MORTGAGE RATES REPORT

BawldGuy Talking Is One Year Old Today

Jeff and Josh Brown run an investments brokerage called Brown and Brown, Inc.  Their creative minds were on hold when they named their firm.   Actually, that's a joke.  Brown and Brown describes their firm perfectly; two guys named Brown who just make people money.  They do it the time-tested way; investing in real estate in growth areas.

Jeff's weblog is called BawldGuy Talking.  If you're looking to find ways to retire, ya gotta read da Bawld Guy.  Jeff has a brilliant mind that translates sophisticated investment strategies to the "regular guy" very well. He's made teachers, firefighters, cops, and bakers millionaires.  He has forced more than one forty-something into early retirement with his ability to find growth real estate markets.

Josh is the newer partner.  I met him over lunch last year and am amazed at how fast he has become a "baller".  The cool part is this; he's doing it because he loves it.  I have yet to hear this twenty-something talk about how much money he's making, only about how much money he's made for clients.  A rare quality in this Southern California market that rewards youth, good looks, and money.  Oh, I forgot...yes, eligible bachelorettes, he's single.

Well, Bawld Guy Talking celebrates its first anniversary today.  Some of the recent posts:

It’s Been A Year — Happy Birthday!
What A Day — Challenging — But My Brain Is Fried — Real Life Rears It’s Ugly Head
Your Income Property Is High Priced? Here Are Some Questions For You

National Licensing of Mortgage Originators: STOOPID

Mortgage originators do not have a national licensing program and THAT has to change!

I propose that the House Financial Services Committee get cracking on legislation that would increase the minimum standards of loan originators.  Here is what I think would be appropriate:

1- A minimum of a Bachelor's degree in a business discipline.  If originators are going to be advising people on the largest financial decision of their life, they need to have a basic understanding of finance.  Graduates of non-business disciplines can go back to college for a year to take the requisite business courses.

2- A two year practice program where an originator works under the direct supervision of a "Certified Mortgage Originator".  This program is much like the one for a CPA and is long overdue.  Only after originators perform slave labor will we grant them the license.

3- A 16 hour test that encompasses the financial disciplines of real estate law, taxation, financial planning, and ethics.  It should be so prohibitive that only half the test-takers pass.

4- Continuing education requirements of a minimum of 16 hours each year. That sounds good.

5- A national registry of loan originators like the NASD.  Why not? 

There are 250,000 loan originators in this country today.  This licensing should drop the number of qualified professionals by over 75%.  We can expect about 50-60,000 loan originators after the licensing is enacted.   This is what we can expect:

1- Consumers will feel confident that the originator has passed a rigorous licensing discipline.  They will stop shopping and star trusting the "Certified Mortgage Originator' to give them the best deal.  Consumers will no longer have to perform due diligence and credibility checks. Furthermore, millions of dollars will be saved on advertising. No more spam in your inbox.

2- Fees for arranging loans can skyrocket! Those high fees will prohibit consumers from refinancing their loans or taking equity out of their home.  The economy will slow down and real estate prices will come back to 2001 levels- much more realistic.

3- Licensing will slow down the loan process which is great.  Consumers make too many hasty decisions and use the equity in their home improperly.  Now, the licensed loan originators will be required to make sure that cash borrowed against the equity in their home is suitable.  Sure, Lexus and Mercedes sales will drop but the consumer will be protected from himself.  Many consumers also buy homes that are far too expensive for them.  Making the Certified Mortgage Originator ask the client the hard questions is good. 

Do I sound a bit cynical here?  I should because occupational licensing is all about making the licensees fat, rich, and lazy.  Greg Swan calls it Rotarian Socialism.  And, I'm all for it...I'm sick of working hard for my money.

MORTGAGE FRAUD: If You Ain't Cheating...You Ain't Trying

How is baseball like mortgage fraud?  Read the title.

I am thoroughly amazed at how normal, sober, upstanding members of the community purposefully commit mortgage fraud.   Like baseball, they don't cheat alone; they have plenty of help.  Lazy Realtors and shady mortgage brokers will gladly "go the distance". 

The buyers were encouraged to lie on their loan application.

Monday, I received a frantic call from a home buyer, referred to me from a satisfied client.  They were 2-3 days past the close of escrow date and still hadn't been approved for mortgage financing.  His Realtor had referred him to a mortgage broker who was having a dickens of a time getting him approved on a stated-income loan.  Puzzled, I requested the tax returns, ran the loan application through the FNMA Desktop Originator, and received an approval for a 100% loan solution.

