Archive for the ‘Mortgage’ Category

No Easy Way Out

September 19, 2009

I love Doctor Housing bubble! The data he compiles is great!

-$1 Trillion in CA mortgages are underwater & swimming in the Pacific Ocean.

-42% have Negative Equity.

-$3Trillion total in US

-$1Trillion in Alt-A (Interest Only etc.)

-$182Billion in Option Arms

*50%+ are in Cali

*$20Billion~ BOA (CW)

*$42Billion~ Wells (World)

*$40Billion~ Chase (WAMU)

Short Sale a home you can’t afford and buy one for a deal that you can afford

Even though there were mortgage brokers that sold the option arm correctly by providing the proper education and disclosures most borrowers abused the product and did not save or invest the difference. If you haven’t been doing this start doing it NOW so you are prepared for your recast and if you can’t, get ahead of the game and do a short sale now.

While 88% have not yet recasted most borrowers are enjoying a 1% payment and a current interest rate of around 4%~ most commonly (MTA+Margin) or (LIBOR+Margin) Margin is fixed and usually ranges between 2-4%. (Review your loan docs or mortgage statement to obtain this information)

The problem lies when the option arm recasts and homeowners no longer have the OPTION of the minimum payment.

Well, I guess that wont be that big of a deal if the payment quadruples to 4%, right? 4% is a pretty low interest rate!

Oh, but wait! What about China? One would have to believe they want to start getting paid back their money by 2012, 2013 and that the LIBOR followed by the MTA will hit at least 4%.

Meaning (4%MTA+3%Margin) =7% septuple – octuple the payment!

Here is the ALT-A recasting schedule:

2009-2010 $6 Billion~/mo

2010-2011 $8 Billion~/mo

2011 $33 Billion~ /mo

“There’s No Easy Way Out There’s No Short Cut Home…”

…only a short sale

or will Lex Luthor – The Great Evil Mastermind of our time, be right?

Will someone nuke the San Andreas fault or will we have a big earthquake making California fall into the sea suddenly creating valuable beach-front property of the once barren desert? [shouting] “Miss Teschmaacher”

I don’t know which chart below is more scary…either way we are going to need superman

mortgage rate resets waves

September 29th 2008 Bailout

September 29, 2008

I am sure some astrologer will find some correlation between October 29th, 1929 and September 29th, 2008.

Although the DOW only dove 777 points -6.98% compared to the -12% in 1929 this is still horrifyingly close. NasDaq fell -9.14% and the S&P 500 fell -8.79% (so much for those that were selling the IULs)

Leadcritic has a good article that came out this morning on their blog however the best bailout article I have seen yet is on the Los Angeles Times website. Check out the graphic of the comparision with other federal programs:

Amid Slump, Loan-Officer Compensation Gets Second Look

June 10, 2008

There is a great article in American Banker dated June 9th, 2008 discussing how the mortgage crisis is causing some lenders to rethink how to compensate loan officers.

I do like some of the proposals like paying the loan officer over time like the insurance industry or how they pay loan officers in the UK. Residuals are always nice and it gets sales thinking long-term.

The more people you can get thinking long term the better everyone will do. If I were able to offer residuals I know the quality and professionalism of my originators would drastically increase and so would the culture.

It would eliminate/reduce short term limited thinkers who are out for the quick buck! It would improve loan quality and reduce risk for all involved in the food chain from origination, warehouse, secondary, investor and servicing.

All Loan Officers fall victim to “The Roller-Coaster Effect”

April 3, 2008

The Roller-Coaster Effect is when a Loan Officer’s production swings wildly from month to month and their income soars and then dips.  Their emotions follow suit.  They go from feeling invincible when their pipeline is big and they fund everything out and they get a big check – to desperate, angry and depressed when they realize their pipeline is dry.  They lose faith in their ability to earn a steady income and become less effective as their attitude deteriorates.  They are constantly stressed out and irritated and feel like their career is out of control.  They become skeptical that the system works, and may even question why they got into commission based sales in the first place.

Take heart young friend!  Although the symptoms vary in severity, all Loan Officers experience this to some degree during their careers.  It typically affects first year Loan Officers most severely because they have not yet established a routine which insures success and because they think short term.  It also occasionally (and dramatically) affects even seasoned veterans when they burn out, go through some emotional crisis, cut back on their hours or just get lazy.

