Top Five Fridays - Good Eats, Fast Food edition
“Good Eats” is a show on Food Network hosted by Alton Brown. The term good eats basically means good food. Here are my top five places for Good Eats, the Fast Food Edition. No waitresses. No waiting. Good Eats.
- L & L Barbeque: Located in Aurora City Place, this authentic hawaiian barbeque is definitely worth the trip. While you’re there try musubi or spam sushi.
- Qdoba: One big fat burrito. The difference between them and Chipotle, the reward card. Buy ten burritos get one free.
- Wahoos Fish Tacos: To get it blackened or not blackened, that is the question.
- Swing Thai: Their pad thai has become run of the mill but I still go there for their mango with sticky rice treat.
- Potbelly: Even though they’re located primarily in midwest with no Denver locations, I’m still gonna give them some props. If you’re ever at Midway Airport, give them a go, they have the best subs.
The witchhunt continues
Appraisers are next up on the Colorado foreclosure agenda according to the Rocky Mountain News article:
Erin Toll’s top priority as the new director of the Division of Real Estate for Colorado is to shut down appraisers who are artificially inflating home values, contributing to the state’s escalating foreclosure crisis.
The article also articulates the ABC’s of appraisals:
- An appraiser’s job is to inspect the size, condition and quality of a home and review, verify and analyze market data for the home to determine its value.
- Loan amounts rely on the value calculated by the appraisals.
- Lenders typically require real estate appraisals for both purchases and refinances.
- The appraisal protects lenders so they don’t lend more than a property is worth as well as buyers so they don’t pay too much.
- Appraisers must be independent and should never assign a value just because a lender or real estate agent wants a specific price.
- An appraiser will inspect a home inside and out, as well as use county and other real estate data to compare the house to similar ones that have sold in the neighborhood to determine its value. A good appraiser looks at the comparable homes to make sure they really are similar.
- In addition to obvious things such as the size and condition of the home, the number of bathrooms and bedrooms, an appraiser will add value for things such as a well-done renovation, but will subtract value if the home needs work, such as a new furnace or a paint job.
- A detailed professional appraisal can run 30 to 35 pages.
I don’t want to sell anything….
Say Anything was on the other night.
Most of us should recall this line from Lloyd Dobbler (John Cusack).
I don’t want to sell anything, buy anything, or process anything as a career. I don’t want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought, or processed, or repair anything sold, bought, or processed. You know, as a career, I don’t want to do that.
There are days when I know exactly what he means.
Tags: denverA letter from a reader
I get a lot of email. Some are linking requests. Some are spam that somehow get through GMAIL’s spam filter. Some are mortgage requests. Some are mortgage questions. Some are mortgage vendors trying to sell me something.
On Sunday, I received a well written argument from a reader who asked me to post his response to the Denver Post article NO MONEY DOWN: A HIGH RISK GAMBLE.
Tags: colorado, debt, denver, fha, foreclosure, home equity, mortgage, negative amortization, prepayment, property, purchase, rate, real estate, refinance, vaPhil,
I enjoy frequenting your blog, and wanted to be sure to share this with you. I am an independent Mortgage Broker with my own company Source Financial LLC, and I wrote an extended response to The Sunday Denver Post’s lead article from September 17, 2006 entitled “No Money Down: A High-Risk Gamble” [www.denverpost.com/ci_4347686].
I found the Denver Post article to be riddled with misrepresentations, one-sided accountings, and dangerous misinformation, all supporting a traditionalist approach to mortgages that has put two-thirds of all families into home ownership, but yet has led to a situation where the average fifty year-old American is worth negative $7000, only 5% of Americans retire at age 65 in financial dignity, and 9 out of 10 Americans die in debt.
In reference to my 2000 word response, Denver Post Business Editor Stephen Keating indicated that “I will take the time to read it and digest your observations, and discuss it with the rest of the reporting/editing team here.” Article author and Denver Post Business Writer Greg Grifffin wrote “This is a well-reasoned and well-supported argument. I don’t agree with everything you’ve said, but you’ve managed to get me thinking.” Unfortunately, checking today’s (September 24) Sunday Denver Post and www.denverpost.com, my response remained unpublished…
A Response to “No Money Down: A High-Risk Gamble” – The Sunday Denver Post, September 17, 2006 lead article [www.denverpost.com/ci_4347686]
As an independent Mortgage Broker that owns my own company, Source Financial LLC, in addition to being affiliated with a larger mortgage company that handles the processing and servicing of my loans, Lion Financial Corporation, I read the lead article “No Money Down: A High-Risk Gamble” with great interest. Knowing that a lot of folks along the Front Range turn to the Denver Post as an objective source for information, I was shocked and dismayed by much of the information and conclusions that were put forth on a topic that already invokes a fight or flight response among many home owners.
