A little late to the show, but here is what I shared with my branch at the start of the year:
Every month I send out a Word of the Month to my branch. I thought I’d share this one:
The end of the year is a fantastic time for reflection upon one’s life and a celebration of one’s good fortune. I’m
generally a melancholy person unless I am making an effort to be social. During the holidays I try and notice how
lucky I am. You and I share a lot of that fortune, so I invite you to celebrate it yourself. Are lucky enough:
- To live in the United States which, for all its flaws, is one of the highest standards of living in the world
- To live without a daily struggle for food or clean water (which is a problem for millions of people around the
world – including some right here in America)
- To have the advantages of telecommunication (just think about the internet and what it was like before we had
all in the information humanity has ever gathered – minus the recipe for Greek Fire – at our fingertips 24/7.
Then just think about your cell phone. We all have one and we can call anywhere in the world, at any time for
very, very little cost)
- To have a high degree of confidence in our personal safety everywhere we go. This is not the situation for a lot
of the world.
- To be gainfully employed in an industry with no caps on earning potential
- To have the opportunity to improve someone’s life
- To have been born in this day and age. No plagues, relatively little war, running water, sewer systems,
electricity, and readily available chocolate in various forms
- To have people in our life that care (and if you think you don’t, you’re wrong – at the very least, know that I
- The list can go on, give it a thought for a minute
One of our branch’s clients recently lost their spouse unexpectedly. I can barely wrap my mind around loss of that
magnitude. So, whatever your complaints are today – keep them in perspective and be thankful for what and who
you have, and spend less time focusing on what you don’t have because time is fleeting and unmerciful.
“Show respect to all people and grovel to none. When you rise in the morning, give thanks for the light, for your life,
for your strength. Give thanks for your food and for the joy of living. If you see no reason to give thanks, the fault lies
in yourself.” – Tecumseh (maybe)
“Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance,
chaos to order, confusionto clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend.” –
This is fantastic! A lot of crooked real estate agencies (which is a frighteningly large percentage of them) lean in on lenders and require that lenders pay into what are known as Marketing Services Agreements (MSAs). Essentially they are supposed to be agreements where the lender and the real estate office split the costs of advertising and marketing. Think of those postcard mailing campaigns that you’ve glanced at and chucked into the recycling bin or open houses with banners, signs and swag. On its face it seems to make sense, two companies or two sales people go in together to generate business. Of course, in real life, things are rarely so easy.
See, there’s a very important law – RESPA, the Real Estate Settlement Procedures Act of 1974. The relevant part of RESPA is Section (a): the prohibition against kickbacks and unearned fees. This covers “referral” fees and “buying the business.” Essentially the law prohibits any one in the real estate industry from paying other parties for referrals or making payment for services rendered contingent on the closing of a real estate transaction (financing, sales, etc). So your real estate agent can’t get paid for sending you to his “preferred” lender. Ever since the law was passed and with every passing update, clarification and revision the real estate industry has tried to find ways to circumvent the law. MSAs and ABAs (affiliated business arrangements) have been the preferred vehicles for these extralegal gymnastics.
So what happens is that instead of obviously well-spirited advertising campaigns and events, companies set up relationships wherein, for example, a lender “leases” a desk at a real estate brokerage’s office. That lender pays well-above market rates for that “privilege,” say $2500/month for a desk and a chair. That lender, of course, expects something for his/her generosity. They want loans that they can close and make money. This isn’t in the spirit of serving the consumer mind you, this is about the $$$. The real estate office is seeking to either defray it’s rental expenses or generate a profit and the lender is seeking an easy path to deals. Now, paying above-market rent for a desk is questionable but not as questionable as the further perversion of these kinds of arrangements: varying the rent each month and making it dependent on how many deals were sent to the lender. Yes, this is very common. It is not what happened in the linked story but this kind of action gladdens me deeply since I am tired of being approached by crooked real estate agents to set up MSAs and hearing about how other, less scrupulous, lenders are “in-house” or “preferred” with a particular real estate office.