Any seasoned Loan Officer will tell you his own tale of woe.  Most Loan Officers who have suffered through this experience prefer to chalk it up as a slump, pin it on bad luck, on a changing market or blame the system.  In my observation it is almost never these reasons!  It is almost always due to the Loan Officer not working logically and not thinking long term.

A Fable for Our Time

The Set Up

The typical Loan Officer starts here with an empty pipeline, eager to get on the phone and prove himself.  He loads up on calls, puts in long hours and enthusiastically works any lead given to him.  He is constantly in a Sales Managers office seeking advice and guidance.  He lives on the phone, convincing and cajoling his current and potential clients to move forward, and comforting them when they feel down.  He fights his way through processing, aggressively reviewing files and chasing down conditions.  He is on fire!

Then the pipeline is full.  And in comes another deal. And another.  And another.  He wouldn’t dream of making another lead call!  He lets the lukewarm leads die.  He ignores a couple of smaller deals and they die. He ignores his clients who are not screaming at him because now his pipeline is on fire!  Everything is going wrong!  One disaster after another, but he manages miracle after miracle and saves the day!  (With a little help from freaked out Sales Managers, processors and by giving significant discounts.)

Does he take a lead call yet?  No way!  He has funding disasters to contend with!

And then the dust settles.  The checks trickle- and then pour in!  He cuts back his hours, after all, he deserves a break!  How about a lead call?  No way!  He is burned out.  And then finally pay-day arrives!  He receives his giant check! The applause and amazement of an adoring and jealous hoard of other Loan Officers, who exclaim “Amazing! and “Wow!”, “He is the man!”

He goes home with his huge check and his wife/girlfriend makes elaborate plans to spend it.  He spends the next week online looking at expensive sports cars for sale and planning a trip to Maui.  He sleeps late, takes a long lunch and goes home early.  After all, he is the man, and now that he has been crowned the undisputed king of loans, there is no reason to work as hard as the mere mortals that work around him.  He assumes that the deals will magically fill his pipe and manage themselves.  Actually he is not thinking, because he still makes no lead calls.

The Wake-Up Call

He snaps out of his daze one day.  Maybe he overheard one of the low producers bitching about how it sucks that he works a grueling 25 hours per week, made two calls the previous pay period, doesn’t do any follow up- and his pipe is empty!  Then he thinks “Holy crap! My pipeline is empty too!  It is halfway through the quarter!  I better take some calls!!!”  He boldly proclaims; “I will make 200 calls per day until my pipe is full!”  But he is distracted by personal emails and used to doing busy work instead of originating so he only makes a few and doesn’t get an app.  Now he is mad!  “This place sucks!  These leads are no damn good!”  And the next day the same thing happens.  And the next.  And the next.  And now he is getting desperate and angry.  He pushes too hard on the phone and scares away potential clients.  He starts scheming of ways to get business; “Maybe I’ll go hit up some Realtors, or maybe I’ll call old pipelines, or maybe I’ll print up fliers and pass them out on 5th…”  He gets jealous of the guys and gals doing well.  He suspects that there is a conspiracy designed to hold him down.  He starts thinking about going to work for that place behind the gas station that offers 103% splits, free leads from the Yellow Pages and unlimited coffee refills. Or maybe he thinks, “I’ll show those bastards that I mean business!  I’m going to start my own brokerage!  How hard can it be?  I’ve been a LO for 6 months!  I’m one of the top producing Loan Officers in the country!  I’ll buy an RV and have the only mobile brokerage in San Diego!”

The Beginning of The End

But then he catches a break and gets a few apps in and kind of forgets why he was so mad.  Those few apps and talking about loans at happy hour makes him feel busy.  He refuses to make more calls because he doesn’t want to work late and he is going to Vegas on Friday.  Before his trip he checks his bank account and realizes he is a destined for the nickel slots, not the high rollers lounge. He gets mad when he thinks about what his split is.  His buddy gets 90% working for a company that does illegal advertising targeting old crippled people- and he got two neg-ams last month!

He figures that since he has worked at three different brokers in the last 6 months and it’s always the same, that it is a good idea to leave.  But he doesn’t want to give up his three loan pipeline and he doesn’t want to go through the hassle of interviewing so he just kind of works part time and makes a few calls here and there and scrapes by on $4,000 bucks a month while he steals as many leads as he can from his broker.

