The Sun Cannot Shine Darkness

The Future is Here... and it's a Rodeo Clown

2007-06-13T09:41:00.000-07:00

Last week I attended a conference in Las Vegas for Mortgage Planners. It was the second meeting of it's kind and, I believe, the largest gathering of mortgage professionals ever. The main topic of the three day conference is something you are going to be hearing a lot about over the coming months: mortgage planning as a method to increase assets and wealth. I appreciated this conference and I enjoyed the cowboy flavor that still exists in this desert town. I also came away with two things: a lot of good information and a healthy little fear of rodeo clowns and dime store cowboys.

Please do not misunderstand, I am all in favor of this movement. So much so in fact, that I and a few others here have been practicing it for years. Of course, until recently we did not know we had a name (Mortgage Planning Specialists) and there was certainly no marketing material or training. Myself and others were simply practicing what we had learned in the securities business, which is where most of us started. But as a wise man once sang , "times, they are a changin'." This conference with over 3900 attendees included books, training programs and seminars by specialists who have been practicing fiduciary responsibility and mortgage planning for ten and even fifteen years. There was an overt emphasis on taking care of the client but there was also a more subtle message that anyone can do this with a few hours of training and some fancy software. This is the part that scares me.

The idea that a mortgage is the most important tool in a person's investment portfolio is not new. Nor is the idea that people should be taking better care of their retirement (the average Baby Boomer has less than $56,000 put away for their golden years). The mistake of paying down your mortgage and the great lies called 401Ks are all well documented. Again, many of us have been working with our clients on their entire financial picture for years. What is new is the idea that this is another way to "generate business"... a form of marketing . This should be scary to everyone that hears it. Does it even have to be said that 18 hours of classroom training and a Certified Mortgage Planning Specialist certificate does not make you a financial planner? No more so than the idea that because you spent $1300 to get the certification you are qualified to advise others on their spending.

As this idea takes off - and it is going to be the buzz in our industry for a while - let's make sure that our clients' best interests come first. Ask yourself, if you get on a plane, do you want the pilot to be the guy that just passed his test and received his civil air license? Or do you want the pilot to be a former Top Gun Aviator with 15 years of experience? I am all for the client receiving the best advice possible. Based on my experience as a stock broker, options trader and loan originator, sound, experienced advice is not even enough; I believe that loans should exhibit transparency the same as investments do. Most importantly, however, debt based financial planners should not be inexperienced loan originators dressed up in the clown's makeup of a marketing plan; fueled by seminars, slick advertising and designations short on experience and long on gravitas. That type of dime store cowboy is referred to as "all hat and no cattle". I will finish with one last bit of cowboy wisdom: when you are approached by someone with a mortgage planning title and a well funded seminar, make sure "this ain't their first rodeo".

Transparent Lender Greed

2007-05-16T14:25:00.000-07:00

“FAIRLY WARNED BE THEE, SAYS I” fish restaurant pirate from The Simpsons

I had the privilege of meeting with the nicest couple last night. I consider it a privilege anytime someone invites me into their home and I am twice blessed if they do so for my advice or liability coaching. That being said, it was not a meeting I was overly excited to attend. You see, I had been invited at the request of their Realtor to look over loan docs and share my opinion. Based on my conversation with the Realtor beforehand, I knew this couple would have little to no options and my visit would most probably be a fruitless one. A large part of my business, however, stems from the honest consultations I provide for the Realtors who count on me. Besides which, there are a lot of good people in the lending business and anytime I have the opportunity to repair our general reputation, I consider it a responsibility; which brings us back to last night.

Some quick background: both of these fine, young people serve our nation in the military. They both work in a sensitive area requiring that they be above reproach and this means, among many other things, that their credit must remain strong. They are being transferred soon, need to sell their home and so contacted a Realtor who had impressed them with a listing down the street. During her discussion with them she learned they had recently refinanced their home and were still upset about it. She asked a few more questions, and then I received an anxious call asking if I could please meet with them. Now we are up to date save for one thing: this nice, young, military couple is facing the very real threat of losing their money, their home and their jobs.

In February these homeowners were solicited by a lender to refinance their existing loan. At the time they had a 30 year, fixed rate loan at 6.125%. This may not have been the perfect loan product for them, but it was certainly a safe, reasonable and well priced vehicle for their investment. They told this new lender they did not need any cash out of their home, but if the lender could lower their rate and payment they would be interested (who would not?). A few fast phone calls, some misleading Good Faith Estimates and one very large stack of legal documents later, this fine young couple with great credit scores and a $3000/month payment are the proud owners of a Negative Amortization or Neg-am loan (or Option Arm for those that find the honest nomenclature a little too hard to swallow). Their new interest rate is 8.858% but not to worry as it is subject to change MONTHLY! They have owned this loan for a little over a month and their mortgage has already grown over $2000. Their comparative payment, which is to say the principle and interest payment comparative to what they were paying, is now $4297. Their interest only payment, which is simply the bare minimum required to cover the cost of their money, is now $3993!!! But wait a minute, loans are not free. What did they pay for the pleasure of increasing their payment by over $1000 per month? The closing costs were almost $20,000. This new loan, the sole purpose of which was to lower their rate and payment, added $20,000 to their debt and raised their monthly payment 43%. A loan is a loan though and for good or bad the loan originator deserves to be paid right? The originator pocketed almost $29,000 for his “services”.

