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Archives for October 2008

The Top 10 Reasons Why You Should Give Up Trying To Refinance Your Mortgage If The Appraisal Comes In Low

October 16, 2008 by Brad G

1. Let’s say that you are trying to refinance your mortgage. It does not matter if it is because you are trying to refinance from a adjustable rate mortgage to a 30 year fixed rate mortgage or if you are just looking to take cash out of the equity of your home. Every single mortgage company in the United States is probably going to be following almost identical underwriting guidelines.

2. One of the main guidelines is that all mortgage lenders must do an appraisal on the home. There was a time during the refinance boom that sometimes you could get away without having to do an appraisal. The only times you could do this was when you were doing a “rate/term refinance” or doing a second mortgage like a home equity loan. A “rate/term refinance” is one where you just change the terms of the loan, i.e, change from a 30 year fixed to a 15 year fixed or redo a loan with a higher interest rate to a lower interest rate. What the mortgage banker would do is take your application and put a value into the desktop underwriting (DU) system, wait a minute for the approval and if it came back with a “Property Inspection Waiver” you could do the loan without having to do the appraisal. This was a nice feature because it saved the client $300-$400 off the closing costs because an appraisal was not needed and the loan would close in half the normal time. The property inspection waiver could only be done if no cash was being taken out of the home. If you were doing the second mortgage some mortgage companies had this program called an “Automated Valuation Model” or “AVM.” All that they did was put your addredd into this program, the program would look at recently sold homes, take those values and shoot a number back. If the number made the second mortgage work you could do the second mortgage only without having to do an appraisal.

3. The one thing that the mortgage company has no control over is what the appraisal comes in at. It is what it is. Calling a client back to tell them that their house is not worth what they thought it is might be the worst part about being a mortgage banker or mortgage broker. First thing is that they know that you are going to say something like “I just put in new French doors,” or “The granite counter tops are only two years old.” Trust me, I’ve heard all of the stories. The one I heard all the time was that “we just put in a $20k in ground pool.” Most people do not know that having a pool de-values your home unless you live in Arizona or Florida. The other one is that now the mortgage company cannot close this loan which results in wasted time and a lost commission.

4. Even if you are dealing with a nation wide mortgage lender like a Countrywide, Chase, Bank of America, or Quicken Loans the mortgage company is going to call an appraiser from your local area. The operations team of all mortgage companies have a database of appraisers to choose from and they hire one to schedule the appraisal with you. Mortgage companies do not have a in house appraiser that they fly out to value your home and then fly them back in. I could not imagine how costly that would be or how it would even work. I remember days at Quicken where the company as a whole would get over 2,000 new loan applications in the door from around the country. The labor cost would be huge.

5. Who knows your area best than an appraiser from your local area. They probably live within a couple miles of you and know what neighborhoods are best and all of the extra little factors that determine what your house is worth.

6. After the appraiser is done going through your house and taking pictures of comparables (comps) in the area they go back to their office and start adding and subtracting things you have in your house. They add up things of value like an extra bathroom, more square footage, new cabinets, fireplace, etc. After that they start subtracting value based on what the other homes in the area have that yours does not. Take for instance a garage. If yours does not have it then its a major value deduction. The one factor that really determines the value is what the most recent sales prices where of homes in your area. The appraiser will try to find homes that have sold within the last 6 months because those will tell what the market is saying what homes are worth that are similar to yours.

7. When its all said and done, the numbers are added up and a value is written done and the appraisal is faxed back to the mortgage company. The appraisal team is notified and the value is put back into the desktop underwriting system to see if an “approval” is still granted by whoever insures the mortgage, like a Fannie Mae for instance. If the system still says its approved, then you proceed with the mortgage and close the loan. If it comes back with an error (it usually says “Refer”) then you need to see whats not getting the approval. If its the appraisal coming in too low than there is nothing that can be done.

8. This is where you need to see if your mortgage banker can move some numbers around. Maybe you can take out less cash to get an approval. Then you need to see if the loan still makes sense for what you are trying to do. Maybe there are other factors not getting you the approval now because of your debt to income (DTI) ratio or your credit score is low or you do not have enough assets in the bank.

