Mortgage Broker category archives

Okay, I know this might sound like an infomercial, but it’s not.   Ramit, NYTimes best-selling author of I Will Teach You To Be Rich and I have been collaborating to find ways to save big chunks through automation.  Here’s my contribution which can also be seen at VideoCreditScore.com. Here, I show how someone with a $300K mortgage can save over $71,000 over the course of their loan.

Sadly, few of us take advantage of this automation.  Less than 1/3 of all Bank of America customers make a 13th payment each year, and less than 10% take advantage of plans like PayPlan/26.

The higher your interest rate and/or mortgage, the more you save.   Of course, this is why the other great way to save on your mortgage is to have a credit score higher than 760.  Your credit score can be translated into a rough estimate of your interest rate and the difference between a 5% APR and a 6% APR can mean over $67,000 in savings over the course of that loan for a $300K mortgage.

I wasn’t sure about the new trend of higher mortgage rates.  The nagging thought was that the Fed would continue or expand it’s open checkbook policy, buy mortgage bonds, and keep home loan rates artificially low.

When the whole market melted down, I said “don’t panic“; it was good advice.  Mortgage rates, which jumped from 4.625% to 5.5% in one week, retreated to 5%.  I jumped on that opportunity.  I’ve been cautiously optimistic for lower mortgage rates in late June.

Ben Bernanke’s testimony yesterday spooked me. I’m not so sure he wants to be Sugar Daddy Ben anymore.  I think he’s cutting back on the subsidies.  This signifies a change in “BIAS” for me.  Since January, I’ve been “biased” towards lower mortgage rates because of the milky Federal teat from which to nurse.

Will I still find an opportunity to float rather than lock? Certainly.  As long as there are traders, overreactions will provide that opportunity.  I think those opportunities will be fewer for the duration of 2009.

PS:  I’ve received over a dozen e-mails this week asking my advice on your loan-in-process.   If you are working with another mortgage adviser, you should speak with her first.  If your rate isn’t locked and you’re not getting daily updates from your loan adviser, you need to consider one of these professionals.

I always knew it was a fact, but I chose to leave it somewhere deep in the dark recesses of my mind in places I don’t like to shine the light on very often.

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.

I read this column in the New York Times today and it brought to life a couple of very concrete lessons that I’ve learned over the years.   These are lessons that apply to both victims of Bernie Madoff and victims of the mortgage mess.  

I’m not talking about people who got in trouble because of job losses, or other financial misfortunes.   I’m talking about people who people who didn’t pay attention to what type of loan they were getting, or took out an option arm because all they were concerned about was the payment or lied on their loan application, or speculated in investment properties without calculating the financial aspects of the transaction.

What are those lessons?

1. If it sounds too good to be true, it probably is.   If most investors are earning 8 to 10% and Bernie Madoff is paying 46%, something should smell bad.   If the local bank is offering 5.25% and that Vanderwell guy over at Straight Talk is offering 5.25% and the mortgage guy who your friend’s nephew’s brother plays poker with on Friday nights says he can get you 4.75%, something smells bad.
2. Do your homework.   Don’t rely on the advice of only one financial person, but double check what they are telling you.  Know what the market is doing.   Check out rates at Zillow’s Mortgage Marketplace to make sure the guy you’re working with is “in the market.”  Talk to some people who have worked with the “guy”  you’re working with.

Do I feel bad for the people who lost their life savings investing with Bernie Madoff?  Yes I do.   Do I feel bad for people who lost their home and their life savings because they relied on the services and advice of an unscrupulous mortgage lender?   Yes I do.

Are there lessons to be learned from both?  Yes there are.

Talking Business - Investors Were Victims of Madoff, and of Their Own Folly - NYTimes.com

“It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”

And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff.

Bernie Madoff

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.

Please join me in welcoming Tommy Xintaris as our newest author on Mortgages Unzipped.  Tommy has over 9 years of finance experience, and is currently a Mortgage Consultant at American Homefront Mortgage. He joined the blog craze not too long ago, and writes frequently for a variety of real estate blogs, including Texas FHA Loan Information. His new upcoming project, Tommys2Cents.com, will be live soon. Tommy lives in Houston, TX and when he’s not working, he’s usually planning fun weekend getaways. 

  We’re looking forward to reading your posts, Tommy!

“Seek first to understand, then to be understood.”

– Stephen R. Covey

For a large number of consumers who get a mortgage, the decision of how much you will actually pay for the mortgage company to get you a loan resides almost completely with the loan officer.

Which is only one of the reasons that when shopping for a mortgage, lenders don’t matter - loan officers do.

Two of the biggest drivers behind the amount that you will pay for your mortgage are:

1. What type of lender does your loan officer work at
2. How is your loan officer paid

If Your Loan Officer Works For A Mortgage Bank or Mortgage Broker

For loan officers who work at mortgage banks (also sometimes referred to as “correspondent lenders”) or mortgage brokers, the vast majority of them are paid on straight commission. There are probably almost as many different loan officer compensation plans as there are lenders - but it is probably generally safe to categorize the pay of this group of loan officers as a “percentage of total revenue generated on a file”.