This couple had no idea the type of loan they were really getting. They cannot afford the payment. They can make the “option arm” minimum payment, but then their loan grows at least $2500 per month. Since it now looks like they owe more than the home is worth they are faced with a best case scenario of losing their credit and a worse case scenario of losing their home. Either way they lose their jobs because of it.

Usually I write this newsletter with the hope of inspiring others. I know that most of you reading this are probably waiting for the inspirational lesson in all of this. I do not have one. This is simply a warning and a reminder. Whether you are a homeowner, a Realtor or just someone who actually cares about their fellow man, please get a second opinion when acting on the largest investment of your life. Preferably use someone recommended to you and always, always, always get a referred second opinion if you are considering a loan with someone who solicited you. If you need help finding a second lender, contact your Realtor. They should always have at least two lenders that they work with and trust. As in most professions, those of us that are good at what we do; those of us that care about our clients; those of us that actually understand we are coaching people on their very financial future - never have an issue with our client getting a second opinion.

As for last night’s nice young couple with the half million dollar headache, I do not know if there will be any happy ending. I have offered to refinance them out of their loan at no charge, but there will still be some third party fees and besides, they may not have enough equity now to cover the $19,000 pre-pay penalty that came with their loan… did I neglect to mention that before? So did the lender. One final bit of irony: the name of the broker that “helped” them is Veritus. “Veritas” is Latin for “truth”.

A Transparent DRE Fumbles the Big Picture

2007-05-01T12:13:00.000-07:00

On Friday, April 13th, 2007, CAR sent out a press release entitled: DRE Clarifies Mortgage Broker’s Duty to Explain Loan Terms. The purpose was to let real estate agents know that, thanks in no small part to CAR, the DRE had clarified a previous bulletin that “intimated that buyers’ agents have a fiduciary duty to completely explain payment option ARMs and similar loan products to their clients”. The new bulletin made clear that “it is the fiduciary responsibility of each licensee who represents the borrower in obtaining a loan to completely explain the terms and discuss the relative merits…” thus laying the onus where it belongs: on the originator of the loan (click here for the press release as well as links to the bulletins). What frightened me in this press release was the last paragraph:

…in the previous version of this article, the DRE stated that a buyer's agent "should be aware of the type of loan being used to finance the purchase," and for payment option ARMs or similar loans, "the licensee should confirm that all of the terms and possible effects (both positive and negative) have been explained by the mortgage broker or lender." These statements have now been deleted from the article by the DRE. (emphasis mine)

Through the DRE, CAR has protected its members from liability regarding a service they are not providing and this, of course, is a benefit. But to summarily dismiss the idea that the agent should even be aware is downright irresponsible. Worse yet, in cases where the client is being put into a loan product that may cost them their home and their financial future, the agent need not even confirm that their client understands what is happening.

This sounds like a prime example of a labor organization doing a great job protecting themselves and their members, but missing the entire point of their existence. If the agent is not looking out for their client, who is? You may think that the loan originator is looking after the clients’ best interest when it comes to the financing aspect of a transaction, but are they? Let’s take a closer look. A loan originator has NO fiduciary relationship to the client. You may find that hard to believe – I know I did – but it is true never the less. A real estate agent has a fiduciary relationship, meaning at its most basic level that the real estate agent will put the clients’ needs before their own. There are monetary and legal ramifications to a fiduciary relationship. Loan originators, on the other hand, are not bound by fiduciary obligations and rarely exhibit them. Most often, in fact, loan originators are giving clients a “less than the best” deal in order to increase their own profits – quite the opposite of a fiduciary relationship. Is this the normal, even encouraged practice within the industry? Yes, it is. Is this understood outside the industry? No, outside the industry this is generally smoke and mirrors. One example should suffice: can anyone guess why so many people are currently in Neg-am or Option ARM loans when it is so clearly the wrong investment vehicle for them? Here’s a hint: those particular programs were paying loan originators up to 3 and sometimes 4 times more than other loan programs.

So… the DRE has clarified a position and transferred the liability from the real estate agent to the loan originator, which is where it belonged in the first place. The successful real estate agents I have talked to, however, know that they put their commission, and more importantly their future business (read: referrals), in the hands of the loan originator on every transaction. If a client ends up with the wrong loan program down the road (or worse), do they go back to the loan originator that was referred to them, or do they go back to the agent that gave them the referral. Worse yet, do they just not come back at all? Shouldn’t the agent demand - doesn’t the client deserve - a loan originator that exhibits a fiduciary responsibility whether required to or not? The DRE can change the wording all they want, but in the end it is the agent with a financial (and one hopes moral) obligation to make sure their clients’ loan is appropriate. If any part of this is confusing or disconcerting, you are not alone. Speak to a lender that practices transparent lending for a full explanation. In the case of mortgages “ignorance may be bliss”, but it costs tens of thousands of dollars. Choose your originators wisely.

Blind Men and the Transparency Mortgage Elephant

2007-04-11T09:28:00.000-07:00

I just caught up with a great post over on The XBroker by Jeff Corbett called Transparency in the Mortgage Service Industries. As usual Jeff does an admirable job describing how technology is going to affect the industry, what disintermediation means and why borrowers should care. Jeff has been beating the drum of full transparency loudly and for some time now. In the interest of full disclosure: I too beat on that drum; just not with the rhythm and panache that Jeff has. He even gets a chance to flex his vocabulary with the word “rapine”. What caught my eye, however, were the comments following his post.