100% financing loans have been an amazing tool that has greatly contributed to the 5% increase over the last twenty years in percentage of homes occupied by the owner. But it is not the lack of equity that is putting these borrowers into jeopardy, it is a lack of a flexible asset base to deal with changes that has been increasing the risk of these folks defaulting. In general, people that utilize 100% financing for home purchases usually are lacking the liquid assets, emergency funds, and overall wiggle room to deal with financial hardship.
Of course lenders usually have guidelines concerning liquid asset reserves that must be held by the borrower in order to qualify for a loan, but often they only require enough to cover two to four months of mortgage payments. When people do face catastrophic events rightfully referenced by the Denver Post, “job loss, medical problems and divorce,” those reserves can often quickly disappear.
But having equity in one’s home when faced with these situations does not “give homeowners options when they face financial problems,” because it is precisely when folks are facing such dilemmas that they are quite often unable to qualify for refinancing, as at that point in time they are too high risk of a borrower for lenders to work with. As a Mortgage Broker I am deeply disturbed by this fact, but unfortunately it is a reality that we all must face when dealing with banks and lenders.
And probably the most misunderstood aspect of homeownership is the fact that equity is a ZERO PERCENT RETURN INVESTMENT. Yet two-thirds of Americans hold the majority of their wealth in home equity, which is a non-liquid asset that gives them absolutely zero return. Many people confuse appreciation, which is the increase in home value due to market trends, with getting some kind of return on their equity, but that is a common misconception. That is why it is so important for homeowners to separate their equity from their home via refinancing, and put those “cashed out” funds into investment vehicles that offer an actual rate of return. In doing so, homeowners increase their overall liquidity, improve their capacity to face emergencies, reduce their financial risk, increase their rate of return, improve their tax deductions, and diversify their investment portfolio.
Instead of spending their liquid asset base (savings) to finish their basement and send money to their parents, such as in the case of Jose Garcia and Maria Vanderhorst, borrowers with 100% financing have to exercise greater financial discipline. And putting money down and getting into a 30-year fixed would not have improved their situation, as then their down payment would be tied up as equity, which is a non-liquid asset, money that can only be accessed through refinancing or by selling their home.
100% finanacing loans are not dangerous, what is dangerous is borrowers not having a liquid asset base to deal with life’s contingencies. Unfortunately, these are the type of borrowers that tend towards 100% financing, as it really is their only option for home ownership. And tying up their wealth in the straightjacket known as equity is not part of the solution, it is part of the problem. An incredible means to access equity for the purpose of greater fiscal flexbility and all the other goods mentioned above, or “cashing out equity as one goes,” is the Option-ARM loan, which received quite a misguided slamming in the Denver Post article.
The Payment Option Loan gives the borrower four different payment options each and every month: they can make an Interest Only, 30-Year amortized, or 15-Year amortized payment based upon the fully indexed interest rate, or they can make the minimum payment that is based upon a very low “start rate” (usually between 1% and 4%), which involves deferring interest (a.k.a. negative amortization), or adding the difference between the Interest Only payment and the minimum payment onto the principal of the loan. Now while most lenders offer the Payment Option Loan with an adjustable fully indexed rate, one that starts adjusting as early as the first month, some lenders offer the Payment Option Loan with a fixed interest rate for the first five years.
The Payment Option Loan has proven to be a favorite of Real Estate Investors and Real Estate Agents, as it frees up extra cash flow on a monthly basis for much greater investment opportunities. Knowing that equity is a zero percent return investment is some powerful information to have.
The annecdote concerning Louis and India Harts conflated the fixed “start rate” with the adjustable “fully indexed rate”, such that readers were left with the impression that the Harts’ interest rate went from 2.6% to 8.1%. The start rate, which determines how much the minimum payment will be, is not a “teaser rate” that “quickly shoots up”. Some lenders do gradually increase the minimum payment itself (not its determining start rate) on an annual basis, usually somwhere in the range of 7.5% per year, to keep the borrower from deferring too much interest. But the start rates is always otherwise a fixed rate. It is the fully indexed rate, upon which the Interest Only, 30-Year amortized, or 15-Year amortized payments are based, that is adjustable is this case. And this fact is consistent with the numbers quoted in the article: the minimum payment of $919 the Harts are making would be the combination of $721 (2.6% start rate on a $180,000 loan) and $198 of escrowed Property Taxes and Hazard Insurance, which is approximately what they would be for such a home.
In the Harts’ particular case, they are going to have plenty of time to refinance before their loan starts to recast when the principal hits 115% (which would be $207,000 in their situation), as they will be well below that total when their three year prepayment penalty period is up. So the answer to Louis’ “I don’t know how we’re going to do it,” is that when those three years are up, they’ll refinance and get themselves into a loan that they feel more comfortable with and educated about. Though given their situation, if properly understood the Payment Option Loan really is their best option.