A few months later he concludes that the reason he is broke is because the system is flawed and he can do much better elsewhere.  He gets ready to quit but we fire him first because of poor attitude and production.  For the next two years he bounces shop to shop at a string of failing brokers, tries retail for a while, and finally calls it quits because the mortgage business obviously sucks and the only way to make money is to be in a refi-boom.  He was right, he predicted that it would suck and it did!  Nobody can ever be successful in the mortgage business.  All of those stories of millionaire LOs he heard about are just a pack of filthy lies!

Hindsight is 20/20

A few years later he experiences an enlightening series of events. While working as an Assistant Manager at Jack-In-The Box he sees one of his former coworkers drive by in a new Ferrari.  The guy is lighting a Cuban cigar while racing another former coworker in his Porsche!  Then on his 15 minute lunch break he is reading the newspaper and on the front page of the Business section the headline screams “ANOTHER REFI BOOM!” And finally, later that night he is watching Wheel Of Fortune in his one bedroom apartment in El Cajon and the winning phrase is “SELF-FUFILLING PROPHESY”.  He doesn’t understand the phrase so he grabs a dictionary, opens it up and there is a big picture of him- staring back at him!

So What? I’m Different!

OK, so maybe you won’t end up like most LOs.  But if you continue to work erratically you will never be a success.  Let me help you!  The secrets to success as a Loan Officer are not so secret;

  1. Work 10-8 every day and one Saturday a month.
  2. Make 100+ calls every day.
  3. Call your follow up leads every night between 5-6.
  4. Call your past clients every night 6-7.
  5. Review your files every day.
  6. Never stop originating.
  7. Repeat.




We have officially hit bottom – it’s time to buy!

February 22, 2008

Just kidding. We are only in a buyers market for REOs and some isolated high end markets. We are in a “wait and see” market for any other property. BUT we will be in a buyers market once a major news organization breaks a story with the above headline.

“By Ilaina Jonas and Ben Klayman NEW YORK (Reuters) – Hovnanian Enterprises Inc’s (HOV.N: Quote, Profile, Research) chief executive said on Thursday he sees a challenging U.S. housing market for the next two years, but weak demand should bottom out…”

read more | digg story

Option Arms

February 20, 2008

Great article in Fortune on

Some say that people are more prone to just short selling and handing in their keys because their lender/broker/banker is faceless. Whereas before they would run into their local banker at the grocery store or soccer field.

Most people have a 2-4 point margin above the MTA index. Meaning right now if there loan were to recast at either the 110%, 115%, 120%, or 125% max balance (check your loan docs) the full payment would be based between 6.3-8.3%.

As short term rates continue to decline beginning with the LIBOR, flanked by the MTA and trailed by PRIME (and long term rates continue to rise due to global economic pressures) for those with adjustable rate mortgages who can hang in there long enough may see relief with some predicting full payment rates being between 4-6% by the end of the year (based on your index).

“Golden West’s loans” (World Savings then Wachovia then Wells Fargo), “option ARMs clustered in the frothy California real estate market, may take a hit from the housing downturn.”

read more | digg story

Stimulus package!

January 24, 2008

The fundamental problem with our economy is that we are a bunch of consumers.

We are rewarded to consume and penalized to produce.

All we have to do to fix the economy is tax gas and make it $5+/gallon, tax ciggys and charge $10/pack…and reward, reward, reward the producers. (That is the land of opportunity!)

Giving everyone $600 bucks so they can go spend it; is ABSOLUTELY ridiculous! You might as well give the top 150,000 Entrepreneurs $1MM each! That would create opportunity! Hopefully that would get the stack of unemployment claims off of everyones desk.

Well at least they did one thing right by raising the mortgage loan limits…

read more | digg story

Time to buy real estate?

January 21, 2008

Well it is officially a “buyers market” for REO/Bank owned foreclosures. We are seeing 10-20+ qualified buyers a weekend that are looking for “a deal.”

By no means is it a buyers market across the board but at least it is a start. Once we hit an “official bottom” (May 2012?) that will occur. It is always said that when there is “blood in the streets” make sure you have cash and when the market is going up like gangbusters make sure you have inventory…

Why retirees are fleeing the U.S.