There seems to be a lot of confusion on the future for mortgage brokers/bankers/advisors or whatever title we give ourselves. (Before anyone comments on the multitude of differences between these various professions: I know. They are differences without distinctions as far as the general public is concerned.) Some have argued that the internet revolution will lead to ‘point and click’ lending, thus leading to the demise of our profession. Others argue that clients want the relationship aspect too much and will never leave the loan originator for the cold hard keyboard. These two opinions remind me of the story about the blind men and the elephant. In this case we have two blind men and they are at opposite ends of the Transparency elephant. Those that argue for internet automation have taken a hold of the trunk and are working with the leading edge. On the other hand, those who argue the relationship driven business model are feeling around at the ‘tail’ end of the elephant and may need to wash their hands. Both blind men, however, are missing the monstrous middle ground that constitutes the bulk of the elephant.

Let’s take a look at the tail end first and get done with the messiest part. If you say that your clients come to you because of the relationships you build and that you will continue to build on those relationships, I applaud you. If, however, you are going to continue rewarding your relationships with inflated rates and hidden rebates, you had better put down your game of Pong and take one giant leap into the 21st Century. The information is on the web for anyone to see. The public is out there researching day and night. The public’s rate of learning far exceeds the industry’s rate of change. It is not too difficult to look a short distance into the future and realize that most of our clients will understand how rates, yield spread premiums and commissions work.

That’s not to say – trunk holders of the world – that the information age will drive our clients to simple online mortgage origination. It has not worked in the securities field (our most similar sister industry) and it continues to not work in the mortgage field. Why? Because point and click loans only serve two customers well: the cream-puff, 800 score, full doc, 30 year fixed client and the clients that continuously “hit themselves in the head with a hammer” because they know everything. The former group should go online and get the best deal possible (although whether or not you can actually get a good deal online is debatable). These clients are so highly sought after and so easily placed that no real commission remains in their transaction, nor should it. The latter client deserves all the help we can offer but, God bless ‘em, they will not listen and it saves me from having to deal with a client from hell. Everyone between these two extremes, however, will continue to need the advice and consultation of someone who understands the myriad options and purposes of the loans that exist.

Taking care of a client has never been about finding the best rate and fees for whatever loan the client thinks they need. That would be equivalent to Doctors quickly and inexpensively prescribing whatever medicine the client diagnosed themselves as needing. Our job is to look at a client’s complete situation: debts, equity, plans, retirement goals, risk aversion and so on. We should advise them on what tools best fit their particular scenario and in the end we should always make sure that the final loan scenario passes the simple sleep test: will the client be able to sleep at night with this loan? The internet has the information, but learning how to use it is another story. When I began in this business an old and successful veteran told me that a new loan officer needs to see 100 deals before he or she has an understanding of mortgages. He was right. Our clients will see a couple to maybe a dozen loans in their lifetime. No amount of surfing the web will give them the expertise they need.

The internet has made our jobs easier because our clients are more educated to the options that exist. The internet has also decreased the gross (and at times disgusting would be more apt) profits in our jobs for the same reason. The information out there educates our clients and makes it easier to work with them on an appropriate liability plan. At the same time, this education makes it a lot more difficult to “take” them for 2, 3, 4 and 5 points on a loan. I have no doubt that every lender reading this believes they are worth whatever it is they charge. The key is to make sure your client agrees…

Faulty Headlines and Defaulting Home Loans

2007-04-11T09:26:00.000-07:00

Our local newspaper has recently been ringing the bell of fear and apprehension in regard to the housing market here in San Diego County. Has the housing market come to a screeching halt? Have people stopped buying homes? Certainly the local economy is doomed by the “shattering event” of loan defaults and foreclosures. Let’s take a closer look.

On Tuesday we were treated to an article announcing a steep slide in home sales (New Home Sales Slide 3.9% in February - 03/27/07). On Thursday the front page headlines shouted out: Home Loan Defaults Skyrocket in County – 03/29/07 (emphasis mine). As you read further into Thursday’s article you find that “…homeowners throughout San Diego County are defaulting on their loans and losing their properties to foreclosure at an increasingly rapid pace…” The key word here is pace. They are not losing their homes at a record level or even new levels. In fact, we are currently experiencing defaults at about two-thirds the level of our record setting year of 1996. What has increased is the pace of defaults as measured against this same time last year. What is needed is a little perspective: at this time last year we were still experiencing well above average appreciation and home owners were able to sell their way out of any problems. It is not so much that defaults are abnormally high today, but rather that defaults last year (and the preceding 4-5 years as well) were abnormally low. As you read further into the article you discover that the default rate in San Diego County is approximately one-third of one percent (.0033); highly stressful for the homeowners going through it, but not particularly significant to San Diego County as a whole. You must read through 8 paragraphs and reach page 10 (below the fold) before you discover that “… (The) default and foreclosure numbers… pale by comparison to the number of loans issued and homes sold.”