9. The one thing that the desktop underwriting system really likes is a low loan to value. Approvals are easy to get if you have a LTV under 80% and sometimes up to 90% depending on your credit score. Anything higher than those numbers and you are not going to find any help anywhere. This is mainly due to the credit markets tightening. The days of loans up to 100% LTV are basically gone and if your appraisal comes back at over 90% its not because the mortgage company wanted you to spend $350 to do an appraisal that was not going to come through and then deny you on the loan. Its because that is what your house is worth. The mortgage companies are in the business to close loans, not to deny you on a loan.

10. There are times when you can get a second opinion done. In the mortgage business they call it a “value appeal.” This is when there are things that the appraiser just flat out missed. It happens, they are people and people make mistakes. I have seen it where the difference of $3k in value of the home can kill a deal. If the home owner can find more recent comps or can show a reason for the bump in the value then the mortgage lender can take those and give the appraisal back to have the appraiser re-certify it. Sometimes, they will give the value increase and sometimes they will not. It sounds kind of shady (because it is). I can probably picture some conversations between a mortgage brokers and a appraiser saying that they will never use them again if they do not make the value a certain number. I know that happened because it has been in every major newspaper for the past two years. Any credible lender will not let this happen because they have too much riding on it. So if your appraisal comes in low you have two options. You can pay $350 for another appraisal from a different company. I only saw this work once over a two year period. I had a client that lived in Vail, Colorado and the mortgage company I worked at sent a appraiser from Denver, Colorado which is about 100 miles away. The appraisal came in very low and my client told me that we needed to use an appraiser from Vail. We ate the cost (only time this happened) and ordered an appraiser from Vail. Appraisal came in $100k more than the first one. Weird, but it worked. Second option is just to accept that your house is not worth what it was during the years of the refi boom of 2002-2006 and eat that $350 you spent on the appraisal. From all accounts, regardless of where you live, your house has probably gone down in value by 20% from 2006-2008. Don’t feel bad, its not your fault, its not the mortgage companies fault, its the markets fault.

Filed Under: Real Estate

The Top 10 Reasons Why I Would Rather Work For Minimum Wage Instead Of Going Back To College To Get Another Degree

October 9, 2008 by Brad G

1. For the past 9 months I have been spending a great amount of time trying to find a new job. My previous job with a mortgage company went down the drain when the housing crisis started to show its face. I saw it coming and knew it was just a matter of time before I was going to be shown the door. It was not because of a lack of effort. I had been promoted faster than anybody on my team and was a consistent closer. It was mainly because I could not talk clients into refinancing their already great 30 year fixed rate mortgage into a new loan just because it saved them $70 a month on their bills. I knew it did not make sense to spend another $4k in closing costs so I would tell them that. I would tell them to not go out every weekend or to start riding their bike to work. Those two things alone would save them over $70 a month. Leadership at the company does not like when you talk people out of a sale.

2. Unfortunately the economy is not doing so hot right now. There are very few companies that are hiring anybody right now. The same reasons why nobody will hire me from 9 months ago are still true. Determined to find a way to get back to work I continue to send out resumes. Careerbuilder.com and Monster.com must be amazed by how many resumes I send out. The whole networking thing is not going so well either. My friends and family for the most part all work in or for the automotive industry. As most of us know the auto industry is tanking right now. Friends of mine would love to help me out but many are concerned about their own jobs.

3. The same question keeps on popping into my head. Should I keep grinding out the job search to hopefully find something that I am qualified in or start looking else where. Well, the jobs I am qualified for are going bye-bye. The finance sector will go back to (hopefully) what it was prior 2001. The only jobs I see posted are for insurance companies and if I want to take another stab at being a mortgage banker. No thanks to either of those. Not a fan of insurance and why would I want to go back to writing mortgages? I can not think of one reason why I would want to.

4. So I had this bright idea of going back to college. Going to college is always a smart play, right? I mean, we are all told that going to college is what every body should do. A college degree opens up the doors to you that much more. Well, it doesn’t. At least in a cost-benefit analysis. I am not going to knock the years I spent at Central Michigan University. I learned a great deal about life and furthered my education. Luckily for me I am part of the 1/3rd of the 1/4th of Americans that go to college that graduate with no student loans. Thanks mom and dad. Its amazing what putting $125 a month away in a mutual fund over 18 years can do for your kid. This fresh start into life has made it easier for me to do things because I am not weighed down by student loans.

