Previously:

We learned that the first rule of negotiation is the first one to talk loses.

The second rule of negotiation is that when you are explaining you are losing.

The third rule of negotiation is the person with the least interest controls the relationship.

And the fourth rule of negotiation?

It is vital to set expectations and then over-deliver on under-commitments.

In every negotiation… in every relationship… each party will have numerous opportunities to set the other parties expectations. This applies across life, not just when shopping for a mortgage.

Become astute at under-committing and over-delivering and you will become known as reliable. As competent. As trustworthy. As someone who can be “counted on”.

Fall into the habit of over-committing and under-delivering and you will become known as just another ordinary, every-day average idiot.

This subtle -but-not-so-simple skill of being able to set and manage expectations and then over-deliver on those expectations is one that every lender on ZMM knows all too well — they absolutely *must* be stellar at setting expectations and then over-delivering on those expectations or they will simply go buh-bye.

If you are a lender and you somehow manage to hose up this rule of negotiation, you will soon be marked with the digital equivalent of the Scarlet Letter thanks to Zillow’s feedback mechanisms available for consumers to report “how you did”.

For example: look at a few of these top lenders on Zillow. Look at how many people they have helped. Look at their feedback scores.

Think they know how to under-commit and over-deliver?

Yes. And you can take that to the bank.

And if you happen to somehow become one of those lenders who hasn’t learned how to set your client’s expectations by under-committing and over-delivering?

Here’s your toaster, have a nice day.

Toaster as in parting gift.

Parting gift as in: you won’t win any of the “grand” prizes here. Sure, everyone still loves you, but it is back to cold-calling and LendingTree for you because no one that uses ZMM is going to want to be seen with you and your well deserved big, bright, shiny red “A”.

Lastly: a personal note to anyone who is thinking of using ZMM to shop for a mortgage:

Today, more than ever before (in my experience at least) it is difficult to get a loan done for a client. If your loan officer says to expect something and it doesn’t happen *exactly* in the time frame that he said - believe me when I say that there are crazy, crazy things happening regarding lending guidelines and turn times.

So when leaving feedback - just keep that in mind. Maybe even give your loan officer the benefit of the doubt.

Or hand him a toaster, tell him thanks for playing and maybe - just maybe it will be the thing that helps him become suddenly stellar at the fourth rule of negotiation:

Set expectations clearly, then get busy under-committing and over-delivering.

What they are finding out once their appraisal comes back is that they are actually “under water” by more than 105% — and now they are trying to decide what to do. Should they just keep making payments at their high interest rate? Should they stop making payments and try to get a loan modification? Should they try for a loan modification even though they are current?

All of these are good questions - and really, there is no easy answer. There for sure is not an answer that will fit everyone’s situation perfectly — each situation is different and individual.

But…

There is a possibility — note the word possibility — that the guidelines on the Obama refinance will soon be expanded where you can be up to 125% upside down on your home and qualify for the Obama refinance.

It hasn’t been made official yet — but for many people who currently have been turned down by their lender and are trying to decide whether to:

1. Just keep making their mortgage payments as normal
2. Stop making payments and try to get a loan modification
3. Try for a loan modification even though they are current

Now there is at least one more option on the table — wait and see if the Obama refinance guidelines get expanded.

According to Bloomberg:

Fannie Mae and Freddie Mac may get permission to begin refinancing mortgages with loan-to-value ratios above 105 percent as the Obama administration seeks to boost participation in its anti-foreclosure programs.

“We’re actively considering how to structure a program that makes sense over 105 percent,” Federal Housing Finance Agency Director James Lockhart said yesterday. He said a ratio of 125 percent “is a number” that’s on the table, though “not necessarily the number we’re going to end up with.”

Previously, we learned that the first rule of negotiation is the first one to talk loses and that the second rule of negotiation is that when you are explaining, you are losing.

Ready for the third rule of negotiation?

Wait.

Before we get to that, let’s forget about mortgage-related stuff and think about something sunnier — love.

Let’s think about love for a moment.

Think back to the best first-date that you have ever been on. You know, that once-in-a-lifetime kind of date that happens only once or maybe twice in a lifetime. You met that special someone for the first time in a date-setting. You really liked the other person, had a fabulous time and fell asleep that night wishing the feeling would last forever.

And then you woke up the next morning and wanted to call your date just to tell them how much of a great time you had… but you just couldn’t allow yourself to.

Why?

Because of the three day rule.