The areas most impacted by homeowner defaults are “…houses carrying subprime loans…newly built South County communities… and among condo conversions.” It is no surprise that sub-prime borrowers are seeing a higher incidence of default rate, especially given the “creative” financing that lenders were pushing toward the end of the boom cycle we just witnessed. If you take a borrower already in debt, give them a loan for 100% of the purchase price, throw in the closing costs and base it all on “stated” income and “stated” assets, you are going to see some foreclosures. Also, specific areas are being hit harder; South Bay is an example here in San Diego. I suggest that this has more to do with the high percentage of new construction in these areas. People were purchasing new construction homes from builders of entire neighborhoods – with literally hundreds of homes to sell. Combine the potential for home price inbreeding with builder’s in-house financing and you have a recipe for inflated values and upside down borrowers.

New construction homes also help us to understand the drop in new home sales reported earlier. As we predicted in late 2006, the condo conversion glut that was dampening new home median prices would not sell out until the end of the first quarter/beginning of the second quarter of 2007. Now we are witnessing the very depletion of this condo conversion and new home gluttony and what do we see? Why, a drop in new home sales of course. You have to read much further into the article before it is reported that “…sales of existing homes rose in February (2007)”.

Am I suggesting that we do not have any problems in the local housing market? Of course not; we are likely to see defaults continue to rise. Not to mention the “neg-am” or “option arm” iceberg that is only now coming into view on the horizon. Will the housing market safely navigate that debacle or sail USS Titanic-like straight into it? Too early to say; I am only suggesting that the current situation is not nearly so dire as the headlines would have us believe. We should read these reports with an analytical eye and remember that newspapers, like any living organism, have a survival instinct. Good news does not contribute to sales and survival in the fourth estate.

To Your Success

Sean

San Diego Economic Forecast

2007-01-31T09:36:00.000-08:00

I was fortunate enough to attend the 2007 San Diego Economic Forecast, hosted by Stewart Title and featuring Ted Jones, PhD. Dr. Jones was the Chief Economist for Texas A&M University’s Real Estate Center, the nation’s largest publicly funded real estate research group. He currently serves at the Senior Vice President and Chief Economist for Stewart Title Guaranty.

PART 1 – THE FORECAST
Dr. Jones began his forecast by pointing out that the current difference between short term rates and the 30 year mortgage is only 76 basis points! This is the smallest margin in years. He then suggested that a client staying in a loan for three years or more would derive the most financial benefit from a fixed rate loan. The rule of thumb has generally been 8-10 years before a fixed rate loan made sense, so this is quite a change and further underscores our need as originators to truly consult for our clients.

Over all Dr. Jones sees fixed rates climbing 60-80 basis points by the fall, putting 30 year rates at 6.625% - 6.750% in September and 7.000% by year end. Commercial rates should run approximately 1% higher. These numbers are historically very low and depending on the type of press the housing market receives, I expect to see strong buying throughout the year. As a matter of fact, Dr. Jones commented that three years from now anyone looking back at the market will wish they had bought two years previous (i.e. RIGHT NOW).

Economically, San Diego has done well and will continue to do well. We added 9800 net jobs last year and our net job growth is 12% higher than our ten year average. Average pay in San Diego went up 3.94%! The only number going down was new construction permits, which dropped from 14,306 to 9,000. For many this is seen as a positive, however, because San Diego was slightly over building in comparison to what is generally considered healthy for the local economy.

Existing home sales dropped 24% year over year in San Diego. This may seem drastic at first glance, but in actuality the speculators made up almost 30% of recent purchases. What does this mean? It means the speculators have left us and we are back to a normal and sustainable level of purchase activity. One last thought: to put this in perspective, Florida (where the speculation game went wild) is having a real problem. Their sales have dropped 40% or worse and in some areas there is a 47 month supply of inventory. In those areas the standard listing now is for TWO YEARS!

PART 2 - TICKING TIME BOMBS
The biggest concern of the night was the exotic loan products that have flourished over the last few years. According to USA Today, in 2005 the median down payment on a purchase was 2%. In fact, 43% of all homebuyers put 0% down and nearly 1/3 of all loans were interest only or option arms. Dr. Jones broke that down further for San Diego and reported that 37% of all loans were regular ARMS (defined as 3/1 and longer with or without an interest only option), 10% were fixed rate loans… and the remaining 53% were exotic loans or “time bombs” waiting to go off. These time bombs include all negative amortization loans (a loan type so abused that I refuse to do them for clients and in fact have never originated on ethical grounds) and loans with short lock periods: 6 month Libors, 1 year Treasuries and so on (this is not to be confused with the 2/28s offered by most sub-prime lenders).

These loans are out there and we are only beginning to see the problems they will cause as their payments reset and, for many, their principle amounts increase beyond the value of their homes. A very disturbing development comes to us from the Midwest where a court case was decided just ten days ago. A couple bought their home using an option arm (neg-am) and did not make their payments. The loan requires that the actual interest rate (as opposed to the made up interest rate initially quoted) and the actual payment (as opposed to the made up payment initially quoted) kick in after six missed payments. Once that happened the required payment skyrocketed and the loan amount grew rapidly. It was at this point that the couple sued the lender because they had been promised that the payment on this loan was fixed for five years. Now one might think that after not making payments for six months this is an open and shut case. It was… the court ordered the lender to pay back all of the costs, the commissions, the fees AND to pay off the loan! This case is being appealed, but you get the idea of what is coming.

