No Country for Mortgage Brokers
Over the weekend I finally caught the movie, No Country for Old Men. It’s critically acclaimed and several friends recommended that I go see it. At times the movie was boring and slow. At times it was quick witted and interesting. However, most of the time nothing about the movie made sense.
In the current mortgage landscape nothing makes sense.
I still get several refinance requests from the internet where people are shopping and getting quoted rates that haven’t existed in years. Moreover, to get a loan closed today is much more difficult than ever before. So for anyone to do a loan at the lowest possible rates doesn’t make any business sense.
Some requests are for home purchases by real estate investors. Every day lenders are limiting their risk by limiting what a mortgage broker can and cannot submit. Every day programs are disappearing. There are very few high risk loans available. It’s only a matter of time before buying a home with no money down will become extinct.
Most of the inquiries I get are questions. Simple questions such as “Is now a good time to refinance?” or “Will not paying my bills hurt my credit?” The people who ask these don’t give me any information about themselves just a name and an email. That’s like asking your optometrist (eye doc) “Do I have ocular degeneration?” without having him/her/it look at your eyes.
Just like the movie, No Country for Old Men, there is no end in sight to all the madness.
The SKY hasn’t fallen YET
According to BlackRock’s CEO:
Laurence Fink, who helped create the market for mortgage-backed securities, said the credit losses that have already cost banks and securities firms $45 billion are about to get worse.
Read the full article: BlackRock CEO sees no ebb in credit storm
What does this mean? If you have good credit and equity in your home and a fixed rate mortgage, NOTHING. If you have mediocre credit, zero equity, and your mortgage is about to refinance you’ll need to do the following:
- Get your credit in order. By in order I mean it needs to be above 680.
- Start reading your mortgage documents. Your note, your riders, everything that you bypassed at closing.
- Call your existing mortgage company first. See if they’re willing to work with you on your rate when it adjusts.
Countrywide righting a wrong or righting their ship?
Countrywide Financial Corp., the nation’s largest mortgage lender, plans to offer refinancing or modifications on $16 billion in loans whose interest rate is set to adjust by the end of 2008.
Rocky Mountain News: Countrywide to push refis, modified loans
New York Times: Countrywide to Help Restructure Loansm
Or are they simply trying to get more business?
Mortgage giant Countrywide Financial Corp., whose loan volume is down sharply in the wake of the housing downturn and the sub-prime meltdown, is aggressively trying to get its customers to refinance. Here are excerpts from two pitches the company sent recently to homeowners:
Exciting news — we are now offering a Special Online Rate Discount. . . . If you qualify, you could get up to $511,006 to pay off credit cards and other loans.
– Countrywide e-mail
No need to show bank statements or verify other assets . . . no paycheck stubs or proof of income required . . . no new appraisal needed (in most cases).
– Countrywide flier
Could be a combination of both. However, this uber annoying Countrywide commercial has been in HEAVY ROTATION:
Option Arms are in the news again
File this under: Unsuspecting borrower duped into getting a difficult loan to comprehend.
From Sunday’s Denver Post: Crushing ARMs squeeze homeowners
In 2003, 1.1 percent of mortgages originated for a purchase or refinance in Colorado were option-ARMs and another 2.5 percent were interest- only loans that didn’t pay down principal, according to First American LoanPerformance, a San Francisco mortgage research firm.
…
Many borrowers don’t understand amortization »”>negative amortization, how their payments are rising, and why the loans they expected to rescue them are dragging them into foreclosure, he said.
The mortgage brokers who sold these loans were (most of them are out of the industry) dumber than dirt yet were great at selling these products. If you went with a mortgage broker because they sold you on a loan products, who’s really to blame?
OK Einstein, where are rates headed?
A borrower calls me after finding my blog and starts the conversation with “OK Einstein, where are rates headed?” I usually expect an opening line like this from friends or just about anyone with a New York accent. Although the caller was sans the accent he could’ve easily been one of my wise-ass friends so I responded with a sarcastic “What’s it worth to you?” The person on the other line paused for a second and said “Seriously, do you think rates are going to go up any higher?” I paused for a second and said, “so let’s step back for a second, you really found my blog on the web, called me and started your call with OK Einsten…. wow!”
