threatened.  There's plenty of market to be picked up elsewhere.

Racial Gap In Home Loans

A New Post By Dan Melson
Mortgage Loan Broker - California
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Tony saw this on my own site and asked me to reprint it here (Sorry it took me three days).  It's a reprint of a thirty month old article, and the article that inspired it is no longer available.  It reported on the high gap in cost and rate between loans that what I'll call "white people" get and loans gotten by various minority groups.  The original article was titled, "Racial Gap in Loans Is High in California", and from this point, the text is straight out of the reprint:

"Racial Gap in Loans Is High in California"

I can give a variety of reasons for this.

First off, especially in Los Angeles but to a lesser extent throughout the state, there is a huge "Spanish speaking only" community.  When you limit yourself to speakers of a language which isn't the nation's primary business tongue, you limit your ability to find loan officers who will treat you honestly and fairly and find you the best possible loan.  I speak reasonable spanish myself, but not nearly enough to do a loan.

Second, those who speak spanish only are ripe pickings for unscrupulous loan officers and real estate agents.  Because they do not understand english, the language the regulations are written in, they have less understanding of what is a complicated and confusing process for anyone who is not a practicing professional.  In fact, I can name a lot of alleged professionals who speak English and are nonetheless limited in the comprehension of the process to judge by the evidence.

Third, those who speak Spanish only have a lesser understanding of their rights under the law, and since the vast majority of all loan documents are in English (a few lenders are starting to generate a few documents in Spanish, but not every document, and it will never be the main copy of anything), they have a lesser understanding of what they are agreeing to.

Gee, I hope the preceding helps the "Spanish only" lobby of separatists understand what they're setting up for the people whose benefit they are allegedly advocating.

But more importantly than all of the preceding, real estate and loans are "sales connection" businesses.  Because most people do not shop for homes or home loans in a rational fashion.  "I can't be rational!  This is far too important for that!"  Seems silly, but it's true.  People buy or do business with you because you have made them more comfortable, or because they think you can do something nobody else can or will for them.  They do business because they connect with you on some level, not because what you're offering is the best thing out there.

Identity politics exacerbates this.  There are agents out there (often but not always necessarily of the same ethnicity) whose niche market is "black folks", or "Spanish speakers" or "Koreans".  Some people will do business just because you're the same, or because they feel some kind of cultural connection.  Others will do business because you helped their brother, or friend, whether said brother was the toughest deal in creation or the easiest thing you ever did.  And if you brother had to do something, or had something happen, it's only normal it should happen to you, too - right?  One of the standard phrases in the sales lexicon is "My you were tough, but we got it done!  How about some referrals."  This by itself is not evil.  But if you've taken advantage of someone as if they were a tough loan when in fact they were not and could have gotten a better deal from someone else, you're lining your pocket at your client's expense.  Everybody deserves to get paid for a job well done.  But when my contacts in the escrow and title business tell me about people who only serve this ethnic market or that ethnic market who have six percent state of California limits on their compensation externally applied to every single loan they do, or how these people consistently have a sales compensation a full percent above the market, that tells me something: that these alleged professionals are taking undue advantage of their target market.  Many of these people they are targeting literally have no way of knowing there is something better out there.  Are their tactics illegal?  No.  Unethical?  In at least some cases.  Taking advantage of client ignorance?  Definitely.

The process of purchasing, selling, or refinancing real estate is byzantine, with rules and regulations that get more complex every year.  The average citizen has difficulty understanding the things that may be relevant to their particular transaction (I've had to explain to <i>lawyers</i> how they got taken in their previous transaction).  To most people, the whole thing is like some immensely complicated magical ritual.  Place the proper documents at the foot of the underwriting god, dance three time sunwise and four times widdershins round the appraisal every day for a fortnight, pray with the high priests of insurance, and you get your house.

It has elements in common, I will admit.  But the processes of real estate sales and real estate loans are coldly, brutally, logical once you understand them.  Unfortunately, the odds of understanding are stacked even further against those who are apart from the majority of society.  Those who are concerned with minorities having inferior loans would have more success in connecting the people to the mainstream of society than in considering further burdensome anti-discrimination legislation.

Caveat Emptor

Original  Post <CLICK HERE>

Ethics and Due Diligence: Where the Rubber Hits the Road

A New Post By Dan Melson
Mortgage Loan Broker - California
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Of late, there has been a huge amount of marketing effort spend on mortgage accelerators or money merge accounts, where the client deposits their entire paycheck with a mortgage lender for temporary principal reduction.

Let me ask all of you out there: If you have sold them, how much due diligence did you do?  Did you analyze the product and the sales presentation thoroughly, or did you simply take the wholesaler's word for it, and repeat the sales presentation as it was made to you?  Did you really analyze where the benefits, if any came from, and isolate the effects of the money merge/mortgage accelerator from people making extra payments, which most of them can do anyway, and for free?  Did you haul out a calculator or a spreadsheet and run a set of typical numbers, particularly as they relate to a typical consumer as far as how expensive of a house they are likely to buy or own, what their equity picture looks like, and the fact that more than half of everyone will sell or refinance within three years?  Most particularly, did you do your own analysis and run the numbers for every client you sold one to?  Did you take into account all of the opportunity costs as well?  Or did you simply eye an apparently easy sale commission check and push the transaction through?