You know, that unspoken rule that everyone seems to know about but yet never speaks about with other people. The one rule of dating that you wouldn’t dare breaking for fear of messing something up. The one that you are absolutely positive would jinx the entire relationship and could possibly lead to sudden cardiac arrest.

The three day rule is a very real rule because it follows the third rule of negotiation. The third rule of negotiation is:

The person with the least interest controls the relationship.

How Zillow Mortgage Marketplace Puts You In Control

Everyone has been chased by a rabid, commissioned sales person before.

When shopping for a mortgage on Zillow’s Mortgage Marketplace, you fill out your information and immediately you get phone calls and emails from up to 150 rabid, commissioned loan officers who have too much time and not enough to do, right?

Wrong.

You won’t get a single phone call or email once you submit your information on Zillow’s Mortgage Marketplace because the lenders never see any of your personal information so they have no way to contact you or even know who you are.

To the lenders on Zillow’s Mortgage Marketplace, you are just a set of numbers. Important numbers, yes — but just numbers that are only related to your mortgage.

However — once a lender submits a quote to you, you are able to not only see their “numbers” (notice how I didn’t use the word measurements) but you will also be able to see their lender profile, see what other clients have said about them and probably even a picture or two of them along with a profile and short bio.

Put quite simply: there are two ways to shop for a mortgage online.

One way is to submit your information to a company and that company sells your information (yes, even your phone number) to up to 8 rabid, commissioned loan officers with too much time and not enough to do…

Or

You use Zillow’s Mortgage Marketplace and collect all of the information about “what the lenders can do for you” without them ever even knowing who you are.

Back to the Third Rule of Negotiation — The one with the least interest controls the relationship.

Say that you don’t feel like calling (or emailing) your favorite loan officer for three days after you get their quote because you don’t want to get the relationship started off on the wrong foot?

It is your choice — assuming you used Zillow’s Mortgage Marketplace and not some other way to shop for a mortgage online.

And I am sure the loan officer will understand — after all, you have to wait at least three days according to legend or the relationship may be cursed!

I had never been called for jury duty before, so I thought it might be fun. I reported to the courthouse and was waiting in the juror-waiting-room and I saw quite a few “tweets” on Twitter about how FHA issued a mortgagee letter stating that homeowners could now monetize their new home buyer tax credit when buying a home rather than wait for their tax refund to come from the IRS.

So I was stuck in the jury waiting room when HUD finally issued an announcement for something that everyone has been wondering about for at least the last few weeks.

Katie did an excellent job of announcing and covering this plan, but I figured that it was big enough that we could talk about it in at least one more blog post.

Key Highlights Of New Home Buyer Tax Credit Monetization Plan

• FHA will allow approved organizations to “monetize” the tax credit for new home buyers by helping them turn their future tax credit into money they can use for closing costs / down payment
• FHA issued guidelines about how the program will work and how much it should cost
• New home buyers will still need to have the initial 3.5% for their down payment

Using The 8000 Tax Credit For Your Down Payment

One of the most popular questions is “can I use the 8000 tax credit for my down payment?” and the answer officially is YES — but only after you have paid the initial 3.5% down payment on your own. In other words, you can’t use the 8000 tax credit for the first 3.5% of the down payment, but if you wanted to use the 8000 tax credit for a down payment over and above the 3.5%, you can.

From the official HUD announcement:

Pursuant to 12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity).  Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.

Using the 8000 Tax Credit For Closing Costs

You can use the 8000 tax credit for closing costs that are normally associated with buying a home. Lender fees, title fees, inspection fees — these are all “normal” closing costs and you can use the 8000 tax credit monetization plan for these costs.

How Much Does The Tax Credit Monetization Program Cost?

In my opinion, HUD did a nice job of making sure that the costs for this program are reasonable. According to the Mortgagee Letter:

Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  (Example:  $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)

Other Resources

I am sure that there will still be many, many questions about this program — so here are a few resources that may be of help. Also, don’t forget to ask a loan officer at a FHA approved lender — they should be very helpful when trying to understand exactly how this program works.

HUD Official Announcement

Official Mortgagee Letter 2009-15

New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions

Oh, and for those of you who were wondering how jury duty went — I was excused from jury duty after I told the judge:

“Your Honor, I am a local loan officer and I have a family. My employer doesn’t pay me for jury duty - in fact they don’t even pay me unless I close a loan and if I am selected to serve on the jury for six months, I worry that one wife and two kids might end up starving to death after they kick me out of the house…”

Dismissed.