It's actually quite easy to use the FNMA Desktop Originator program if you know how to structure loans.  The trick?  I lowered the amount of the first mortgage to the FNMA conforming loan limit of $417,000, and increased the amount of the second mortgage.  It lowered their overall WACC because their income was verified and a FNMA conforming loan is about .25% better in rate than a Jumbo loan.  It wasn't a desired 80/20 loan structure, it was a 73%/27% loan structure. 

I spoke with his Realtor that afternoon who informed me that my solution may take entirely too long to fund (about a week).   His advice to the buyer was to continue pursuing a more expensive stated-income loan.  His reasoning?  The underwriter might "kick" the income with my solution and stated income loans mitigated that risk.  He didn't want to "gamble his paycheck on some underwriter from a big bank".

Wednesday's fraud was far more overt. This frantic home buyer had just 8 days to close her transaction from an auctioneer.  She found an under priced home to flip and, as a teacher, would be using one of the "teacher" programs to secure 100% financing.  The catch?  Teacher programs were for owner-occupied homes; she has no intention of ever living in that home.

My solution was to employ some good, old-fashioned equity management. I'd secure a HELOC from her TRUE owner-occupied home for a 20% down payment and secure an 80% investor loan for the investment property.  I reported that it could be done within the time constraints, lined up an appraiser for the next day (for both properties) , and called a few refinance transactions I had in my pipeline to report that I'd be closing their loans at the end rather than the middle of the month.

Her Realtor felt that the HELOC had a three-day right of rescission and could potentially blow the transaction.  I pointed out that the "Teacher" loan was outright fraud. His response was that they'll never get caught because they'll be flipping the property.

So, how is baseball like applying for a home loan? Well, if you ain't cheating, you ain't trying.  Steroid-juiced home run kings shatter records and the Commissioner looks the other way. Underwriters, originators, and Realtors look the other way because the fraud is so rampant, one case could incite a powder keg that would blow the lid off the system.

Nobody is going to get caught because, like baseball, nobody cares to know the truth.    Well, I ain't playing!  I've stopped watching baseball and I'll not cheat a lender.   Some things are not negotiable. 

Suze Orman is Sooo...1987

Suze Orman once asked Ric Edelman to come down to her studio so that she could "smack his little face". 

For those of you unaware of the philosophical differences, Suze Orman is a television personality who preaches the traditional "Depression Economics Theory" that served the World War Two Generation well.  Of course, her thinking could prove to be catastrophic to you if you're between 30 and 60 years of age.  Suze Orman is Daddy and Grandma's stockbroker.  Her thinking is outdated and very dangerous to the new paradigm in financial planning today. 

Ric Edelman wrote a book in 1997 that revolutionized financial planning called "The Rules of Money". His philosophy was considered dangerous and radical thinking back in the late 90's.  Not surprising when you realize that most members of the mainstream media are victims of Depression Economics or Boomer Economics; they just weren't ready for the changes that hit this economy right after 9-11.

Suze talks about the economics of scarcity while Ric talks about the economics of abundance.  The former hates debt while the latter embraces it.  Suze hasn't seen a client in ten years and Ric runs one of the largest financial planning firms in the country.  Who's advice is more credible?

The tide is shifting today as the grandchildren have built larger net worths in five years than their grandparents did in fifty.  Now, the mainstream financial media admits that they may be wrong.

From Bloomberg:
Now May Not Be the Time to Pay Down the Mortgage: John F. Wasik

Suze Orman once asked Ric Edelman to come down to her studio so that she could "smack his little face". 

For those of you unaware of the philosophical differences, Suze Orman is a television personality who preaches the traditional "Depression Economics Theory" that served the World War Two Generation well.  Of course, her thinking could prove to be catastrophic to you if you're between 30 and 60 years of age.  Suze Orman is Daddy and Grandma's stockbroker.  Her thinking is outdated and very dangerous to the new paradigm in financial planning today. 

Ric Edelman wrote a book in 1997 that revolutionized financial planning called "The Rules of Money". His philosophy was considered dangerous and radical thinking back in the late 90's.  Not surprising when you realize that most members of the mainstream media are victims of Depression Economics or Boomer Economics; they just weren't ready for the changes that hit this economy right after 9-11.