5. Keeping up with the times it seems very clear that the jobs of the future are going to be skill related. The first new career I looked into was being a pilot. Something about flying a jet really intrigued me. Doing some research I read that Senior Pilots at Northwest can make up to $193k a year after 12 years. It sounded like the right choice. My parents were in the Air National Guard for over 20 years and I have always been fascinated by airplanes. So then I started finding out what I needed to do to get my pilots license and ratings. Needless to say that I was shocked. One flight school was charging $60k (including housing) for 90 days of training. This was a low ball estimate as you do not get all of your training. I went and met with a recruiter from the flight school near me and was told that it would be around $80k. I started doing the math in my head and was looking at 20 year payments on student loans to be around $800 a month with interest. Not bad if I am making over $100k a year. Not so fast. More research went to show me that most pilots would get hired by a regional airline and start out making $20k a year and after 10 years hopefully be making $60k. How would I be able to pay back the student loan, pay rent, buy food, gas, etc. The answer is that I wouldn’t be able to. Plus with the airline industry not doing so hot because of rising fuel prices there are so many current pilots that are furloughed. I read one article from 2004 talking about a Captain who was making $190k a year and had to take a pay cut to $128k a year. The reason is because if he and other pilots did not the company would go bankrupt. He also said that some 7,000 applicants applied for 15 positions. All were qualified but they could only hire 15. This tells me that if this was 4 years ago and things have gotten worse that being a Pilot is not a good career choice. Too many people in front of me that need to pay down their student loans in an industry that is shrinking.

6. Continuing on with the research the Information Technology field came up. A ton of jobs came up for various types of career fields. Some I have heard about like “Computer Programming, Web Site Development, Database Administrator, and MySql.” The requirements for all of these fields state that you need to have a Computer Science Degree and experience. Again, I start looking for programs where I can learn these skills. Since I already have a Bachelors Degree I would be considered a “post baccalaureate student.” The nice thing about this is that the colleges would get to charge me Master Degree (MBA) prices. What a crock of shit! Looking over the courses needed it would take me about 2 years to finish every thing and be about $20-$30k in debt with another bachelors degree. Now I would be 30 and starting over again but this time with a huge college bill, but hopefully with a career field that is not going anywhere.

7. One industry that has really popped up on my radar is the alternative energy field. With gas and oil prices going up this field is one that is going to be in all of our lives. Heading back to the internet to find more alternative energy jobs I come across a couple companies that look very interesting. I applied at Vestas and other wind turbine companies hoping to hear something back. It really interest me in what they do because I care about the environment. After sending out some 50 or more resumes to alternative energy companies I feel that I am not getting any call backs because I do not have an engineering degree or am specialized in a alternative energy field. Heading back to some colleges course offerings, I find very interesting classes in the fields of solar, wind, fuels, and alternative energy technologies. Seeing it would take another 2 years to finish and hope that I would have a job waiting for me are the risks.

8. What to do now? I really like not being in debt. Its awesome. Something about spending $30k on a piece of paper makes me cringe. Deep down inside I try to believe that the paper means something. Isn’t that why parents tell kids to go to college. Isn’t this why the U.S Government gives so much in aide to schools? But where is the breaking point? One of my friends recently graduated from law school and told me that if he knew now how expensive it was going to be that he would never be a lawyer. I asked him how much in student loan debt he was in. Let’s just say it was north of $190k. I could not believe it. To go on top of that, starting salaries for lawyers are in the $50k range. How the hell are you going to be able to live and pay that loan down on that salary. His next line really put the whole college thing into perspective. He said “The business of being a lawyer is not as good as the business of running a law school.” 

9. Instead of keeping people at schools and running kids way into debt to learn something, wouldn’t it be better to take these kids into a company and just train them. More than likely the stuff they learn at college is going to be out dated by the time they start working. I know that not all fields are like this but its safe to say that over 80% of the jobs out there really do not need a college degree. They need people eager to learn and ready to work.

