Archives for September 2007

More confessions from the Subprime Lender

I sent an email to the Loan Officer who contacted me last week wanting advice on how to create a referral business with a link to the post about him.   His reply is worthy of a new post…   

"Well I can’t say that I disagree with the message being sent by the post and I agree that people need to be made aware of the dangers that exist out there for potential borrowers. I appreciate you not using my name; I truly am an ethical mortgage originator. I always work in my client’s best interest and I will never give anyone a bad loan again. I was a novice then with regard to the lending industry. Now I constantly study and keep myself updated on market trends; I know exactly what is going on in the mortgage industry and I make a point of educating my borrowers properly so that they are never taken advantage of. I work from 9am to 7pm everyday then I go home and study mortgage publications (Scottsmans Guide/Orginator Times/The Mortgage Daily ..etc.).

I am well versed now when it comes to ethical lending practices, providing the utmost quality of service, and mortgage loan products. I am no longer “brainwashed” by my former employer, but everyone should know that there are still lenders out there preying on innocent people on both sides. When I began in this industry at the aforementioned company I was so excited to be a part of something so “great”. Something that people need to be aware of is that there is so much involved in our business. When I began my senses were overloaded every day of training; they piled so much information on me about how superior “we” were, how much faster we are than everybody else, how great our rates are, and how low our fees were. When people told me another company was offering them a better deal I did not believe that it was possible. I told them things like “we do over $100,000,000.00 per month in volume which affords us volume wholesale discount pricing” which was true. What I didn’t know was that the rates that I was selling based on macro enriched excel spreadsheets were not real. I didn’t know that once it hit processing everything would change; by then I was already on the next file (aside from “chasing stips”). Another thing that the company did was keep people burned out so that they couldn’t decipher what the hell was going on. They insisted that the magic number of OFA’s (internal reference meaning “out for appraisal”) was 10 per month in order to get 4 closings. That means that in a good month their entire staff of LO’s are chasing stips down for 10 files (at a minimum) while only closing 4 loans; That’s a lot of “busy” work.

Now in the last week I have really reached out to people in my community and across the nation for marketing advice and for advice on building strong referral partnerships. I do not need advice on how to operate ethically because as I said I operate with the highest level of integrity and I always have … That is why I lost sleep when I found out the truth about what was going on with my former employer and that is also why I left the company. Now I am well educated and I am truly “in the business that I am in”. I wanted to write you this update to clarify where I stand in this business. Now I will never be taken advantage of again and I work hard to educate my clients so that they will never be taken advantage of."

I’m sure this person has learned a lot from their past.  Kind of reminds me of when an ex-burglar becomes a security expert.  I do believe that this LO fell into the wrong company and is not a bad person. 

This is the difference between working with someone who is transactional vs relationship based.   If a LO is just looking at the client as a transaction, trying to make 10 files a month to satisfy production goals, they’re not focusing on long term relationships with a borrower.   Odds are, they do not provide the level of service that would encourage anyone ever returning to them. 

When someone is providing mortgage advice with the expectations of maintaining a relationship with the borrower beyond closing, it’s a much higher level of service.  If I bump into one of my clients at the grocery store, I want them to be happy to see me–not aiming a tomato at my head!   Mortgage Professionals who have a business practice based on retaining relationships will provide "long term" advice and will provide a level of service that they hope will not only encourage the borrower to return, but also to recommend their friends and family to them. 

This LO seems to have made a mental shift in his business practice after realizing that the company he was previously employed at was potentially harming borrowers.   I welcome more "good guys" to our industry anytime!

Paulson Points from todays testimony to the House Committee


Once again, I was glued to the TV watching Ben Bernanke along with Treasury Secretary Henry Paulson and HUD Secretry Alphonso Jackson testify before the House Committee on Financial Services about the mortgage mess.  There were a few of Paulson’s points that I that really stuck out to me beyond the talk of temporarily raising the conforming loan limits.

"many borrowers mistakenly believe that their lender wants to repossess their house in foreclosure…. The vast majority of lenders would rather find a way to help the homeowner stay in their home than foreclose. Yet according to most of the servicers and counselors we have spoken to, 50 percent of those who lose their home to foreclosure never contacted their mortgage servicer or a mortgage counselor for help. Often times borrowers are fearful of foreclosure and not aware that their lender may be able to work out a solution…"

Please don’t wait to contact a Mortgage Professional.  Do so well before your ARM adjust or before you cannot meet your financial obligations.