“Hello, I am about to close my loan tomorrow on a FHA loan and I think something is wrong. Throughout the whole process, my loan officer told me that I was going to get a 5% fixed rate and just today he told me that I could only get a 5/1 ARM at 5%, but that because it was an FHA loan, I could refinance with the FHA streamline program 3 months from now with no cost. Is it true that I can refinance in 90 days with no cost at 5%?”

A siren went off in my office and a red flashing light turned on.

I was on the phone with a potential victim.

Someone who had not-yet-been-taken-advantage-of, but was about to.

Now was my moment!

Forget about the FHA streamline program, this poor young lady needs to get the rate she was promised!

“Maam, I don’t know a nice way to say this, but you just need to put your foot down. You were promised a rate and you might have to work a little bit to get that rate. The good news is that I can pretty much promise that if you do what I am about to tell you, you will get a 5% 30 year fixed rate and not have to worry about the future of whether-or-not you can do an FHA streamline.”

What To Do If You Have Been Promised A Rate But Are Getting Something Else:

1. Ask to speak to the manager. Explain to the manager what has happened and that you were promised one rate and now that it is close to closing you are getting something else. Be nice, but firm. Do not, do not, do not back down.
2. If the manager won’t help you get the rate that you were promised, ask to speak with the company owner. Yep, the company owner. The company owner will be able to help you.
3. If the company owner won’t help you - it is time to call in the government. Each state has some form of governing authority over mortgage lending and now is the time to find out who this is and how to contact them. Hint: Google can help you. Call them, tell them that you wish to file a complaint and see if they can help you. Chances are that they will just take your information for now - but depending on what state you live in, they may be very actively involved in investigating claims like yours.
4. Call your local tv station and ask them for their “XYZ news channel on your side” reporter. Tell them how you have been taken advantage of by a mortgage company and there is a good chance that they will not only help you, but maybe you will even get the “bad mortgage company” on tv for promising you something that they refused to deliver.

The above scenario is just one of the many reasons to use Zillow’s Mortgage Marketplace. If this poor young lady would have used ZMM to start with, she could threaten her loan officer with something way more powerful than any of these 4 items — she could just threaten him with negative feedback.

Will my friend from Oregon get the rate at the table that she was promised?

I don’t know.

But I do know that her loan officer isn’t all that worried because she didn’t use Zillow Mortgage Marketplace to find him, so she can’t leave any negative feedback.

I bet that with the recent jump in mortgage rates, there are many people in this same situation.

In negotiations, knowledge is power and until the recent launch of the Zillow mortgage marketplace, it was all too hard to get enough information to find yourself with enough leverage to get the best deal on a mortgage.

But that has now changed - and as I recently promised when talking about the First Rule of Negotiation, here is how Zillow’s mortgage marketplace puts you on the right side of the Second Rule of Negotiation.

The Second Rule of Negotiation is: When you are explaining, you are losing.

In any negotiation, there is a time to talk and a time to listen. The best negotiators spend more time listening than talking. The rookie, all-to-eager-salesman spends far more time talking than he does listening. When the best negotiators do talk, it is usually concise and addresses the concerns of the other party.

Generally speaking, great negotiators will follow a simple rule introduced by Stephen Covey:

“Seek first to understand, then to be understood”

If you shop for a mortgage and choose NOT to use Zillow’s mortgage marketplace, chances are that you will call a loan officer, and immediately start “explaining” your situation.

What you don’t realize is that while you are “explaining” your current situation, any loan officer who is worth his salt is sizing you up and figuring out if you are really something that he can deal with and make money on — and even sizing up the amount of effort your situation will require and how much money he stands to make.

Within the first 5 minutes on the first call with you, good loan officers can tell if you are going to be a great deal for them (low effort, high dollars) or a bad deal for them (high effort, low dollars) and it all comes from things that you are explaining when speaking about your situation that have nothing to do with numbers.

When you are explaining, you are losing.

Now, if you shop for a mortgage using the Zillow mortgage marketplace, the tables are completely turned. You simply fill out the vital numbers of your situation and then the loan officers get to “explain” why you should choose them as well as submit their best offer.

Then - when you are not feeling pressure or rushed or have that “somehow I just got sold something” feeling, you decide which loan officer you want to contact about your mortgage.

Remember, when you submit your information to Zillow’s Mortgage Marketplace, the lenders don’t get to see all of the “other” things about you - just your vital numbers that they really need to know. We don’t get to see your personal information and we have no way of knowing who you are or how to contact you.

Which leads into the Third Rule of Negotiation.

And lucky for you, using Zillow’s Mortgage Marketplace puts you on the right side of that one too.