From my own observation, a great many of the brokers out there that focused on this particular loan product – and happily maxed out the margin in order to scalp 2-4 points in YSP off of their “clients” – are out of business now or will be soon. As we all know, you can not make a career out of taking clients for everything you can before moving on to the next one. Advising your clients on their best interest and garnering referrals is the key to long term success. I am happy to see those brokers move on to the next “get rich quick” scheme, but I am not looking forward to cleaning up their mess.

PART 3 – THE FUTURE OF OUR BUSINESS
Interestingly enough, Dr. Jones named his presentation this year:

You’re Nobody Till You’re Somebody@Somewhere.com.

The revolution in our industry due to the internet is moving ahead and anyone caught napping is likely to lose market share. This is evidenced by the fact that 79% of all homebuyers start their search on the internet (82% start their loan search there). Here are some more interesting facts:

Where Homebuyers 1st Saw the Home They Eventually Purchased:

35% by Realtor (down from 50% in 1997)
29% on the internet
5% in a newspaper

Where Realtors Spend Their Advertising Dollars:

39% newspapers
17% direct mail
11% online
8% signs
4% yellow pages
1% telemarketing
20% other

There are two ways to make more money in our business. Either you can increase your sales (or profits per sale) which is costly and difficult OR you can decrease your cost per sale. The future of advertising is online and the great news is that you can spend less money to attract more clients; more clients that are a match for you and your style.

Full Disclosure Lending: Do You Get Dollars or Donuts?

2007-01-30T14:19:00.000-08:00

Success in Real Estate is proportional to your reputation as the expert in your community. An integral part of your expertise flows from the team of affiliates you "partner" with on your transactions. A key partner is your mortgage originator. What should you look for and, more importantly, expect from him or her? The answer may depend on which side of the transaction you represent. Let's take a look at the general services you should expect and then the specific services that your originator should provide to listing and selling agents:

GENERAL SERVICES
These are the basic skills and services that your originator should provide in an ongoing manner:

News and information on new programs and how these new programs can assist you in building your business
Economic updates that summarize the movement of interest rates and the economy. If your originator is handing you rate sheets but cannot tell you what the economy is doing on a macro scale and explain in one or two sentences what is driving those interest rates, find someone new immediately. You can look rates up anywhere; your originator should provide context and meaning to economic numbers so that you can present an informed opinion to your buyer or seller.
Marketing assistance. RESPA laws limit the financial contribution and good health limits the "donut" contribution, but all of your affiliates should share marketing ideas with you and your loan originator is no different.

LISTING AGENT

What's that, you don't think the L/A has much interaction with the mortgage originator? Think again; a listing agent has a vested interest in the originator. Here is the minimum you should expect from the Loan Officer qualifying the buyer on your client's home:

Approval Letter - the approval letter should be just that: an approval. There are 3 basic types of loans: A-paper, alt-A and sub-prime. A-paper should be run through DO or DU. Alt-A and sub-prime lenders almost universally have online Underwriting programs and sub-prime lenders will often review the actual documentation and issue an approval prior to the property being found. You should receive a copy of the appropriate approval with the purchase offer or soon thereafter. (Just remember, when it comes to online approval engines: "garbage in, garbage out".)
Good Faith Estimate - many lenders will not release the particulars of the loan to the seller, but they should be willing to release the GFE. Run it through the "smell test": if it looks too good (or too bad), odds are the buyer will come to the same conclusion and your closing will, at the very least, be delayed.
Loan Parameters - get the particulars on the buyer (credit score, stated vs. full doc, assets) and run them by your own loan originator. Make sure the proposed transaction sounds reasonable.

SELLING AGENT - you have the greatest stake in the expertise and service of your originator. When you send your client to someone, you want it to lead to referrals, not finger pointing.

Approval Letter - no different here than for the L/A. Your originator should provide you with one before you ever begin to show properties to your clients. A pre-qual letter and to a lesser extent a pre-approval letter are worth little more than the paper they are written on.
Good Faith Estimate - here your expectations should differ a little from the L/A; you should expect more. Your originator should provide a GFE that not only passes the smell test, but that they GUARANTEE. The lender should know their own fees to within a couple of hundred dollars and they should guarantee that they will pay the difference if they are wrong. For that matter they should be able to guarantee third party fees to within a 5% margin. If they cannot, you are working with someone that does not do their homework and this will come back to bite you eventually.
Rate Lock - you should ask for and see a copy of the rate lock guaranteeing the rate they are promising. If they do not have the rate locked there may be a legitimate reason, but you AND your buyer should be able to articulate that reason. That is to say, the reason should be client driven and not because the originator is gambling on the market (with your client's home and your income).
Full Disclosure - your originator should disclose exactly how much they are making on the front end and the back end. The back end is commonly called rebate or YSP. This is defined when the rate is locked (another good reason to see that rate lock) and is in direct relation to the rate your client is being charged. If you want referrals from your client, start with assisting them in knowing the truth about the cost of their loan.

Finally, and in my opinion most importantly, is attitude. Your originator should view you as a client too. They should be willing to work at least as hard as you do to get the deal done while maintaining an almost brutal honesty. It goes without saying that you should not have to wait for return phone calls but this is still the #1 complaint I hear when holding training classes for agents. In a very real sense, the loan originator has your commission in their hands... do they understand that?

