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There is a difference between mortgage brokerage firms and direct lenders.  Our firm has the capacity to operate as both a principal (lender) or agent (broker) in our loan product offerings to customers.  Inasmuch, I’m afforded the luxury of both worlds.

Which relationship is better for the customer?

The answer is, whichever product offering best suits their particular needs.  There is a lot of talk about defining the mortgage originator relationship to the customer as a fiduciary; I think that’s a fine idea.  My definition of fiduciary extends beyond the scope of the regulators’ defintion of suitable recommendations for borrowers, though.  My standards require a demonstration of consumer education and care unseen in this industry, to date.

I don’t see that education and care being offered by America’s mortgage banks. Naturally, I see this as an opportunity for mortgage brokers.  It is my opinion that only fighting chance a borrower has for a true fiduciary relationship comes from an independent mortgage broker.  Banks are ill-equipped to offer that relationship because they compensate their originators more money to place a borrower in a proprietary loan product than if they brokered the loan to another financial institution. Inasmuch, the borrower is denied the opportunity for the “best terms available” because of that skewed relationship.

I want the National Association of Mortgage Brokers to start talking about this rather than to complain about the skewed licensing standards.  I don’t want fairness in licensing. If mortgage brokers are being held to higher standards than the banks’ sales representatives, so be it.  Mortgage brokers offer a superior relationship to borrowers than direct lenders do.  It’s time for us, as an industry, to embrace and promote that superiority rather than to fight for equality.

There IS a difference.

The Fed announced that it will buy up to a trillion dollars more in mortgage-backed securities and mortgage bond traders reacted positively on Wednesday.  Mortgage bonds were up 1.25% which would theoretically lower rates to the 4.5% range; that didn’t happen today.  Lenders didn’t pass that largesse through and only lowered rates to the 4.75% range in the morning.

Around NOON today, the mortgage bond traders thought they overreacted, reversed course, and mortgage bonds lost .33% today. Rates moved up to 4.875%.  While the media told you that rates were coming down to 4%, the lenders were moving in the opposite direction.

How can we get these lenders to start passing through the Fed’s subsidy?

Submit more loan applications.  I’ve often said that this is a capacity problem.  If lenders can raise rates to slow demand, they will do it so that they keep a steady supply of loans coming for the rest of the year.  How can you, the deliberating refinance borrower profit BIG and help us keep pressure on the lenders?

Proceed with your loan application, submit your documentation, let your originator order the appraisal, and submit for approval…

…just don’t lock your loan until you get the rate you want.

If lenders see a steady supply of good loans and the Fed agrees to buy the lower rates, the lenders will be forced to bring mortgage rates in line with the Fed’s subsidy. A boatload of approved but uncommitted loans will make the lenders feel that they might not get paid for the work they did.

The only thing mortgage lenders hate worse than the loan they lost is the loan they lost AFTER they approved it.

PS- Appraisals are good for three months.  I think you’ll lock in 4.5% by then.

PPS- Fully-approved loans get better deals because they require a shorter lock-in period.

I referenced the Rice University study that suggested that pictures on a profile lent credibility to borrowers on an online lending site.  Armed with that bit of information, I explained that bias towards appearance was natural.  More importantly, authenticity online lends credibility to both sellers and buyers alike.  If you want a mortgage loan, you’ll judge my online efforts by the way I look, write, and interact with you.  Loan originators will do the same towards you…WHETHER THEY INTEND TO OR NOT; bias towards appearance is a natural emotion.

Nobody cares how you “dress” online, right?  Well…while we can’t “see” you shopping for your loan in your pajamas, we can see your online “presence”.  Google has made online privacy a thing of the past so…I’m gonna find out eventually when I “Google” your name.

Why not “dress for success” when you apply for a loan online? Here are three things you can do to give you an edge over hundreds of thousands of borrowers looking for a loan online

1- Link to an online profile in your email . I can’t tell you how useful this is.  If I know information about you, I’m more apt to speak with you than the nameless, faceless e-mails that inquire about loan programs each day.  I’m on Facebook and LinkedIn.  If you connect with me there, I’ll learn more about your career and family.  I’m eventually learn about this stuff in the loan application (a mortgage is a VERY personal financial transaction) so get it out in the open.