For the next ten minutes we discussed remortgaging which is a fancy term for refinancing. I explained to him that many people who have a 5 year ARMS have extremely low rates so their extremely hesitant to refinance. Luckily he had all his documents, I asked him to take out his NOTE so I could go over how his ARM will adjust.
His current rate: 5%
His current margin: 2.25%
His current index (12 month LIBOR): 5.49%
His caps: 2/2/6
- His first year adjustment has a maximum adjustment of 2%
- Each subsequent year can adjust a maximum of 2%
- With a lifetime maximum adjustment of 6% above the original rate of 5% or 11%.
His adjustment will take place sometime next year. Unless his index drops significantly, his rate will probably adjust to 7%.
After talking to the caller, somewhere along the line we became friends. We discussed golf. We discussed houses. We discussed 529 plans. He was looking for advice, not a loan. At the end of the call, he thanked me for my time. I added the caller’s name to my rates watch database and hope to hear from him when he’s ready to either purchase his next home or refinance when rates drop.
Hip Hop Flip Flops
I’ll be blogging about the major news regarding mortgage broker registration later today in the mean time I wanted to discuss two recent hip hop flip flops in sports:
Kobe Bryant
I can’t stand Kobe Bryant. Don’t get me wrong, I think he’s the second coming of Michael Jordan (sorry LeBron and D-Wade) I just don’t care for sports divas. He ranks up there with Terrell Owens, Alex Rodriguez, and Barry Bonds. You simply can’t root for these guys because they act more like Diana Ross than Derek Jeter.
Kobe recently said in an interview that he wanted out of the Los Angeles Lakers. That’s right, he wanted out of the marquee NBA franchise on the planet. A few hours later in a different interview he reneged and didn’t want out after all. Kobe is a phenomenal talent but I just don’t think he plays well with others. He could’ve played an individual sport like wrestling, bowling or even poker but he opted for a team game like basketball.
The NBA is a joke. The two worst teams (the Griz and the Celts) got jobbed in the NBA draft lottery. The Suns got jobbed in the NBA playoffs. The referees in the NBA are the most biased in professional sports. If LeBron and the Cavs don’t beat the Pistons their would be no interest whatsoever in the NBA finals. So who really cares where Kobe winds up, the NBA has other problems.
Billy Donovan
On the other end of the spectrum is Billy Donovan, the head coach of the Florida Gators. I like Billy Donovan. As a point guard in college, he led the Providence Friars to the Final Four in the mid-80’s. He played briefly for the New York Knicks in the NBA. He began his coaching career shortly thereafter.
After winning two NCAA championships with Florida, Donovan decided to take an Orlando Magic offer and try his luck in the NBA. However after a weekend to think about it, Donovan reneged and decided to return to Florida.
Donovan is an outstanding coach. He has busted my NCAA bracket many times. Every time I thought his teams would choke, they did well. He’s a legend in Florida. Why in the world would you leave the college ranks for the NBA and the Orlando Magic? It didn’t make any sense when they announced that Donovan was leaving for the NBA so I wasn’t surprised that he had second thoughts about returning to Florida. I hope that Donovan returns to the college game. He belongs there and he makes the college game that much more exciting.
What does this have to do with the mortgage world?
It’s okay to change your mind when it comes to your mortgage. Once the emotion involved with making a decision subsides, you return to your senses and sometimes your senses tell you to back out. There are millions of people who wished they changed their mind regarding their mortgage broker and/or their mortgage. If a deal seems fishy, you can and should back out. On a refinance transaction (assuming it’s not an investment property) you have 3 days to rescind your mortgage. On a purchase transaction, it’s a lot more complex, but you can still back out of the deal.
Working with the Enemy
Yahoo is one of the best websites when it comes to consolidating articles. Want news of Lindsay Lohan’s rehab, they’ve got it. Want news on Kobe Bryant desire to be traded, they’ve got it. Want news on real estate, they’ve got it.
Today there was an article entitled: Mortgage Brokers: Friends or Foes?
The article discusses the fiduciary (a person who occupies a position of special trust and confidence) responsibility of mortgage brokers.
According to the article:
Borrowers often see mortgage brokers as their allies, searching far and wide for just the right home loan at an attractively low price.