Suze talks about the economics of scarcity while Ric talks about the economics of abundance.  The former hates debt while the latter embraces it.  Suze hasn't seen a client in ten years and Ric runs one of the largest financial planning firms in the country.  Who's advice is more credible?

The tide is shifting today as the grandchildren have built larger net worths in five years than their grandparents did in fifty.  Now, the mainstream financial media admits that they may be wrong.

From Bloomberg:
Now May Not Be the Time to Pay Down the Mortgage: John F. Wasik

Foreclosure ? Leveraged Homes Are Last.

Banks foreclose on homes with lots of equity and try to "workout" the loans with the homes with no equity. 

Doesn't that seem counterintuitive? Actually, it doesn't if you look at it from a banker's perspective. Which piece of collateral (READ: home) is more likely to cover the debt>  The answer is simple; the piece of property you can sell at a low price and move quickly.

Why do we recommend to clients that they always have their properties leveraged to the maximum amount allowable?  Simple, we try to protect our clients from the four most common reasons that trigger foreclosure:

1- Divorce
2- Disability
3- Death
4- Loss of Job

Keeping a home leveraged through available credit in a home equity loan insures liquidity.  If prices drop, we've already "locked in" a profit.  If prices rise, we can "reset" the line after our annual review.

Liquidity means that mortgage payments can be made if one of the "Big Four" hits you.  if you use up all of your equity, the bank will be more apt to negotiate "workout terms" with you rather than rushing you to foreclosure

European Investors: Real Estate In America Looks CHEAP

European investors have a double bonus with an investment in California real estate as the dollar sinks to an all-time low against the Euro.  I'm going to explain how a weakened US Dollar can benefit a foreign investor should they buy real estate in California.

Five years ago, $100,000 was equal to 100,000 Euro (the currency in Europe).  Today, that $100,000 is only worth 72,000 Euros.  A foreign investor can withdraw 72,000 Euros and convert it to $100,000 to use for a down payment on a Downtown Long Beach condomium.  That  property may have cost as much as $360,000 two years ago but is selling today for $300,000.

READ THE REST AT LONG BEACH REAL ESTATE HOME

European investors have a double bonus with an investment in California real estate as the dollar sinks to an all-time low against the Euro.  I'm going to explain how a weakened US Dollar can benefit a foreign investor should they buy real estate in California.

Five years ago, $100,000 was equal to 100,000 Euro (the currency in Europe).  Today, that $100,000 is only worth 72,000 Euros.  A foreign investor can withdraw 72,000 Euros and convert it to $100,000 to use for a down payment on a Downtown Long Beach condomium.  That  property may have cost as much as $360,000 two years ago but is selling today for $300,000.

READ THE REST AT LONG BEACH REAL ESTATE HOME

Sell Like A Catholic School Girl

Have you ever heard of a "natural-born salesperson" ?  The enterprising kid who organizes the neighborhood car wash grows up to sell derivatives to hedge funds.  She's described as a "natural-born salesperson".

That's not fair.  She worked hard at it, probably since age six.

I listened to a training presentation by Greg Frost today, President of Frost Mortgage in Albuquerque.  Greg recounted a funny story in his presentation and expanded upon it at the cocktail hour, sponsored by American Brokers Conduit. Let me start off by saying that I relate to Greg Frost.  He's an old-school originator and the first billion dollar producer.  We chuckled over a beer about our "first sales managers". 

Graduates of Catholic grade schools have an unfair advantage; we were trained in sales early in life.

 

Now, some of you will relate to this.  Your parents spent money to send you to Our Lady of the Lakes School and bought you the uniforms and textbooks. They were excited about the excellent education you were about to receive.What did we do on our first day of Catholic grade school?  Readin' ?  Writin' ?  'Rithmetic ?  Religion?  Not even close.

The boxes showed up.   Boxes filled with candy bars...the product.

Sister Mary got up and talked about how tasty the candy was...product knowledge. Sister Brigid told us to knock on all of our neighbor's doors and ask for their support...the sales plan. Sister Margaret invited two children to "rehearse" what we would say...role playing. Finally, Monsignor Sharkey came in and had us say a prayer for the children trapped in the Godless world of Communism...the compelling reason.

The nuns were training us in a skill we could use for the rest of our life; salesmanship.

Sister Brigid was my first sales manager.  She was very effective in her tactics.  I was a pretty competitive child and wanted so much to win the trip to Dorney Park but had some stiff competition.  Her name was Analisa Salvatore. She was a tiger and Sister Brigid knew how to work our impressionable minds.   Great sales managers know how to stroke the tigers' egos to motivate the rest of the crew.