Up next, find out how the Third Rule of Negotiation applies to dating AND shopping for mortgages. Zillow has your covered when shopping for mortgages, but you are on your own when it comes to dating.

Just one of the many reasons that Zillow’s mortgage marketplace is so powerful is because it forces lenders to “talk first” and then you can compare their “talking”. This ensures that you never end up on the wrong side of the First Rule of Negotiation.

One of my college professors taught me this simple Rule by holding a class activity. One day, he came to class and told everyone in the class to pick a partner. The activity for the day was that we were going to “negotiate” a buy price for a used car and whoever negotiated the best deal didn’t have to take the final exam.

When we had negotiated “the deal”, we were to write down the final sales price on a piece of paper and hand it in.

Once we had a partner chosen, he then handed one of us a green sheet of paper and the other a white sheet of paper. Under no circumstances were we to tell our partner what our piece of paper said, we were just simply to use the information to our benefit in the negotiation as we saw fit.

I received a white piece of paper with this information:

You are a land developer in Arizona who happens to buy and sell classic cars as a side hobby. You have recently acquired an old widows 300 acre farm and plan to develop it.  She plans on moving to Texas to be with her daughter and has already shipped all of her belongings there. You agreed to take her to the airport because she has no other family in the state.

As you pull up to take her to the airport, you happen to notice a silver 1962 Ferrari GT with four flat tires sitting in a dusty corner of the barn in the back yard. The car has been recently uncovered and is still half covered with a tarp that is covered in dust. You know for a fact that this car can fetch around $2.1 million at auction because you sold one last year just like it and have regretted it ever since.

My negotiating “partner” received a green piece of paper with this information:

You have lived all your life in the same small Arizona town. Your husband died about 20 years ago and you have been lonely ever since. About 6 months ago some big-whig city slicker who drove a shiny new truck showed up at your door one day and ended up paying you $5 million for your old farm. You couldn’t believe what in the world anyone would want to pay that much money for some place that was so hot and dry and hard to grow crops in.

You have shipped all of your stuff to your daughters house in Texas except for the old car that your son had before he went to the Vietnam war. He loved that car, but you always hated it because it only had two seats and he was always buffing it rather than spending time talking with you. It hasn’t been started for 30 years and it has four flat tires now and has been piled under a bunch of old stuff in the barn.

You recently saw a billboard where you could donate the car to the Kidney Foundation and they would give you $250 and they are scheduled to come pick it up in the afternoon - you just have to sign the title and leave it on the counter. Your ride to the airport is here and you need to leave before your miss your plane.

There were about 30 different partnerships who negotiated out the above scenario. What do you think the result was? What was the average sales price for the car? Who negotiated the “best” deal?

The results of this case study were this:

• 30 different prices were negotiated for the car.
• 15 prices were between $0 and $500.
• 15 prices were between $1.5 million and $2.0 million.
• There were no prices in the $500 - $1.5 million range.

One of the many things I learned from this exercise was that the first one to talk loses.

Meaning, if you throw your “anchor” first, then that becomes the negotiating point and you negotiate from there — and this is only one of the many reasons why Zillow’s mortgage marketplace is beneficial to consumers.

It lets you (the consumer) see what your negotiating partners (the lender) piece of paper says and makes the lender make their best offer.

Is there a Second Rule of Negotiation?

Does Zillow’s mortgage marketplace address it  so that you are guaranteed the best deal when shopping for a mortgage?

Yes and Yes.

But that is another blog post.

The lean and slap is one of the professors favorite tricks - or at least it seemed to be when I was part of the captive audience there. When performing the “lean and slap” trick, the professor presents a business case in a certain light and has you thinking that the right answer is *obvious*.

And the majority of the students go ahead and fall for it - and pick the apparently obvious answer as the solution to the complex business problem presented in the case.

And as they lean forward in their chairs, all excited that they finally have the right answer…

They get slapped with the answer that they never considered.

Who says college doesn’t prepare you for life?

Lean:

“Hey everybody, we are going to allow people to monetize their 8000 tax credit by allowing them to get a bridge loan!”

Slap:

“Uh, sorry… wait… uh… we will get back to you on that. We officially retract that mortgagee letter that we put out about it. Everything is on hold for now. We will get back to you when we feel like it.”

After I pick myself up off the floor after being slapped silly, I will be sure to give everyone an update.

Right now, all I see is stars and I vaguely hear the sound of birds chirping.

But I thought everyone would be interested to know what may be lurking in the near future.