Yet the article discusses the inherent flaw of the mortgage broker:
Often the broker’s incentives run counter to the borrower’s interests. Lenders pay YSP to the broker when the borrower is paying a higher interest rate than the best he or she could qualify for, which makes the loan more profitable for the lender. The higher the rate, the higher the payment to the broker. (Some lenders put a ceiling on YSP.) Lenders may also pay brokers a bonus for loans with prepayment penalties, which make it expensive for borrowers to refinance within the first few years.
To counter this flaw, the article advocates shopping:
To protect yourself, one strategy is to shop for a home loan directly at a few lenders and then see whether a broker can find a better deal. When choosing a broker, borrowers should ask tough questions first. Among them: In searching for loans, do you feel obliged to put my interests ahead of yours? Exactly how much will you earn on this loan? And how many lenders do you check regularly for rates and terms?
Are Mortgage Brokers the Enemy? The answer is NO.
There are no enemies in the game of life. People will only take advantage of you if you let them. The only true way to protect yourself is through knowledge. Learn as much as you can about getting a mortgage. It’s a pretty simple process but it’s cluttered with confusing terms and complex arithmetic. Where can you learn about getting a mortgage? For $12 you can get Mortgages for Dummies. It’s the book I got when I bought my first place 10 years ago.
Chances are you’ll need a mortgage broker if your loan doesn’t meet Fannie Mac or Freddie Mac guidelines. In other words, if you’re loan is somewhat unorthodox, you need a broker.
Apathy and Ignorance
“Is it ignorance or apathy? Hey, I don’t know and I don’t care.” – Jimmy Buffet
Apathy: the trait of lacking enthusiasm for or interest in things generally
Ignorance: the lack of knowledge or education
According to a Bankrate survey 34% of homeowners don’t know the type of mortgage they have.
These were the key findings of the survey:
Homeowners:
- 36% who now have an Adjustable Rate Mortgage (ARM), plan to refinance to a fixed-rate loan when their ARM changes
- 28% of those surveyed worry either regularly or sometimes about how they will afford their payments next year
- 57% of homeowners polled have a fixed-rate mortgage
Your home is your biggest asset/liability depending on how you view your home. Most people either have one of three kinds of mortgages because there are only three kinds:
- fixed rate mortgage which means it’s fixed for 10, 15, 20, 30, 40, 45, or 50 years
- an adjustable rate mortgage which means it’s not fixed, it will adjust at some point
- a amortization »”>negative amortization mortgage which means if you don’t know what kind of mortgage you have then this loan is not for you
If you don’t know the mortgage interest rate and the mortgage loan program you’re in, simply find your mortgage documents and find your NOTE and read it!
FAQ: What exactly do you do?
I get this question more than any other: What exactly do you do?
A mortgage broker acts as an intermediary who sources mortgages on behalf of individuals or businesses.
My role as a mortgage professional is to “broker” a home loan for a home purchase, home refinance or a home equity loan/line. I interface with borrowers (clients) and companies that buy mortgages.
Before I got into the mortgage business I worked as a systems analyst. I never thought of it this way but my previous life in the software field and my current life as a mortgage professional are one and the same. This clip from Office Space best sums up my previous life.
Band aid lenders go broke
Yesterday, ZERO DOWN LENDERS FOLDING was emblazoned on the front page of the Denver Post.
The article discusses in detail how subprime lenders are going out of business. The model suprime lenders use is usually the same across the board. Typically they offer 2 or 3 year adjustable rate mortgages. Once the borrower has a two year history of paying a mortgage they usually refinance to another loan. Hence the term band aid loans or band aid lenders. These lenders are going broke and now it’s front page news.
About two dozen of the largest subprime mortgage lenders across the country – some with offices and customers in Denver – have gone under or stopped making loans since December….
Subprime lenders are typically viewed as lending options to poor credit borrowers as well as borrowers with collections, bankruptcy, or foreclosures. However, they cater to more than that:
- If a borrower has great credit but no assets, they may be a subprime borrower.
- If a borrower has poor credit and a multitude of assets, they may be a subprime borrower.
- If a borrower is buying their first home but doesn’t have the income necessary to qualify for a FHA loan, they may be a subprime borrower.
- If a borrower has more than one late payment on a mortgage, they may be a subprime borrower.
- If a borrower is buying a home and renting a room to a friend, they may be a subprime borrower.
- If a borrower… well you get the point. The scenarios are endless.
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