2- Be clear and concise in your communication with a loan originator.  Loan variables include:

• value of the home (link to your Zillow Zestimate and you’ll provide some “social proof”)
• capacity to pay the debt (link to your LinkedIn profile to show your employment)
• credit- no link necessary but you might guess at how your credit is.
• loan amount requested along with a the purpose of the loan (purchasing a home, refinancing an original loan, refinancing and paying off high interest debt, etc).

3- Offer multiple contact points: phone numbers (cell phones sound tinny) and email.

Here’s a great example of a loan request:

Hello.  My name is Brian Brady and I’m in escrow to purchase the home at 413 Bay Meadows Way, Solana Beach for $450,000.  The Zillow Zestimate shows it for sale at $535,000 but I it was on the market for over six months so I got a deal.

I’m looking to put $33,000 down and buy the house with a $417,000 loan.  I earn $90,000 as a Managing Director for a financial services company (see my LinkedIn profile) and fell my income will justify my loan.  If you sign into LinkedIn, you’ll see my picture that shows I have a trustworthy face (haha)

I have good credit although I don’t know my score.  I just know that I pay cash for most things and pay off my credit card balances quickly.

You can contact me at brian@12mortgage.com or 858-777-9751.  My home number is 858-222-XXXX.  I’m talking to a couple of mortgage companies and would appreciate any insight you might give me.

PS:  I’ve attached a family picture with my new baby- We can’t wait to move into our new home and hope you can get us affordable financing.

Why should you be “selling yourself” to a lender? Contrary to popular belief, we aren’t hurting for business in the mortgage industry; we’re hurting for good, clean business.  Finding borrowers who need money isn’t the problem; funding borrowers is.  The “mock” e-mail, while admittedly extreme, would open a loan originators eyes.  When followed up with a phone call, you would COMMAND attention.

Put your best foot forward when you want a loan. It could save you thousands of dollars.

Apparently, looks matter when you’re seeking a loan.  From a Rice University study:

People who are perceived to be trustworthy are more likely to have a higher credit score and pay lower interest rates on loans, and are less likely to default, according to the study by Rice University in Houston, Texas.

Even when hard facts such as credit scores are available, people rely on an assessment of trustworthiness to decide whether to make a loan.

I’ll admit that I am not immune to this bias.  Much of my business is local and I “pre-judge” the intent if not the credit worthiness on the effort put forth.  Let me give you an example.  Two (different)  people made appointments, the day after Thanksgiving, 2008, to go through a pre-qualification.  Both needed counseling about how to pay down debt and improve their credit scores so that they could buy a home.

The first, an accomplished young man, arrived in like he was headed to the beach; shorts, T-shirt and flip-flops.  While this is the “standard uniform” of a San Diegan on his day off, his documentation reflected his cavalier dress.  We met for 45 minutes, outlined what he could do to prepare for home ownership, and concluded the meeting with a promise to “touch base” after the first of the year.  His dress, behavior, and attitude was “What can you for for me?” I didn’t take his inquiry seriously.

The second, an equally accomplished young lady, came to the appointment dressed to do business.  Her dress, while casual, reflected her solemnity and determination.  She read my article about how to prepare documentation, opened up a notebook, and took copious notes.  Within 30 minutes, we developed a detailed budget and a plan to pay down debt while saving for a down payment.  She requested three follow-up phone calls to gauge her progress towards her goal.  Her dress, behavior, and attitude is “How can you help me to help myself?”.  Obviously, she got me to “buy in” to her.

How might a borrower do this online? Borrowers would do well to understand that a loan originator is “interviewing” you as much as you are “interviewing” them.  I have been persuaded to take on difficult, time-consuming, loan transactions because I felt a sense of mutual respect from my discourse with the borrower.  Borrowers who referenced an online profile, where I could see their picture and resume, received 2-3 times the attention as those who didn’t.

Sounds unfair, doesn’t it? The Zillow Mortgage Marketplace would seemingly eliminate such subjectivity and democratize a borrower’s chances for the best loan terms.  I won’t argue against its efficacy for the “pristine” borrower.  Pristine, however, is becoming subjective as valuations decline rapidly.  Your “numbers” might not be enough to attract the most talented mortgage consultants in the country but… your picture might help.  From the aforementioned Rice University study:

“There is an array of information that you can get out of the pictures,” Duarte said, adding that Prosper.com borrowers use photographs ranging from family portraits to snapshots of their pets.