This list is by no means exhaustive. Receiving donuts, magnets and other gifts might be nice, but the information and expertise your originator provides is the measure of their true value.

Lies, Damn Lies and Affordability Indexes

2007-01-15T12:00:00.000-08:00

My apologies to Mark Twain. There has been a lot of comment recently on the dreadful numbers that come out with each affordability index report and I would like to take the opportunity to play devil's advocate. Sometimes, when I look at a new report or statistical anylysis, I run the report's conclusion through my "common sense meter" before I even begin to read the data. The same way they used to teach us in math class: guestimate the answer so you can readily see if your calculations are severly flawed when you are finished. In the case of housing affordability here in Southern California, the reality seems to differ from the reports. As a matter of fact, the reality is we can't build enough homes to satisfy the demand. The CAR leadership council recently released these projections: by 2008-2010 California is expected to be 15,000,000 homes short of demand! Yes, that is 15 MILLION homes. The US Census bureau projects massive influxes of people to the sun belt and California will remain the most populous state by a landslide. It is difficult to see how this continues to happen when only 1% - 24% (depending on the report you read) can afford to live here.

What would make sense is that the reports themselves are flawed. Most of these studies use very outdated lender paradigms (e.g. money spent on housing can not exceed 28% of gross income) which will certainly skew the results as well as the free market. After all, if a buyer is willing to pass up a new car or eating out in order to pay 50% of their gross income to live in San Diego, should we be judging that? Many people would make sacrifices to live someplace they find especially appealing, whether it be the weather of San Diego or the historic roots of Boston. How about the amazing arts & culture of New York City? Many people give up their cars altogether to live in Manhattan - another area with a terrible affordability index.

I am not, by the way, advocating blanket acceptance of the many exotic loans out there that allow people on wieners and beans income to buy champange and caviar homes. I have never in over twenty years put a client into a "neg-am" for ethical reasons alone. And I am not discounting the fact that an affordability gap exists in many major cities as a whole; I am only discounting the severity of the problem. A fluid and open market place will hurt some of the people some of the time. But in the end it provides the most good to the most people by virtue of its self-correcting mechanism. If specific areas were truly unaffordable, people would stop buying homes there and prices would stablize or come down. On the other hand, if the demand far outstrips the supply... you may incur many problems, but a lack of affordability, by definition, is not one of them.

No Pain, No Gain

2006-10-25T10:37:00.000-07:00

In Stephen Covey’s book The 7 Habits of Highly Effective People there is an overriding principle shared by successful people in all walks of life. They believe that “Everything happens for a reason… and it benefits me.” When your one big deal for the month falls out of escrow, your car breaks down, you are arguing with your spouse and your neighbor just mowed your prize rhododendrons, it can be difficult to take this principle to heart and see the benefit.

Generally speaking, we do not learn from winning. There is very little to gain as we drive down victory lane or celebrate a job well done. By definition we did what we set out to do and we did it well. Real learning takes place after a loss. We gain understanding when we have made a mistake. The larger the mistake, the greater the potential for learning and the more intensely will be the lesson. To paraphrase George Santayana: those who cannot learn from their mistakes are doomed to repeat them. This concept is very important to understanding how everything that happens benefits us. After all, there are only a handful of mistakes that really set us back and exact a tremendous cost. Once you have made those mistakes and learned from them, you will not repeat them. That is not to say you will stop making mistakes! Quite the contrary; we are blessed with an unlimited number of opportunities to make mistakes and therefore unlimited opportunities to learn and grow. Successful people have made the big mistakes, learned from them and do not repeat them. It is not that they no longer make mistakes; they just do not make costly mistakes.

Our success, in the end, comes from the knowledge we gain upon making mistakes and failing. Ultimately and most importantly, what we learn from our mistakes is more than what we did wrong and how to avoid doing it again. The greatest gift of learning is a clearer understanding of our selves. This is the gift we must actively seek when times are difficult. Gain insight into your own strengths and weaknesses. Learn how to be true to yourself. In this way everything that happens does benefit you and the greater the difficulty, the deeper the knowledge and more profound the gift. Lance Armstrong, a man who understands tough times and severe pain, has created phenomenal success through his ability to harness the power of this principle. In his own words: “The true reward for pain is this: self knowledge.”

To Your Success

Sean Purcell

A Bridge Over Troubled Waters

2006-10-25T10:36:00.000-07:00

What is a Bridge Loan and when is it appropriate? In a nutshell, our Bridge Loan is a way to get past a current, but temporary problem. Right now we are seeing lots of homeowners who have put their home on the market and are not getting the response they expected. For most this is inconvenient, but not a problem. It just means it will take more time before they get their price. For some, however, there is a tremendous time pressure that will cause them to lower their price well below what the home is worth. This pressure often stems from another home purchase and the weight of two mortgage payments. It could just as easily come from the loss of a job, a family emergency or any other sudden and negative change in financial status. The bottom line is that the homeowner needs immediate financial relief or they are going to be forced to accept much less than they have earned in equity.

In this situation we would normally look at a second or a home equity line of credit. Sometimes that is still called for, but lately we are seeing clients in this situation who have gone 30 and even 60 days late on their mortgage. Combine that with the fact that the home is listed and you have knocked out 99% of their loan options. This is where our Bridge Loan can save a homeowner a lot of sleepless nights. The Bridge Loan will take them out of all their payments for the next six months, providing financial relief within a week of application.