My question is how can mortgage products themselves be blamed for foreclosures? At best the article points towards a correlation, but demonstrating causation surely requires more than offhanded references to what some unnamed experts stated the next wave of defaults “may” come from. Beyond unpredictable catastrophic occurences like job loss and overwhelming medical bills, foreclosures occur because borrowers are getting into loans that they do not understand, and often they do not know that they do not understand the mortgage product. It is the responsibility of the Mortgage Broker to completely explain all the details of any mortgage product to the borrower. But it is also the responsibility of the borrower to be certain that they understand the terms of loan before signing off on it at closing. Vehicles and guns both kill in the range of 35,000 Americans each year, but it is the human misuse due to lack of education, ignorance or simple negligance that creates this reality, much like in the mortgage scenario.
Every different mortgage product serves its purpose, and what works for one borrower will not work for another given the specifics of their situation. To label certain categories of loans as “high-risk gambles” or as leaving “no room for slips” ignores the millions of families that are in these loans and find that they very much work for them. It is also a disservice to consumers to mislead them with such one-sided representations.
The true irony of the lead piece in September 17th Sunday Denver Post is that the conclusion that “Option-ARMs… could fuel a surge in foreclosures in the next few years” is the opposite of what we find is actually going on in the mortgage industry, as Payment Option Loans have proven to have the lowest foreclosure rate of any mortgage product currently on the market. World Savings is a bank that specializes in this product, which they refer to as the Pick-A-Pay Loan, as more than 90% of the loans they outfit borrowers with are of the Option-ARM variety. As a lender they have less than a 1% percent foreclosure rate! But World Savings, along with the independent Mortage Brokers like myself that they work with, take on the responsibility of educating the borrowers as to how to properly and smartly manage this incredibly powerful mortgage product.
A lot of mortgage brokers I know will not touch Payment Option loans, but I believe that is primarily because they are not all that interested in educating the consumer. Why not just throw them into a 30-year fixed APR mortgage? Everyone pretty much knows how that works. But that is also how banks make of the most money off of borrowers! The “list of higher-risk, alternative mortgages” the article refers to are not only not necessarily higher risk (Payment Option loan has the lowest risk, as discussed above), but they also provide the borrower the opportunity to increase their monthly cash flow by lowering their monthly mortgage payments by as much as 40%. In this way consumers are empowered to “become the bank” and grow their own investment portfolio, rather than falling into the trap of handing over their hard earned capital to the banks in the form of a large down payment or paying down principal so that they can have more of a zero percent return investment, equity.
Affiliates of Lion Financial Corporation, like myself through my company Source Financial LLC, do not shy away from the privilege or responsibility of educating our clients how to properly utilize alternative mortgage packages. And why is this? Because when families are taught smart mortgage product and equity management, they learn to utilize their mortgage as a financial tool for building wealth, which easily makes a $500,000 to $1,000,000 difference for the borrower over the next fifteen to twenty years. The affluent have always understood how to leverage their mortgage, pay as little down as possible, and keep very low monthly payments in order to increase cash flow for investment purposes. The American middle class is being transformed by engaging in these very same concepts and increasing their fiscal discipline, and I absolutely would not have it any other way.
Brent Ritzel
President/CEO, Source Financial LLC
Denver, Colorado, USA
An affiliate of Lion Financial Corporation
303-590-8999
Brent.Ritzel@lionfinance.com
When Wayne Allard speaks….
Senator Wayne Allard spoke at a Senate subcommittee hearing on the mortgage dilemma that faces the state of Colorado in a Denver Post article entitled Senators: Borrowers don’t understand mortgage risks.
First up the political jargon:
Consumers “must have adequate information. The information must also be clear and meaningful,” Allard said Wednesday. “Consumers should understand exactly what risks and benefits different products represent.”
Next up, what the banking regulators have to say:
Banking regulators including the Federal Reserve and the Office of the Comptroller of the Currency are working to upgrade lenders’ disclosure and loan-qualification procedures.
What Phil has to say:
The mortgage industry is full of a**holes who don’t even know how the Option Arm or Interest Only Loans work, yet sell them with reckless abandon. However, these high risk loans have allowed many Americans the opportunity to buy a home with little to no money down. Is that such a bad thing?
Tags: colorado, denver, lending, mortgageBorrowers receive disclosures at loan application. At closing the borrowers receive a Note, Riders, and a Truth In Lending document. These documents scream “PROCEED WITH CAUTION!” Hot tip to borrowers: START READING THESE DOCUMENTS!