A better start today after soft prices last Friday. The volatility continues; last Thursday MBS prices ended +29, Friday -36 and early today +20 bps. The 10 yr this morning prior to the stock market open at 9:30 AM EST 2.37% -5 bps from Friday. There is no US economic data today except this afternoon with Nov consumer credit data; and little until Friday. Two Fed officials today; Eric Rosengren (Boston) at 9:00 AM and Dennis Lockhart (Atlanta) at 12:40. The better start this morning on some increase in the dollar, weaker crude prices and stock indexes prior to the open a little lower.
Boston Fed’s Rosengren saying three rate hikes in 2017 seems “reasonable”. Rosengren will not vote again on FOMC decisions until 2019 and he dissented in favor of a hike at the September meeting, meaning that he is in the hawkish third of all the FOMC participants (voters and nonvoters).
SF Fed’s John Williams in an interview with the Financial Times said that strong hiring and higher wage inflation, confirmed in Friday’s jobs figures, showed “the stars are aligning” in the US labor market as he signaled support for forecasts of three quarter-point interest rate increases this year. He doesn’t believe there is a need for big fiscal spending now that the economy is moving ahead more rapidly. He said economic policy would be best helped by federal action that ensures a sustainable budget deficit and boosts long-term productivity. He also warned Congress against impinging on the Fed’s ability to set rates by imposing audit requirements or policy rules, amid fresh Republican attempts to clip the central bank’s wings. “If you were to ask me three years ago, four years ago, when unemployment was still high and the economy was still digging out of a hole, I would have said, sure, fiscal policy would be great to help expedite getting back to full employment — short-term fiscal stimulus,” said Mr. Williams in an interview. “But today I don’t think we need short-term fiscal stimulus. What we need is really better policies and investments in the long-term health of the economy.”
Bonds and mortgage prices, although holding nice gains today, are very quiet compared to recent intraday volatility; but it is early. Stock trading, the dollar and crude oil will be the focus today. Zero economic data until late today with consumer credit; while we don’t get estimates breaking down credit our main interest is in the revolving sector of credit (credit cards).
The market action (technicals) has a very slight bullish bias, maybe a better way of saying it; not bearish but not with much of a bullish sentiment. No scheduled data in the US and not much occurring in Europe today. Traders looking forward to Donald Trump’s first press conference on Wednesday.
This Week’s Calendar:
3:00 pm Nov consumer credit ($18.5B from $16.0B in Oct)
6:00 am Dec NFIB Small Business Optimism Index (99.6 from 98.4 in Nov)
10:00 am Nov wholesale inventories (+0.9%)
1:00 pm $24B 3 yr note auction
7:00 am weekly MBA mortgage applications
10:30 am weekly crude oil inventories
1:00 pm $20B 10 yr. note auction (9yrs, and 10 months)
8:30 am weekly jobless claims (255K +20K after declining 28K the previous week)
- Charles Evans (Chicago)
- Harker (Philadelphia Fed)
- Dec export and import prices (exports +0.2%; imports +0.7%)
1:00 pm $12B 30 yr bond auction (29 yrs and 10 months)
1:15 pm Bullard (St. Louis Fed)
7:00 pm Janet Yellen hosts a town hall meeting with educators in Washington, D.C.
8:30 am Dec PPI (+0.3%, ex food and energy +0.1%, ex food, energy and services +0.2%)
- Dec retail sales (+0.7% from +0.1% in Nov; excluding auto sales +0.5% from +0.2% in Nov)
10:00 am U. of Michigan md-month consumer sentiment index (98.6 from 98.2)
- Nov business inventories (+0.6% from -0.2% in Oct)
An easy way to do some numbers and reach out to connect with me, please download and share!