"Mr. Brady, please stand up and tell the class how many candy bars you sold last night."  (I was six so I was afforded the courtesy of the title)

"Five, Sister Brigid"

Sister Brigid continued to poll the room, saving Analisa Salvatore for last. Now mind you, I grew to despise Analisa.  Not only was she beautiful, pigtails flowing in the breeze, she was smart.  Apparently, she was pretty darned successful, also.

"I sold eleven candy bars, Sister Brigid !" 

Analisa went on, in detail, about her tireless prospecting, practiced sales pitch in front of the mirror, and superior closing skills, complete with a flip book about the starving children in Africa.

My point is this.  There is no such thing as a natural-born salesperson.  Sales takes training and practice. Products change.  Pricing changes.  Marketing strategies fail.  Consumer tastes evolve.  It is imperative that you train yourself in the art of salesmanship, over and over again. 
 

Training isn't enough.  You have to implement the skills you learn and perfect them with rote repetition.  I sold five candy bars my first day of Catholic grade school but visited some fifteen or twenty houses. You'll never sell everybody, no matter how good you are.  But each no, when analyzed, brings you closer and closer to the next yes.

Not everybody can be Analisa Salvatore...but we can certainly model her success.

This article was selected the winner in the 51st edition of the Carnival of Real Estate

Mortgage Rates Report: July 21, 2007

Last week was a tough week for mortgage rates.  Good Faith Estimates, issued by lenders on Monday, are most likely meaningless if you didn't lock-in that rate and program and receive a written confirmation from your lender.  The mortgage bond market progressively weakened last week until Friday.

Low earning by Google and Caterpillar brought stocks down and money flowed into bonds, strengthening mortgage bonds and lowering mortgage rates a tad from their high on Thursday.  Mortgage rates increased about .25% from Monday then retreated for a weekly rise of .125%.  This means that if your Good Faith Estimate showed 6.25% on Monday, it would probably be at 6.375% today.

We think that it makes sense to cautiously float in light of two things:

1- Friday's lower earnings may be a bellwether of earnings news this quarter.
2- There is no meaningful data due until Wednesday.

Mortgage rates I'm offering for conforming loan amounts as of 7/21/2007:

                                            Conforming             APR             Payment per $1,000             

5−Yr. Interest Only              6.125%                 6.195%                       $5.10                           
10 Yr Interest Only               6.5%                      6.618%                       $5.42                           
30 Year Fixed                         6.375%                  6.446%                      $6.24                            
Annual ARM                           5.375%                  5.442%                      $5.60                            
HELOC                                      8.25%                    8.330%                      $6.88                           

*Rates are subject to change due to market fluctuations and borrower's eligibility.

Call (858)-503-2318 for details.

Image courtesy of Laurie Manny

Brian Brady and Warren Buffett ?

Superstar Surfin' Realtor, Rory Siems in Laguna Niguel, wrote a funny post about being five degrees away from Warren Buffett.  Rory, as an agent for PruCal, is a sort of employee (he's an independent contractor in a legally supervised environment) of a subsidiary of a subsidiary of Berkshire Hathaway.

I thought about how I was linked to The Oracle of Omaha:

1- I have worn Tony Lama boots and Fruit of the Loom undergarments
2- I have financed a Clayton home for clients.
3- One of my college buddies learned to fly at Flight Safety.
4- I eat at DQ...burgers, fries, and ice cream....See's Candies, too.
5-  Yup...I even wore Garanimals as a kid.

As you can see, I have no direct link to Warren other than as a consumer.  But...WAIT!

Lauren Vo Zelakawiewicz thinks that Warren Buffett and I think alike.  Thanks Ms. Z!

Well, we differ on our opinion of beachfront real estate in California but I'll take what I can get.

Learn How To Buy A Home

Brian Brady will host a free webinar:

LEARN HOW TO BUY A HOME

When:                        Thursday, July 19, 2007
Time:                        1:00 PM  Pacific Time
Where:                     www.MeetBrianBrady.com

You'll need 30 minutes, access to the internet, and the ability to call into our conference call line.

Please login around 12:50 PM so that we can start on time.  Call 712-775-7000 code is 789-949

We'll discuss how to qualify for a home loan, how to select a real estate agent, and online technology to help you find the right property.

Please RSVP by commenting here.