Or, simply put - if a loan officer helps you with your mortgage and the total fees and yield spread premium add up to be $4,000 and the loan officer is on a “80% split” the loan officer stands to make 80% of $4,000 or $3,200.

The advantage to working with a loan officer who works at a mortgage bank/broker is that they have access to many different lenders and are usually not required to only sell one lenders products. Another advantage to working with a loan officer who works at a mortgage bank/broker is that they have much more flexibility on the amount of fees that you are charged.

So it seems that logically, if on average, these loan officers probably work with 10-20 lenders on a regular basis this means that they can find you the lowest rate with the lowest fees, right?

Maybe.

One disadvantage to working with loan officers at these mortgage bankers/brokers is that no matter what, they must “originate at a profit” or make money from the origination process in order to stay in business.

If Your Loan Officer Works For A “Large FDIC Bank”

Many of the larger, nationally known banks pay their loan officers differently than the smaller mortgage banks/brokers. They will pay the loan officer a base salary and a small bonus amount based on the loan amount, not the total fees on a file.

Or, simply put - if a loan officer helps you with your mortgage and your loan amount is $200,000 and the loan officer is paid “30 bps”, the loan officer would make 30 basis points on $200,000 or $600.

One advantage to working with these loan officers is that they usually have a large brand behind them - so you have probably “heard of” the lender that they work for. Another advantage to working with these loan officers is that often times, their lender will be willing to “originate at a loss” mortgage loans so that they will have the ability to cross-sell a checking account, savings account, credit card or other bank-related products.

One disadvantage to working with a loan officer who works for a “Large FDIC Bank” is that they usually have relatively little rate and fee flexibility. Their rates and fee structures by and large “are what they are”.

Now For The “how-do-you-save-the-most-money” Question:

When getting mortgage quotes, if two of the biggest drivers behind how much you will pay for your mortgage to be originated are what type of lender does your loan officer work at and how is your loan officer paid… which one is best?

It depends.

If it were me, and I were shopping for a loan officer - I would start by asking them the direct question of “how do you get paid”?

And then listen very carefully to their answer, because understanding what is going on behind the scenes can sometimes make all the difference.

I have said this before and I will say it again…There are no magic lenders, no magic loans & no magic rates!

Everyone wants to get the best available deal they can.  Folks always have and they always will.  In the hey day of mortgage lending back in 2003 or so loans became a commodity.  If you had a pulse you could essentially get a loan…

Those days are over but many folks still shop for loans as if getting the loans was as easy as it was back in 2003.  Obtaining financing is more complicated than it was just 12 months ago.  When looking for a loan it is more important to work with a loan officer that can help you navigate the ever changing guidelines and obstacles that seem to be popping up every day.  If you don’t choose a lender that understands the changes and how to work through the different obstacles…it will cost you in the end.

A good loan officer will give you a good deal regardless how the loan has to be structured.  We all have access to the same sources of funds and essentially the same pricing.  What a loan officer is willing to work for will vary, but is won’t vary based on your loan structure.  Decide on who to work with rather than a loan.

P.S. If another lender happens to offer a program that they don’t have access to and it’s in your best interest…They will be happy to help you get that loan.  Just read Justin’s blog.  He had to deal with a very difficult situation and his ultimate goal is to help his client get the loan they want.  In this market it’s not as easy as it once was….Even worse is sometimes it looks good on paper and you face hurdles in underwriting.  I have never spoke to Justin before…but based on that blog I have no doubt he is the type of loan officer you should be looking to hire…I know it’s the type of loan officer I would hire.

Are you shopping for a Mortgage?

Lenders don’t matter, loan officers do.

I spoke with a pleasant enough lady this week who reminded me of this fact.  She was in the process of relocating to the Phoenix area and after introducing herself, began the conversation with:

“Hello, I just want you to know that I am searching for a new loan officer.  My husband and I have used the same loan officer in Chicago for years and he was with a couple of different lenders during that time. Since we are now relocating out of state, he said that we should find a good loan officer that we like to work with - but he didn’t know anyone in Arizona to recommend, so I am left to search on my own.”

I was standing up when I took the call and I immediately sat down and began rubbing my forehead and closing my eyes while listening very carefully to what she was saying.

She went on.

“You know, I have found that mortgage rates and fees are all about the same - because trust me, I have shopped around before and it is a complete waste of time. What really matters to me is that you can deliver on whatever it is that you promise. When you tell me something, does it make sense or does it always sound like an excuse? Are people that you have helped in the past raving fans or apathetic about using you again? So tell me - why should I let you be my loan officer?”

Now was my chance!

I could tell her all about how I was the smartest, funniest, easiest-to-get-along-with, most-knowledgeable, whatever-other-good things that I could think of about me and win her over, right?

Wrong.

I first asked her if she had a pen and paper handy, and then I proceeded to give her the name and phone number of two other great loan officers in the Phoenix area who I personally think do a great job.

I then coached her on 5 questions to ask each of them.