I was going through old emails and came across one detailing what is still the strangest experience I’d had working in this industry. This was sometime in September of 2004 when I was still a lowly loan officer assistant:
I just had the strangest experience of my career as a loan officer this morning. I don’t mean this in the sense that it is the strangest thing to date, but that it’s the strangest thing that will ever happen to me in this field. We had to verify that a client worked at a particular place and had been calling the business number the whole week. The strange thing is that either the phone would ring 20-25 times without an answer or it would be busy. Usually if it’s a made up number you get a fake voicemail or answering machine. Strange enough that, but wait till you hear what happened when we showed up:
J (another assistant) and I show up at what is obviously a sweatshop. There are large wrought iron gates that are very, very locked. No doorknobs either. We bang on the gates… a large hispanic woman wanders up and asks, rather rudely, what we want. She is wearing two shades of lipstick, one on the lower lip and the other on the upper lip. Only thing is, the one on the upper lip isn’t anywhere near being confined to just the upper lip… it is also all over both cheeks. I think I could do a better job applying makeup than that. She is obviously oblivious to her appearance. We are not. We ask to speak to the owner or manager. We have to negotiate with her for that privilege. We have to explain our situation and reveal our credentials. Finally she fetches what can only be described as the next act in the freak show that is this VOE (verification of employment). A tiny Asian woman comes to the door, yelling to her workers in the oddest Spanish I’ve ever had the dubious pleasure of hearing. She has what appears to be a garter or panties tied around her face. A red lacy piece of fabric is tied in a band all around her head, passing over her upper lip and just under her nose, it has a large flowery (and lacy) knot in back. It is obviously there on purpose. Question is… what purpose? She comes up to the door and demands (in English worse than her Spanish) to know what we want.
Now; keep in mind that we are talking through a wrought iron gate. We once again relate our story and flash our credentials. We tell her that the lender is going to call her number and that we need her to answer the phone and answer all the questions to the best of her ability. She nods her head vigorously, agreeing multiple times… “ok, ok, ok.” I think all is well and call the lender to give them the green light while she is walking away from us and towards the phone. A minute later the phone rings… The phone keeps on ringing, the owner/manager woman and her assistant stare at it. The look like ancient tribespeople seeing and hearing a phone for the first time. It is as if they have never encountered technology before. The phone rings about 10 times, they don’t answer. This despite the fact that J and I are jumping up and down, yelling at them to answer. We are also employing crude sign language that we hope would convey the idea that; “ANSWER THE BLINKING PHONE SO THAT WE CAN LEAVE THIS FREAKSHOW.” Our efforts are in vain.
The lender calls my cell phone asks what the heck is up. I tell her what happened and tell her to try again in a minute or two.
A minute goes by and the phone rings again. Once more with the jumping, yelling and signing. She finally answers. She talks for less than a minute and hangs up. This worries us because the VOE process should take longer than that…
I call the lender to see if she got what she needed. She is in stitches when I call… I have to wait 30 seconds for her to get her voice back from all the laughing. I ask her, “Did you get what you needed? Are we good to go?”
She replies, “I think so… not really sure. I don’t really know what just happened.” There’s more laughing. “That was the strangest call ever.”
To which my natural reaction, “You should see it from this end.”
More laughter… “Don’t worry it’ll get funded, talk to you later.”
She’s laughing as she hangs up.
I drive home shaking my head and wondering, “Who does that lady’s makeup?”
Here’s what we need to review for a typical loan pre-qualification:
- The two most recent federal tax returns you’ve filed. Please include any W-2, K-1 and/or 1099 forms and all schedules related to the filing. We do not need your state filings.
- Most recent month’s paystubs (We need a complete 30 days)
- Most recent two months of bank statements and retirement statements(if applicable)
- Copy of driver’s license and Social Security card.
- Any applicable bankruptcy filings, divorce filings and VA eligibility paperwork.
- For a refinance we’ll also need your most recent mortgage statement and homeowner’s insurance policy information
Why do we need all this documentation?
The tax returns verify that the income you are showing is being reported to the IRS and on the up and up. We also look any losses you might be reporting, whether it be unreimbursed employment expenses on Form 2106, rental losses on Schedule E or self-employment losses on Schedule C. It also shows if you currently own a home, which is relevant to both your first time homebuyer status and to your debt-to-income ratios. The tax returns will also show your history of income so that we can determine the consistentcy and stablity of your income.
The paystubs will show how much you are making now, in case you are making more due to a raise or a promotion. They also show you are still employed!
The bank and retirement statements show where the down payment is coming from on a home purchase. On both a purchase and refinance it can help to show “reserves” – money saved up to cover the housing expense in the event of a emergency. One month’s housing expense (mortgage payment, taxes, insurance, HOA) in a savings account is considered one month’s reserve. The more months you have in reserve the stronger of borrower you are. Some programs require reserves, so knowing what is available can help me tailor the loan program to your situation.
The driver’s license allows us to verify your identity in these days of identity theft and corroborate your personal details.