Can you use the 8000 tax credit as a down payment for your home?

Not yet.

But that may change soon.

Yesterday, Secretary of Housing and Urban Development Shaun Donovan gave a prepared speech at the National Association of Realtors Real Estate Summit. He said something that was probably beyond interesting when he mentioned that FHA was currently working on a proposal that may involve people being able to use the 8000 tax credit as a down payment.

An excerpt from that speech regarding FHA’s position on the 8000 tax credit being used as a down payment:

And we are taking action to further help the housing market recover. I’m excited to announce here at NAR that FHA’s policy on the “monetization” of the first-time homebuyer tax credit will soon be published. I know that you’ve been waiting anxiously to hear FHA’s position on the matter. We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time homebuyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. According to estimates by the National Association of Home Builders, this new tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.

We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to “monetize” the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly.

Enabling first time homebuyers to use the 8000 tax credit as a down payment would be a big win for the market - it would allow many more people to move into a home who currently may not have enough for a down payment.

We will be sure to keep you posted on developments in this situation as the happen.

(h/t Mark Madsen at MyFHAMortgageBlog for sharing the video about the 8000 tax credit being used as a down payment and the guys at ThinkBigWorkSmall)

My adventure of torturing my boss using the Zillow mortgage marketplace started shining a strobe light on the problem, but I could still remain “enough in the dark” that I was still comfortably numb.

And then my friend Brian Brady did it. He brought up the words fiduciary relationship.

And now the light is bright in what used to be a deep, dark corner of my mind.

“Me Inc.”

If you are a loan officer, you are essentially a one man entity. You are in the customer service business and the relationship is between you and your customer - no one else.

If you actually have a boss, chances are that he doesn’t really care about anything except for you producing loans. If you think he does, go ahead and try not producing for a while.

Most likely, you are a 100% commission employee who doesn’t get paid unless you actually fund a loan. If you do get a base salary, it is likely just enough for your employer to cover their minimum wage liability because your company has figured out that this is the best way to reduce their exposure to the minimum wage laws — and I wouldn’t count on a raise anytime soon.

Which means that you absolutely, positively have no responsibility for company loyalty, teamwork, company stability or company goals.

You are responsible for getting your customer the best deal possible on their mortgage and charging them enough to make a living at it.

That’s it.

I have went over the different types of loan officers and some of the ways that loan officers are paid before. Both of these are important, but in today’s competitive, transparent market that Zillow’s mortgage marketplace is helping to create, they probably take a backseat to one other topic:

Do you as a loan officer have access to direct investor pricing?

If you do, congratulations. You are probably in the best situation that you can be in. Whatever the big investors are paying on any given day, you are aware of any “holdbacks” that your company is taking and you can be competitive with the other loan officers in a transparent marketplace.

If you don’t have access to direct investor pricing, you are at a disadvantage to those loan officers who do - possibly a severe disadvantage.

Consider these two rate sheets. Guess which one is the one where loan officers have access to direct investor pricing?

Now consider these top Zillow Mortgage Marketplace lenders:

The only way that John, Greg, Robert, John or Kat is able to have this much success on Zillow’s mortgage marketplace is to have the best service at the best price for any given mortgage product. Secondary marketing managers also call this best ex (short for best execution).

I have never talked with any of these loan officers, but I wouldn’t be surprised if many of the top lenders on Zillow don’t have direct access to investor pricing… and if they don’t, they are at a minimum leaving tens or even hundreds of thousands of dollars on the table that they could either keep for themselves or pass on to their clients in savings.

In simple terms, secondary marketing departments across the US are “making” money from loan officers and customers and can easily be cut out if the loan officer knows where to look.

People are used to shopping around for the best deal. People on Zillows mortgage marketplace shop for mortgage deals. People on Nextag shop for the best deal on a bigscreen TV. People shop for car insurance rates.

Shouldn’t you shop around for somewhere that you can get direct access to investor pricing?

Michael Dell did it with computers and he was called a revolutionary and built a company out of it.

You as a loan officer have the chance to find a place to work that provides direct access to investor pricing and become locally known as the loan officer with the best rates because you “go direct”.

Give great service and have direct investor pricing and you can make a living on Zillow’s mortgage marketplace because in their transparent marketplace, you will shine like a bright star if you have those two things.

Or you could choose to leave the light off in that deep, dark corner of your mind and choose not to think about it. Heck, I did this for years.

But if you ever need to borrow a flashlight to look around a little when it seems to you that all of the lights are turned off, call me.

You can borrow mine.