Roughly a year and a half ago, when they were started to be being pushed aggressively, I figured out that the actual benefits were minimal - on the order of $5 to $10 per month, for reasonably typical loans.  Given the $2000 to $6000 up front cost to sign up for these programs alone, not a rational decision or wise fiduciary advice.  Yet in the last week, I've gotten half a dozen overhyped marketing pieces from wholesalers alleging they will help my clients pay down a thirty year loan in twelve years or so for the same payment, while my home mailbox has gotten four extremely similar pieces from other originators overhyping them to the same extent.

Guess what?  It isn't going to happen.  I finally got motivated by all this hype to perform a rigorous analysis, and not only is the mortgage not paid off appreciably faster even if the program was completely free of cost, the costs of every single one of these programs of which I'm aware are literally never recovered, even over a thirty year loan period where they keep this program in effect the full time.  And when you sell one of these, the client you sell them to is going to remember what you promised.  What happens to that client's trust and circle of influence when those promises don't come true?  They spent this money in the expectation their mortgage would be paid off in twelve or fourteen or however many years that particular marketing brochure says.  When that doesn't happen, when next they're looking for a loan three years from now, and there has been no appreciable progress, what are they likely to do with their future business?  Saying, "I didn't know!" is not going to assuage the indignation of anybody except close relatives, especially when you represented that you did know.

Everybody can and does say that they are ethical.  But being ethical requires action.  It requires passing by the easy paycheck if it doesn't help the client.  If you haven't sold any of these, if you've told your clients the benefits are minimal, despite all the hype, give yourself a large pat on the back.  If you've told your clients that the benefits are almost entirely in the psychology of the account and the way they encourage people to make larger payments in order to pay off their mortgage earlier, give yourself a special treat of your choice and a warm congratulation. 

But if you've sold these programs, you might ask yourself what you're going to do now, pre-emptively, before they figure out that there's no real benefit, in order to retain those customers.  You've gotten an easy paycheck that cost your client money.  Are you going to keep saying you're ethical, or are you actually going to do something that demonstrates this, and might actually help you retain the business next time they want a loan?

(and if you need more convincing, visit my site after 7 am pacific time Thursday)

Just a quick FYI

A New Post By Dan Melson
Mortgage Loan Broker - California
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I'm sure most of you have seen the Fannie Mae email on Jumbo Conforming loans by now (it's been circulating since the 6th), but if you haven't, I covered it this morning, with some analysis.

I'm not going to duplicate it here - for one thing, I tend to do a lot of internal links to explain points consumers may not understand, and that would be abusive.

But the article is here  if you haven't seen Fannie's memo

Well, Thank You Tony

A New Post By Dan Melson
Mortgage Loan Broker - California
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For some reason, The Mortgage Cicerone thought I might have something to offer here.  I'll probably be mostly an occasional contributor.  I've been working my own sites Searchlight Crusade  and Dan Melson's San Diego Real Estate and Mortgage for going on three years now.  I write mostly for consumer education purposes, because I believe that an educated consumer is not only my best prospect in the whole world, but because I teach them something useful to them, the ones who are local to me will give me a shot at the business.  I don't have time to write everything I already want to, but I do sometimes have ideas that apply to professionals, instead of consumers.

If the people in this industry had to name their least favorite aspect, I'll bet you "prospecting" comes up number one on the list.  I don't write about prospecting.  I have no reason to believe I'm particularly good at it.  It's expensive in terms of both time and money, and it's easily my least favorite aspect of the business.

But if you observe the people in this industry who don't have to spend so much time and money prospecting, one thing always stands out:  A commitment to treat their clients right.  But here's where it pays off: Treat your clients right - really right - and they'll not only come back to you and be loyal to you, but they'll bring you their friends, their relatives, their co-workers.  I got one lead for a guy who happened to work at a local major corporation in Summer of 2003.  By treating him right, I got thirty referrals in the next thirty days - and twenty-nine of them turned to loans. 

I've read about Brian Brady, one of my co-contributors here, wanting 1200 names in his customer database.  People get a new loan, on the average, more than once than every three years.  1200 consumers divided by 36 months is an average of thirty-three loans per month that walk themselves in your door.  This doesn't count referrals.  Especially while you're in process with repeat consumers, there's always the possibility of referrals.  Referrals motivated solely by that client wanting to take care of someone they have some kind of bond with.  It's cool to ask for them in the right way, but if you make a commitment to treat your clients right, you almost don't need to.  That's the carrot.

The stick is simple, and even it is part carrot.  This is the Age of Transparency.  This means that anything you do, good or bad, is going to get out into the public arena.  Whether you like it or not, it's going to happen.  There are sites out there devoted to nothing but performance reviews of professional services.  A good enough review will bring you business.  A bad one will kill it.  Not to mention court cases, license actions, etcetera.  Things that you do today have the potential to remove your livelihood indefinitely - force an immediate and permanent career change.

From my point of view, the opinion of that guy I see in the mirror every morning when I shave is the most important thing of all.  But even if you have no conscience, the system we have is headed for increasing transparency and your potential customers are going to be able to find out about how you've treated former customers.  If you make a commitment to treat everyone right from before they even see your ad, you'll prosper from it.  If you keep promising the undeliverable and quoting half the costs consumers will really pay, you're just waiting for the hammer to fall.