The Social Security card shows us your legal name. When we run a credit report it has to match the Social Security card exactly; nicknames and missing additional surnames can provide incorrect returns on your credit profile.
The bankruptcy (BK) and divorce filings are not always necessary but when they exist we need to see them in order to anticipate any possible underwriting challenges. We need to see how property was disposed in the BK and which debtors were discharged. From divorce decrees we can see if you are responsible for child support or spousal support, both of which are factored into your debt-to-income ratios. If you are a veteran then Veteran’s Administration (VA) paperwork will let us confirm your VA loan eligibility and the terms thereof.
On a refinance we need the mortgage statement to verify your escrow impounds, your address, the current balance of your loan and the terms thereof. Similarly your homeowner’s insurance lets us verify the coverage and the cost of your insurance (which, you guessed it, factors into your debt-to-income ratio).
Look, I understand that people want to shop around for a “good deal” and that I don’t have the lowest rates in the market. I deliver excellent service and solid advice and I like to think that I’m worth a little bit more than some nameless drone at some internet bank that doesn’t know what he is doing, doesn’t care about his client and will take 3 months to close a perfectly clean loan. Still, I recognize that it is natural for people to want to know their options and I encourage it. Frankly, comparing me to most other lenders makes me look good!
Normally this shopping process happens at the beginning of the process, before anyone has committed to anything. On a home purchase this normally happens during the pre-qualification process. Typically that means that by the time a buyer finds a home he likes and gets an offer accepted that buyer has settled on a lender (hopefully with my office). This is because once they are in contract the buyers have a deposit on the line and they will be spending money upfront for things like a home inspection and an appraisal.
There are some people that go off the reservation and go about “shopping” the wrong way… and end up hurting themselves because of promises made by a less-than-scrupulous lender. We have a situation like that in the office right now. We’ve been helping this borrower shop for a home for about six months now and he finally got an offer accepted at the beginning of December on the purchase of a short sale. In fact, our office was integral in getting the short sale approved! We got his loan approved very quickly. obtained an appraisal and then, at the beginning of this month, we produced final loan documents for him to sign and close his deal. Through out this whole time we spoke to him regularly and emailed him multiple times a week. Never did he tell us that he was also applying with a different lender. Now that we have documents ready to go and a lock about to expire (I feel it is important to mention that the loan is the exact terms we disclosed/discussed in November, so it’s not like we jacked up the rate or the costs) and we get a call from the listing agent that a new appraiser is trying to see the property. Turns out the other lender has been sitting around for a couple of weeks and is now trying to get the property looked at. The scheduled close is this Friday. The short sale approval is up this Friday. Our lock is up on Monday.
We call the borrower to find out what is going on. He doesn’t answer any calls. Emails to him go unanswered.
Now he is going to lose the sale, his deposit, what he paid for the appraisal, what he paid for the inspection and what he paid for the HOA cert. I think that’s about $6500.00. The sellers won’t grant him an extension since there are loan docs sitting at escrow ready to sign and a lender that performed exactly as promised.
All this could have been prevented if he had simply been straightforward with us. We would have bowed out gracefully and spent our time, energy and money on clients who want to work with us.
I don’t get it… why mislead us about this? I’m sure he expected honesty from us, why wouldn’t he return the same? Why not return our calls? Why not tell us directly?
Welcome to 2016!
This year I intend to eat/drink a little healthier and work out a little more regularly. I also intend to continue working on educating people about their financial options; including, but not limited to, their options concerning their home mortgage. What are your New Year resolutions?
I finally decided to join the California Association of Mortgage Professionals.
They sold me when they pointed out the obscene amount of money spent by the National Association of Realtors lobbying Legislators. They then correct pointed out that spending the second highest amount of
bribes, I mean “political contributions,” resulted in absolutely no new legislation that affected the ability of Realtors to work or make a living. Compare that to the amount of money spent by the Loan Originators lobby. The National Association of Mortgage Bankers (with which CAMP is affiliated) isn’t even on the map when it comes to relative spending and look at how many changes have affected us in the last seven years.
At first I was sickened by how blatantly skewed our political system is by money. It is not ideals or a drive for the common good which guides our elected officials. It is the almighty dollar.
After recovering from my revulsion I realized that in order to play the game I had to get dirty just like everyone else…