How does it work and how is it different from a hard money loan? It works because we have investors who are willing to take short time profits over long term stability. They are aware of the homeowners’ situation and therefore do not turn loans down due to late payments. They understand and expect that the subject home is on the market. As a matter of fact, they count on it! Our investors are looking to be taken out of the loan in a reasonable time period so as to reinvest their money with the next client. Most importantly of all: because the loan is short term, the investors’ exposure to risk is smaller and their rates and fees are usually surprising low compared with hard money.

Does it all sound too good to be true? It often is. The homeowner must have equity and they must be priced right. The bottom line is this: if the home is going to sell, but price may still be the problem, then we are not doing the homeowner any favors with a Bridge Loan. They need to make sure they are with a qualified Realtor and price their home appropriately. If, on the other hand, the home is going to sell but only needs more time, a Bridge Loan may be just what is needed. Call me for more details.

To Your Success,

Sean Purcell

Drink the Poison

2006-10-17T13:35:00.000-07:00

Sir Winston Churchill is one of history’s all time great sources for words of wit and wisdom. One particular quote, a favorite of mine, occurred during the course of a high society function (at which Sir Churchill had enjoyed a few drinks). Lady Astor approached him and said: “Sir, if you were my husband, I would poison your drink.” To which Churchill replied: “Madam, if you were my wife, I would drink it.”

Besides the wit, there is wisdom in these words. For many men the idea of poison in their drink would be a problem. Lady Astor certainly expected it to be. Yet Churchill saw it as a solution (albeit a somewhat final solution). This is quite often true in life and is especially true in our careers. What many perceive to be a problem, some will view as the solution. I think about this quote a lot lately as I watch and read about the housing market. The newspapers are full of articles highlighting the negative, no matter how narrowly they must look in order to find it. We are surrounded by experts and even fellow Realtors lamenting the changes that have brought their business to a standstill.

Yet…there are some Realtors out there that do not see the current market as a problem. They see it as the solution. They know that marketing never stops and that Real Estate is a contact sport. The more people that you contact per day, the stronger your business will become. They see this market as a time to expand their presence and solidify their customer base while adding new prospects and future clients. The successful Realtors know that when others are having a difficult time, it is an opportunity for them to grow.
During these times of changing markets and negative press, Consistency is King. Market every day and look for the opportunities that abound in every challenge. Let others see the problem, spend your time seeing the solution. And when times are toughest of all; that is when it is most important to keep moving forward. That is when you most want to focus your energy on your vision. I am reminded again of Sir Winston Churchill, who so keenly saw the wisdom of never letting up and so succinctly summarized it when he said: “If you are going through hell, keep going.”

To Your Success

Sean Purcell

You Can Slow Time

2006-10-17T13:33:00.000-07:00

Did you know that time slows down as speeds increase? As a matter of fact, at the speed of light time comes to a complete stop. This was first made famous by Albert Einstein with his Theory of Relativity and it has since been tested by scientists. There is a measurable slowing of time for astronauts as they hurtle through space. That’s right, when astronauts return from space they are younger than they would have been had they stayed put on Earth. Knowing this and knowing how fast most of us move through our days, one might hope that we derive some of that same anti-aging benefit the astronauts see! Unfortunately that is not the case; quite the opposite in fact. Compared to the time-bending speeds of Einstein’s Theory of Relativity, earthbound mortals move at a glacier’s pace and time does not slow for us. Worse yet, as we rush through the day we tend to neglect ourselves and we actually age more rapidly from the stress. So what is the answer? How do we manage our careers, raise responsible children, chase the American Dream, attend PTA meetings, coach soccer practice, put food on the table and enjoy the moment? How do we “fill the unforgiving minute with sixty seconds worth of distance run” without running ourselves over in the process?

The answer, quite simply, is that we do not. Unlike the grand scale of the space/time continuum that Einstein worked in, we live in a 24/7 world of constant information and tightening deadlines. We must literally slow down if we are to befriend time and enjoy life. What is the point, after all, of winning a rose garden competition when you never stop to smell the roses? Eastern philosophers often used the metaphor of time as a river flowing past us. As each ripple – each moment – goes by it is gone, never to be repeated. Therefore, one should slow down and notice the moments. As strong as this metaphor is, mixing Eastern Philosophy with Einstein’s theoretical physics gives me a cultural headache. Instead, let us imagine one lifetime as a complete day at Disneyland. It is, like life, a magical, wonderful place; filled with awe inspiring adventures and tremendous fun. Will you get to experience every ride? No, you will not be able to do that in the limited time you have available. BUT, if you plan well and prioritize the rides that are important to you, if you manage your time and do not rush about trying to do everything, you will enjoy all the highlights as well as some of your personal favorites. You will have many opportunities to see happiness in those joining you on the trip. You might even meet some interesting characters. Along the way you will no doubt get sidetracked as well. If you have children you may end up with more than a few unexpected stops. You will most likely get heartburn at least once. And there will be times that your feet will hurt and you will wonder if your plan isn’t overly ambitious. That’s alright. At the end of the day, when you have ridden the last ride and watched the fireworks and cried and laughed and experienced everything you are going to experience, will you look back and recount how much fun you had and how much joy you shared? Or will you wonder where the day went; realizing you were so busy rushing, you never stopped and just enjoyed the ride?