“The pictures are revealing something about the behaviour of these people that is not taken into account in the credit score model,” Duarte said.

To make sure that the evaluators’ prejudices did not skew the results, the researchers controlled for race, age, gender, obesity, attractiveness and education, as well as financial factors like employment status, income and homeownership.

Understanding what determines trustworthiness may be relevant to the current economic crisis and be the key in restoring trust in the markets, Duarte said.

Trust.   It’s the cornerstone to a healthy banking system. If “old skool” is now vogue,  pay heed to your grandfather’s advice; wear a tie to your loan applcation.  Online, a profile picture is your tie.

If your face is trustworthy, why hide it?

I hosted a webinar tonight about VA home loans, targeted at REALTORS, to better help them understand:

• how to present VA offers that get accepted.
• the alternative underwriting model the VA uses for income analysis
• how a VA home loan is a better choice, in some California counties, than a jumbo conventional loan
• why 10% down payment conventional is more expensive than 10% down VA

The AUDIO IS HERE and will open in a new window. The links are here.  Listen along and click through the links as I discuss them.

PS:  While the webinar was hosted for REALTORS, veterans might gain some good knowledge from both the presentation and the questions.

Can’t afford your mortgage?  Call your lender and ask them to modify the loan to a payment you can afford.  The lender representative will ask you for a stack of paperwork and try to get you to keep paying “something…as a sign of good faith”.  After three or four months, you may receive an offer to reduce your rate to 2-3%, for a five year period, to “get you over the hump”.

You still owe the money you borrowed, though.

The house is worth less than what you borrowed?  Ask for a principal reduction.  I tried helping distressed borrowers with the Hope For Homeowners Program; my efforts failed miserably.  Andrew Adams told me it would flop and it did.  We did SOME good (without the H4H program)…for about half the borrowers but the program was a flop.  Now, President Obama is trying to “entice” lenders to refinance your loan to 105% of its current value and empower bankruptcy judges to “cram a reduced loan amount” down the lenders’ throats.

I’m not so certain that will work, either.

The social ramifications of what Greg Swann calls middle class welfare are far reaching.  An angry cauldron, fueled by the resentment of the folks who are current on their mortgage, is bubbling over today.  Let me give you an example:

Two houses, on the same street in Santee, CA, were bought for $500,000, in the summer of 2006.  Eileen was a move-up buyer who plunked $150,000 down on her home.  Lou bought the home with zero-down financing.  Eileen refinanced her home loan to 4.75% last month, bringing about $35,000 to the closing.  Lou hasn’t made a payment in three months, has had his foreclosure stalled, and is hoping that March 4 will bestow a bailout upon him.

Eileen is pissed off and she ain’t alone.  What worries me isn’t whether or not the Obama mortgage plan is fair, it’s that the implementation of it could result in civil unrest.  Don’t get me wrong, the bailouts of the stupid banks who financed you are perhaps the greatest evil foisted upon our economy but now we’re pitting neighbor against neighbor.

Let me recap the “bailout” for you; not the banks but YOU.  The government tried to mitigate with a program that offered hope; FLOP.  Now, you can get your mortgage refinanced….maybe…IF, you can demonstrate that you can’t make your payment and miss a few of them.  If the lenders won’t play ball with this plan, you can voluntarily file bankruptcy and hold your breath that you get a compassionate judge to force the banks to give give you another shot.

There is another option. Let me show you an example of what I see in the same street:

Lou is paying $3,500/month for those mortgages (which he can’t afford).  Tanya is renting the house next door for $1,500/month.

Here’s the solution, Lou; walk from the mortgage.  Mail your keys to the bank and rent the house down the street. If the “teaser” payment was $2,500 (and you could afford that), save the $1,000 each month, for the next three years, and buy back your old house in 2012.  The FHA 203-b loan program allows borrowers, who have a foreclosure that is older than 36 months and have re-established credit , to obtain an approval.

Walk today and buy that same house back in 2012. Do you really think it’s going to cost a whole lot more than it’s worth today?

Consider a comeback if you will. It’s a great American tradition.