And I concluded with the open invitation of “Ma’am, if after talking with them and learning a little more about how they work you think I can be of service, I would be happy to help you with your loan. I promise that I will work hard to earn your business and if I do a great job, I hope that over time you will start to speak about me in the same way that you speak about your current loan officer in Chicago. Is there anything else that you want to ask me? Go ahead, I will do my best to give you a great answer…”

And she said that she didn’t have any more questions.

But she did call me back on Friday and ask me what the next step was in the loan process.

And she still hasn’t asked me what company I work for.

You know, sociopaths really burn me up. If you don’t know what it means to be a sociopath, ponder the following ’signs’ and symptoms:

• Glibness and Superficial Charm
• Manipulative and Conning

They never recognize the rights of others and see their self-serving behaviors as permissible. They appear to be charming, yet are covertly hostile and domineering, seeing their victim as merely an instrument to be used. They may dominate and humiliate their victims.

• Grandiose Sense of Self - Feels entitled to certain things as “their right.”
• Pathological Lying -
  Has no problem lying coolly and easily and it is almost impossible for them to be truthful on a consistent basis. Can create, and get caught up in, a complex belief about their own powers and abilities. Extremely convincing and even able to pass lie detector tests.
• Lack of Remorse, Shame or Guilt -
  A deep seated rage, which is split off and repressed, is at their core. Does not see others around them as people, but only as targets and opportunities. Instead of friends, they have victims and accomplices who end up as victims. The end always justifies the means and they let nothing stand in their way.
• Callousness/Lack of Empathy -
  Unable to empathize with the pain of their victims, having only contempt for others’ feelings of distress and readily taking advantage

What does this have to do with mortgages? Well, I want consumers to be aware that, just like in all other professions and facets of life, sociopaths find their way into this industry. Whether they are the mortgage broker who sold 2/28 ARM’s with 3 year Pre-Payment Penalties, the lending giant’s President who thought it would be a great idea to run up the company stock, and then bail like a coward, or the head of a large investment firm who took people’s money without a thought as to what he would do with it- they are out there muddying the mortgage market.

If that awfully kind-hearted <cough cough> Bernie Madoff doesn’t make you think twice about just how COSTLY it is to let sociopaths hold positions of power in this country, I don’t know what will.

Think about this: If people weren’t so driven by greed and need for ‘dominance’, we wouldn’t be in the mess we are in today.

Andrew Adams and I discussed this a little bit on the mortgage discussion boards, and it is absolutely true. If half of the people that were steered towards HIGH RISK, HIGH YIELD loans, and instead put in safe, simple, LOW RISK loans, like FHA, we wouldn’t be in this mess. I’ll give you a quick example: I once had a manager who was evil personified. She would lie to a client’s face for a few extra bucks. She would take loans that could have gone ‘conventional’ and put them through ’sub-prime’. She would tell people inaccurate credit scores, and make them feel unworthy of getting a loan- and guess what? She manipulated them to the point that they would actually be THANKFUL to get what she was offering, which was garbage. Within a month of taking over the office, the ‘old guard’ was tossed out, including myself who had moved on to another company. The people that I had known there, and even trained, were kicked out. Why? She did not want ANYONE with experience (she wanted to train people to be just as conniving and dirty as she was), and more importantly she wanted NO ONE left with any loyalty to the owner of the company. She was extremely scared of her competition, and rightfully so. She stayed on there for quite some time, I’m sure she made the company a lot of money. I am also sure she burned every bridge she could, and wrote a lot of BAD loans. Her name was Renee, and I check the banking department website every now and then just to see if she has lost her broker license yet. With any luck, she has moved on to greener pastures modifying those loans she wrote that ruined people’s lives. When I hear people blame it on the ‘victims’, in this case homeowners, all I have to do is think of Renee, and her lies and her manipulation, and any empathy I have for people multiplies by the hundreds.

If bankers didn’t think ‘hey, I’ve got a really good idea. Why don’t we create a loan where people can pay us hand over fist, and still never pay us off? Better yet, why not make the teaser rate so low, that EVERYONE can afford a house 3 times what they should? WOW, WHAT A GREAT IDEA! We’ll all be rich!!!’. Yep, Pay Option ARM’s- great idea, if you have no conscience.

I have met many people along my mortgage journey, some have been truly wonderful, honest, hard-working individuals. Others were completely self-serving, paranoid, jealous of competition, manipulative and downright scary! MOST of those people have moved on to other industries, most notably LOAN MODIFICATION or car sales. But the fact is, we will NEVER get rid of these people. They will always be here, telling you what you want to hear, pushing you and prodding you to do something that is NOT IN YOUR BEST INTERESTS, and constantly looking out for themselves first.

When you think of companies like Enron, Ameriquest, and the scam-artist covers like ‘Privacy Guard’, you think of the lives harmed, money lost, and ethical standards annihilated. As consumers, I think we should all put our guards up once again, and not get caught up in what some fake, super-confident ’salesman’ has us believe we need. We need our country to flourish and be strong once again, and I can guarantee you we won’t get there if we just keep handing our money and trust over to people who do not deserve it.

End of the rant. I’m just frustrated with the way things are going.

To a happy, safe and prosperous February. It’s almost February??? Where does the time go….

Jennifer Monastero
First Choice Bank