Except for the astronauts among us, we will never move fast enough to slow time. Instead, slow down and look around. I am not suggesting that we all stop striving and achieving. You should still plan your days… and follow a time management system to be sure. In the end, however, stop rushing long enough to realize: this is not a dress rehearsal. Once a month – or at the very least once per quarter - step away from work (the sky will not fall in) and take a look around at your personal Wonderful World of Disney. Remember: Life is that thing that keeps happening while you are busy making other plans.

To Your Success,

Sean Purcell

Changing Markets are Not the Problem

2006-10-07T22:29:00.000-07:00

In a lot of my discussions with Realtors lately the same theme comes up over and over: “the market has really changed”, “the market is changing”, and “it is difficult to make a living with this market change”. It seems that each person I talk with has a different theory on why the market has changed, how long the changes will last and what it means for the future of the industry. The more I heard though, the more convinced I became that we need better accuracy. As a matter of fact, what we need is truth-in-advertising. Subtle changes in a statement, even one word, can make a big difference in how we define a problem and ultimately in how we solve it. So in my recent seminars and at last week's Brokers' Caravan I began introducing many Realtors to a shift in perception. When we say the market is changing we are not saying anything! I do not mean to imply that the market is not changing. Quite the contrary, the market is ALWAYS changing. This is a dynamic business that is forever seeing new innovations, fluid interest rates and varying confidence levels in the customer base. As a matter of fact, think back a year or two ago to when rates were rock bottom and homes were flying off the shelf. That market was rapidly changing as well, but we never heard anyone complain about it. These days, when we say that “the market is changing” what we actually mean is: “this market is getting a lot harder”. Now that is truth in advertising and, more importantly, it leads us to a solution. By acknowledging that the new market requires better strategies, more diligent follow-up and just plain longer hours, we create the solution to the very problem we are defining.

THE POWER OF DARKNESS FLEES
FROM THE LIGHT OF AWARENESS

By defining the difficulties you face in today’s current market, new solutions and programs can be implemented. You might even conclude that this is the ideal time to be in the Real Estate field. This is when all those who got in for the easy ride and do not have the knowledge, integrity and hustle it takes to be good are getting out. They are moving on to the next get-rich-quick scheme. In the mortgage field we are seeing the same thing with all of the quick-buck brokers that steered their clients into ill advised Neg-Ams, striving for greater commissions rather than their client’s best interest. This is the time to be increasing your market share and laying strong foundations. What you sow now you will reap during the next cycle. And there is always a next cycle because this is a market that is always changing. See the market for what it is, practice truth-in-advertising, and realize that no matter what is going on out there, business will always grow for those that practice strong systems and “do the right things right”. There is always a way to get to your destination. Be flexible and remember: If the wind stops blowing, start rowing.

To Your Success,

Sean Purcell

The Secret to Success that Every Child Knows

2006-10-07T21:41:00.000-07:00

A couple of evenings ago I was saying goodnight to my two boys. I asked my six year old son if he was ready for a good night’s sleep and he replied: “No daddy, I wish I was staying up. I like to do my work at night and sleep all morning.” I asked him why and he told me: “Because I am nocturnal.” More than a little surprised and grinning from ear to ear, I asked him “how did you learn that word?” I was, of course, curious as to where he had learned the meaning of nocturnal: at school, while watching a nature program on TV, or maybe he had read it in a book. He answered me, however, using drawn out syllables and a tone of voice reserved only for the slowest learners on the planet: “it’s easy for me daddy, NOC---TUR---NAL.”

My point in relating this story is not to brag about my son (well, maybe a little). As any parent out there will acknowledge, we each think we have the market cornered when it comes to the smartest, cutest and funniest child. No, the reason I am writing about this is to point out the absolute presence of children. My son did not answer what I meant, as most adults would have. He answered the actual question that I had asked. The reason for this is quite simple: children are unbelievably present. They are almost always “in the moment”. This is a trait that we adults have usually lost along the way and aspire to regain. We have forgotten what it was like to live in the now rather than worry about the past and fear the future. Living in the moment has some wonderful benefits. In the present there is almost never any fear, guilt, worry or sadness. When we are “in the moment” we are completely at peace and if we are engaged in conversation we are attuned to what the other person is actually saying rather than what we think they are saying. It is hard to be anything but joyous when you are completely present in the moment.

What, you may ask, does any of this have to do with becoming better realtors? One of the best tools to become better at something is to watch (even copy) someone who is already doing it well. If you want to be better in your chosen field of sales (as opposed to becoming a better salesman – which has to do with methods of manipulation), then watch children. They have all three traits we need for success and because they are so present, it comes naturally to them. Think about this:
Children have no fear talking to perfect strangers or speaking to a large group
Children have never known a question that is too personal
Children do not, as any parent will attest, have the slightest idea what “No” means and certainly never take “No” personally or recognize it as a final answer

Next time you are hesitant to pick up that phone or knock on that door, put yourself completely in the present the way children do and you will realize: not only is there nothing to fear, but fear itself is an illusion. The next time a client or prospect says “No”, think of a child asking for ice cream and remember that “No” only means I have not yet done a sufficient job of explaining myself.

To Your Success,

Sean Purcell