Diane Tuman reports that the Stimulus Package, recently signed into law by President Obama, allows for a reversion to the 2008 conforming loan limits, in high-cost counties:

This means Fannie Mae and Freddie Mac conforming loan limits will be $729,750 for one-unit properties in certain high-cost areas of the continental U.S. The previous limit for high-cost areas was $625,500.

Why can’t California lenders then, approve a $700,000 conforming loan?  It’s all about the execution of those new (or renewed) loan limits.  They just ain’t available today!  Read this thread in the Zillow “advice” section.

My parsed opinion about this issue was:

I lend in Orange County and would tell you to advise a buying customer that the higher loan limit, with its lower down payment requirements and superior pricing, will MOST LIKELY be executed prior to April 1, 2009.  Still, I’d tell you to advise a selling customer to insist that the earnest money deposit be non-refundable, if accepting an offer based upon that information.

Ironic, huh?  I’m telling a REALTOR to submit offers, with a 45-day close, based upon the higher loan limit while I’m telling a REALTOR, to accept offers, based upon the same information with serious repercussions for non-performance.  Confused?

Well, the whole thing is confusing, if you’re standing where I stand.  My guess, and it’s just a guess, is that lenders will accept the higher loan limits in 30-45 days.  If you NEED that higher loan limit, hold your breath and keep your eye on the mortgage rates.

If you’re a Golden State resident, you know that our Legislature ended a “Californian stand-off” last week when they agreed to approve the state budget.   While the budget was laden with pork, there might just be a little slice of bacon for you.

Buyers of “new” homes or condominiums might qualify for a $10,000 tax credit, granted over three years, in addition to the $8,000 Federal tax credit.  The Sacramento Bee gives us the details:

• It applies to new California houses or condos bought as primary residences between March 1, 2009, and March 1, 2010.
• It’s for 5 percent of the purchase price or $10,000, whichever is lower.
• The state will take $3,333 off a buyer’s state taxes starting in the year of purchase and for two following years.
• The owner must live in the new home or condo for two years or lose the break.
• Collectively, the state tax break is limited to $100 million. At $10,000 per tax break that’s 10,000 new dwellings.

What does this mean for you?  Tax breaks shouldn’t be a justification to overpay for a property.  Yet if you’re comparing apples to apples, this might just be the edge you need to choose the new home over the resale.

California is considered a “declining market” by lenders, the secondary market, and appraisers alike.  Appraisers have been instructed to adjust the “comparable sales”, on a Uniform Residential Appraisal Report (Form 1004), by 1.5% per month.  What this means is that the appraiser will use an exact model match (same size, floor plan, and location in the subdivision) from December, and lower the price by 3%, for a current appraisal.  For example, if the property sold in December for $300,000, the adjusted price in February will be $291,000.

Sounds reasonable, right?  Sometimes, that’s not necessarily a fair depiction of current market conditions.

Much of the Southern California market is driven by bank-owned properties.  The banks, in an interest of disposing of the property, pursue a “fire-sale” pricing method in order to generate multiple offers.  Ask buyers in the tony San Fernando Valley how hard is is to buy a bank-owned home.  One of our borrowers has made over 30 offers, unsuccessfully, to purchase a bank-owned property,

The free market has “priced in” future market declinations and has “discovered the true bottom”.  Still, appraisers have their hands tied.  Pursuant to directives from the secondary market, the appraisers adjust those “free market base prices” because they were closed a month or two ago.  The cycle becomes never ending.  The lower adjustments provide an unnatural price pressure, driving prices even lower.  The policy then becomes a market factor.

The policy can be counterintuitive to its originally stated purpose; to provide a “true” reflection of this “declining” market.  It assumes that prices will continue on an 18% annual decline, forever.

At a certain price , a property becomes less costly to own than to rent.  Many analysts believe that price establishes a “natural” bottom for the property, in a balanced market (six months absorption rate).  The theory is that buyers would be crazy to rent the property when ownership is less expensive.  Compunction then becomes an economic necessity; if a buyer doesn’t make his mortgage payment, the alternative is more costly.

This fundamental analysis should trump the declining market adjustments, at best or become an important footnote, in the least, on the appraisal report.

Originally posted on Millionaire Real Estate Lender