The Mastermind versus the Genius
Not much going on in the way of Denver real estate in the local press this past weekend. However, we did have a Sunday night football showdown between the Denver Broncos and the New England Patriots. It was billed as the Mastermind (Mike Shanahan) versus the Genius (Bill Bellichick).
Mastermind: a person who supplies the directing or creative intelligence for a project
Genius: a person endowed with transcendent mental superiority
From my perspective, there is only one genius and mastermind:
Herm Edwards was the only man who ever took the NY Jets to the playoffs 3 out of 4 years. It takes a mastermind and a genius to accomplish that feat!
Tags: denver, real estateTop Five Fridays - Saturday Night Live
“Live from New York, it’s Saturday Night!” Here are my top five Not Ready For Prime Time Players.
- Eddie Murphy: My indocrination into SNL was Eddie Murphy playing Buckwheat from Little Rascals Fame. His rendition of Buckwheat singing “Unce, tice, fee times a mady!” is pure genius.
- Will Ferrell: Just like Eddie Murphy, you could tell that Wil Ferrel was a superstar in the making. His impersonation of Jeopardy host, Alex Trebeck, is priceless.
- Norm Macdonald: Trademark sarcasm was perfect for anchoring Weekend Update.
- Chris Farley: During my college years, Chris Farley stood out in a group that included Adam Sandler, Phil Hartman, Mike Myers, David Spade, Rob Schneider, etc.
- Rob Schneider: For obvious reasons i.e. the guy is part Filipino.
When is the best time to buy airline tickets?
In a few weeks, my wife and I are headed to Oahu, Hawaii.
Over the years I racked up 100,000 airline miles. To get to 100,000 you need to fly a lot, stay at a lot of hotels, ring up a massive tab on your credit cards, and last but not least make sure those miles show up on your account. It’s an exhaustive endeavor. A flight from Denver to Hawaii requires 50,000 miles per person. So after the trip, all the miles in my account will be depleted.
Airlines view miles as a currency and for most airlines each mile is worth $.02, two Abraham Lincolns. So if you do the math, 100,000 miles is equivalent to $2,000. One quick look on expedia.com and my wife and I could’ve flow to Hawaii for $1000 ($500 per person). D’OH!
That got me thinking, when is the best time to buy airline tickets? The answer is Wednesday according to Smart Money.
When to buy: On a Wednesday, 21 days (or a couple of days earlier) before your flight.
Why: Airlines make major pricing changes (and run fare sales) every week, typically on Tuesday evenings and Wednesday mornings. About 21 days out from your flight, you’ll see plenty of deals out there as airlines scramble to fill seats, says Anne Banas, executive editor of SmarterTravel.com, a consumer travel advice Web site. Don’t wait much longer, she cautions; prices jump significantly from 14 to seven days ahead of departure.
So their you have it, save your miles and buy your airline ticked on a Wednesday.
Tags: denver, vaWe liked you better, but….
One of the most disappointing experiences in my young career as a mortgage professional is when potential borrowers called me to let me know that they were going with the real estate agent’s lender. Their exact words were “We liked you better but we got a better deal.” The bad news came on the heels of me working til 12 AM the night before getting the loan documents ready to submit to underwriting the next day. It was a bitter pill to swallow.
Whether or not my potential borrowers did in fact get a “better deal” is highly unlikely. More often than not, borrowers end up with higher rates than what they were initially quoted. The stark reality of the mortgage business is that it’s super competitive. However, with competition comes deceit and fraud. When you swim with sharks, the sharks call it “salesmanship” or “doing whatever it takes to get the deal.”
When I meet with borrowers that I know are rate shopping, I challenge them to be more BS sensitive than RATE sensitive. I also tell my borrowers how to shop for a mortgage, following three simple rules:
- Shop on the same day. Rates change every day, sometimes during the day. So shopping on different days or different weeks is not very effective.
- Get a good faith estimate then compare only the 800 section. These fees are what lenders charge. The title fees, reserves, government recording fees, etc. are variable.
- Buy Tylenol or Advil. Shopping for a mortgage is a headache and if you choose poorly, expect your headache to get worse.
Last rule…. if a lender says “I can get you the best rate” or “I can beat my competitors rate”, you should seriously consider another lender. As lenders, we all lend money from the same pool, so there’s not much discrepancy in rate but a huge discrepancy in service. So shop wisely!
Tags: compare, mortgage, rate, real estate, shopping, vaBuy a house, get a Benz
When it comes to seller concessions, the standard is 3% of closing costs. In other words, if your home is worth $250,000, you’ll pay up to $7500 of the buyers closing costs. Sellers of a million dollar home have chosen to get a little more creative. They’re giving away a Mercedes Benz if you decide to put an on offer on their Hilltop home by Oct 15th.
If I had a choice, this is the Mercedes Benz I’d get: Mercedes-Benz SLR McLaren