November 30, 2007

This is a good article on MSN regarding retirees moving south of the border.

The article mentions that there is no medicare in Mexico. I hear that might change…

I guess retirees are flocking to countries that have both tax and US dollar benefits. I don’t think anyone will be retiring in Europe from the US anytime soon (unless they have some serious dough) 

Is Panama still the #1 retirement destination in the world?

Can most people still refinance? The Good, The Bad and The Ugly!

November 25, 2007

The Good news is that there are plenty of good professional loan officers and plenty of good borrowers to help, contrary to what is depicted in yesterdays Wall Street Journal Article titled “Refinancing May Be Harder to Enjoy- While Rates are Down, Lenders Tighten Rules; Savings Prove Slender” and other doom and gloom articles that are bombarding us all.

Sure! Of course the pendulum always swings too far but not far enough for the good borrower…well maybe, it depends. Is it on the way back to the middle? Will there be stability or normalcy for the good borrower?

The conundrum is a good borrower, avoiding a bad loan officer and a good loan officer managing (not avoiding) a bad borrower.

More good news is there are not many products left out there for the bad loan officer to slam people into what they can’t afford. Don’t get me wrong; unfortunately, we have had our fair share of bad loan officers! Fortunately, most will never find a way to make a living as a professional loan officer and have resorted to their roots. Regretfully, it didn’t happen sooner.

Professional (derived from the word to “profess.” As one would “profess” their faith or in this case as one would profess to a career) Loan Officers sell what is in the best interests of their client period! The correct mortgage market finds a balance or price for their knowledge and professionalism between their supply and demand as long as it is still a win-win.

I know that we have been talking energy here on the last few posts but without energy we won’t be able to do what we are about to do!

Success is real simple:

If the right group of Loan Officers, in the right model, market effectively and efficiently in order to get in front of the right group of borrowers and at the same time manage the bad borrowers through short sale and debt settlement then viability is achieved.

If you know anything at all about the mortgage business…the only viable way to operate as a borrower, professional loan officer, broker, or small mortgage banker is as a federally chartered bank.

  • Financial Security – Your loan will fund
  • National Charter in all 50 states – Ability to help borrowers all across the country.
  • Regulation – The OTS or OCC eliminates most “bad loan officers” and provides for uniform compliance
  • Competitive pricing – In-house product line with flexibility to broker.

The minute most mortgage bankers fund a loan on their warehouse line, at a cost of LIBOR plus 2 or 2.5, they are in most cases losing arbitrage. If they can’t sell the loan they are stuck with nothing to do other then to sell it at a loss on the scratch and dent market or write a check for it.

As a federal depository bank with a FHLB [fla-ub] line cost of funds are usually at fed funds rate plus a .25. Currently 4.75. The FHLB system was developed as a stable source of funds for residential mortgages during The Great Depression. Will it be IF The Next Great Depression occurs?

AND if you are a Realtor and know anything about the Real Estate business…the only viable way to operate is to focus in on high-end0 homebuyers and investors. I love the way fear and scarcity work, its almost as if people eat themselves. Everyone wants to unload and no one wants to buy…and if you think about it isn’t that is the perfect time to invest? (When there is blood in the streets!) I recently saw an interview with Donald Trump and he talked about that very thing. I think it was on Larry King.

The bad is that while housing may seem grim, I would guess that around 25% of the total mortgages made are Subprime and ALT-A.

The trillion dollar question is out of that 25% that eventually reset, how many have enough cash, equity, knowledge or income to be able to refinance or hang on for the ride? AND will that number carry over to the 75%? Will the job market be our savor or is it just a crazy eight between the two?

The ugly news is maybe it will end up looking like the scene from Back to the future II.

“Great Scott!” Will all of the “bad loan officers” be like Biff and work at Biffco?

Robert Prechter and Harry Dent Jr have been talking about the next great depression for years. Will this be it? Listen to Mr. Harry Dent. I would highly recommend signing up for his monthly newsletter or reading his most recent book The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010 Mr. HS Dent has successfully predicted the late 1980’s and 2000 and puts them all together scientifically through historic cycles.

No matter the market, depression or not, there will always be folks out there raising their hands for help.

I truly believe, the one who will have all the success, is the one who can find them the best and has the right model to deliver the best! Will you focus on the 75% and manage the 25%?

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