"The borrowers who are facing the greatest stress today are those who have less-than-perfect credit, and also those who have little equity in their homes, due to a decline in house price appreciation or a depreciation in home values.  These difficulties are not limited solely to subprime mortgages, but are also surfacing among some prime jumbo mortgage holders."

And who wouldn’t welcome this (regarding the stack of paper work you are the recipient of when you’re obtaining a mortgage):

"The key is not more disclosure, the key is better disclosure and this might be a case where less is more. Taking it as a given that many people will not read all (or even most) of the disclosure documents, we should try to evaluate what type of information is most critical for a lending decision to be consummated. Some of the proposals to create a one-page mortgage disclosure have been designed with this goal in mind."

I’ve got a bone to pick with Paulsen over this statement:

"Mortgage brokers have often been singled out as the main problem, and it appears that many of the mortgages that are currently under stress were arranged by mortgage brokers. But that is not the complete story as in many cases mortgage brokers were arranging loans based on lax underwriting standards developed by mortgage originators who could then fund these loans through securitization transactions arranged by investment banks."

Mortgage Brokers outnumber Mortgage Bankers, so therefore it’s simple math that more stressed mortgages were originated from a mortgage broker.   However, everyone seems to forget that mortgage brokers are not the ones who have created the programs that are under scrutiny…they come from BANKS and follow the bank guidelines.   Mortgage brokers are simply the source for consumers to obtain their financing from.

"Additional efforts to encourage the development of a more consistent licensing, education, and monitoring system for mortgage originators are worth considering and such a system could help to weed out some of the bad actors."

Presently only mortgage brokers are licensed in the state of Washington…loan originators who do not work for a mortgage broker are not required to be licensed (i.e. LOs who work for bank-mortgage companies like Washington Mutual, Wells Fargo, Countrywide, Chase, Bank of America…etc.).    I do hope that the State of Washington will step up to Paulsen’s call and have everyone who originates a mortgage be accountable to the same high standards as that of a Loan Originator who works for a Mortgage Broker.

"I have no doubt that some mortgage brokers and originators engaged in deceptive and predatory practices in marketing loans to people that they did not understand or have the ability to repay. Just as important, and not said as often, I have no doubt that there was an abundance of borrower-level fraud as well. Some people chose to inflate their income or mislead a lender into thinking the property was to be owner occupied as opposed to being an investment property. Both of these practices have a profoundly negative effect on the mortgage market."

Are you still reading this??? To read the entire testimony…click here.

Ben Bernanke’s press release from today.

Alphonso Jackon’s press release.

Feeling unappreciated? At least you’re not Stockton, California.

CNN just published an excellent report forecasting depreciation in top housing markets in the nation.

"According to an analysis conducted by Moody’s, declines will exceed 10 percent in 86 of the 379 largest housing markets. And 290 of the cities will experience price drops of 1 percent or more The survey attempted to identify the high and low points of housing prices in each of the markets, some of which started declining from their peak in the third quarter of 2005. All are median prices for single-family houses.

Nationally, Moody’s is projecting an average price decline of 7.7 percent. That’s a jump from the 6.6 percent total price drop that the company was forecasting in June and more than twice that of last October’s forecast of a 3.6 percent price decrease."

The major areas below are reported to be peaking the 3rd quarter of 2007 and to be "hitting bottom" (doesn’t that mean rebounding back?) by the 3rd quarter of 2008.   The amount of the changes in home values being predicted varies:

  • Seattle-Bellevue-Everett -2.9%
  • Tacoma -5.5%
  • Portland-Vancouver-Beaverton -7.2%.
  • Spokane -2.6%

Compared to Stockton and other parts of the country, we’re doing pretty darn good.

"The Stockton, Calif., metro area, where Moody’s predicts a 25 percent price drop, will be the hardest hit among the 100 most populated cities surveyed.

Prices in Stockton – in California’s Central Valley – rose quickly through 2005 as many would-be Bay Area buyers, frozen out of the expensive San Francisco area housing market, moved in. That influx drove up the median, single-family home price to about $375,000. Stockton prices peaked during the first quarter of 2006 and have gone downhill since. Prices likely won’t turn around until the end of next year."

Even though a 2.9% decrease in home value is not hugely significant, it can be if you’re looking at refinancing out of a high loan to value mortgage.   Especially when you factor in the tightened guidelines with loan to value and credit.   Please don’t delay contacting your Mortgage Professional if you have an adjustable rate mortgage that will be adjusting in the next two years or sooner.   

On a home valued at $500,000, this would be a reduction of approx. $14,500 based on the predicted Seattle depreciation rate.

If you read the entire report that features the top 100 cities…you’ll actually feel pretty good about how our local real estate seems to be fairing

Foreclosures slightly up in King County

Foreclosure0919fix_2While we continue to fair better than the rest of the country, with many ARMs (adjustable rate mortgages) getting ready to re-set out of their introductory rates, this trend may continue.   

This is why it’s critical that all home owners with adjustable rate or balloon mortgages contact their Mortgage Professional as soon as two years before their mortgage rate is set to adjust.   This (ARMs adjusting) is not limited to those with subprime mortgages.   

The more time you allow yourself to get your credit in check and possibly avoid having home values depreciate, the better off you’ll be should you need to refinance.   Sadly, I’ve been contacted by a couple of home owners in other parts of the country who are not only facing higher payments from their adjusted ARM payments, mortgage balances that exceed their home values and plumeting credit scores.   FHA Secure won’t help them since they’re beyond the 97% loan to value.   It’s too late.

Please don’t put off contacting a Mortgage Professional.   Take action before you’re in trouble.   

Here’s a great article by Sandy Kaduce: Avoid Losing Your Home.

More local title companies face proposed fines of $300,000

The Insurance Commissioner released a new report yesterday disclosing more title companies involved with using illegal inducements to induce business.   In addition to more details regarding Stewart Title of Snohomish County’s violations, Rainier Title (a licensed agent for Commonwealth Title Insurance Company) was added to the mix. 

Both John L. Scott and Coldwell Banker Bain have ownership interest in Rainier Title which received a $115,000 penalty with $65,000 suspended if they can play nice and follow the rules for 2 years.

The investigation continues….

It Was The Last Straw

I was just over at the Seattle PI Real Estate Blog to check out their latest post and decided to update my profile for when I comment when I noticed a comment I had made on a post that Jillayne Schlicke had done which…lead me back to the very story that is responsible for pushing me into blogging.   

It was a story that Susannah Frame had done on a local mortgage broker who committed fraud to her fellow church members.   It just irked me to no end…on top of the injustice, the reporter for King 5 wrongly stated how all loan originators would be licensed.   A small detail to some…but not to someone who is classified as working for a mortgage broker and therefore actually licensed.  Those who work for mortgage companies that are banks, like Washington Mutual, Wells Fargo, Chase, Countrywide…etc… are not licensed nor are they held to the same standards by the State of Washington and DFI.   Anyhow…you can see this bugs me.

Just kind of amusing to stumble over what motivated me to take the plunge into the blogosphere hundreds of posts and not quite a year ago!

It’s B Day…Big Ben decides to…

Wow!  Cut the Fed Funds to 4.75% and the Discount Rates to 5.25%; a reduction of 0.50% EACH.   Ben is showing Greenspan (who’s been very active promoting his new book) that he has his own moves.

"Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally."

More info to follow soon on how this will impact mortgage interest rates in the near future.   Will this send inflation shock waves?  Will traders seek bonds for safety?   

Today, if you have a home equity line of credit, your interest rate reduced by 0.50%.   Prime rate is now 7.75%.

Stay tuned.

Read the entire press release here.

How Low Can You Go…Depends on Your Down Payment

Here are some credit score/loan-to-value figures I just received from a subprime lender for "full doc" mortgages:

  • 90% – 580 Mid Score
  • 85% – 540 Mid Score
  • 80% – 520 Mid Score

The rates were not provided but I can assure they would not be attractive.  We’re probably talking double digits for a 3 year balloon with a prepayment penalty.   I strongly recommend using FHA over this type of financing.  (FHA is not credit score driven; you do need to have a good credit history over the past year). 

If you cannot qualify for FHA, then I encourage you to work with a Mortgage Professional to develop a plan to get on track for buying a home or refinancing.