10. With mounting costs to go to college I really do not see how going back to school is going to help me. Tack $30k in student loans onto my credit report that I will be paying off for the next 20 years. I would rather apply at a company and make a deal with them. Teach me everything I need to learn and during the first year all you have to do is pay me minimum wage. This of course would have to be for a position that has degree requirements or something I have no experience in. This way I do not have $30k in loans. I get the experience and on the job training (MOST IMPORTANT) that I need which no class room at a college can ever replicate. My resume shows that I was working. After the first year is up then pay me the deserved salary. If more companies would do things this way they would have more dedicated employees because they know that they are getting a free education, making some money, and have a job waiting for them after the first year. To me, doing the job is not as hard as getting the job. There are just too many barriers put up for people that are trainable and ready to work. In my scenario, the company and the employee both win. If anybody reads this who works at a alternative energy or technology company would like to put me up to the test please write a comment below. I am ready for a challenge.

Filed Under: Career

The Top 10 Reasons The U.S Government Should Become A Mortgage Lender

October 7, 2008 by Brad G

1. With this never ending housing/mortgage fiasco going on we need to take a look at some ways to correct the situation. With the U.S Government deciding to pass this stupid $700 Billion Bailout Plan which was supposed to correct the instability in the stock market (we all knew it was not going to work as the stock market has dropped below 10,000 points for the first time in 4 years since after passing it) with the U.S Government buying up all of these bad loans. Doesn’t the U.S Government print up this money in the first place? How did they let it get to this in the first place?

2. The mortgage lending system kind of works like this. The Federal Reserve has the power to set interest rates and to determine when they should open up the spickets to flood more money into the economy (thus lowering the value of the U.S Dollar). This money is lent to large banks like JP Morgan Chase, Citibank, Wells Fargo, etc. at the going prime rate. The banks are on the hook for that money they borrowed and now turn around and lend it to you in the form of car loans, home equity loans, and 30 year fixed rate mortgages with their premium added on top. The premium usually comes in the form of a higher interest rate.

3. I am not for any kind of regulation of any type. Maybe back in the day…which was on a tuesday…in like the early 1900s the flow of information around the country was not that good. Regulation was needed to keep things in check and to inform the American citizens. Nowadays, any person in the world can go to a computer and look up information of their own for free on the internet machine. Everybody has heard about the Google Machine and its so easy to use. Got off topic there. Regulation is funny because I feel like these companies that practiced predatory lending and doing crazy loans like option arms and negative amortization loans have regulated themselves as best as they could. They are no longer in business. Nothing says regulation better than your mortgage company going bankrupt. I mean could it be that easy? I think so.

4. Since the U.S Government feels like its doing all of us a favor (nope, just making it worse) by stepping in and cleaning up this mess why don’t they just take it to the next level. They already are bad mouthing mortgage companies across the land. Some CEO’s of mortgage companies have had to go in front of the Congress to testify about their companies. Then they get mad about falling property values and the millions of jobs that have been lost that are all mortgage related. All of the builders, construction laborers, mortgage brokers, home re-modelers, decorators, accountants, etc. All of those jobs have been lost because of this mortgage fiasco. Foreclosed homes are sitting around vacant in every city around the country. Nobody is exempt from this regardless of your income level.

5. The finance market will never be the same, but it never had to change in the first place. Only over the past 6 years has this phenomenon of easy money and loose lending standards ever taken place. Before that it was mandatory for anybody buying a home to have a 20% down payment. The days of 100% financing are gone but there are still some programs that will do 97% loan to value. The only place you are going to find those is through the FHA. I was talking to a friend of mine the other day that works at a mortgage company still and they told me that over 60% of their business is FHA. I wonder why? Could it be because the FHA is the only entity doing loans over 90% still? Probably. The finance sector was always a strong area to invest in. You could usually count on gains in the 5%-8% every year. Mainly because the banks were always making that kind of return. This meant to people that were looking for a solid return on stocks or their 401k knew that they were getting a safe return every year and with a 401k calculator they could figure out how fast they could make a million dollars over their life time.

6. Let’s just get the middle man out. If the U.S Government were to start writing their own mortgages the process of getting a loan would be so much easier. No more haggling with mortgage brokers over interest rates and closing costs. No more shopping for the best rate on a home loan. No more feeling like you got ripped off. No more mortgage brokers making quick profits and then shutting down their business and moving onto the next quick money maker. The mortgage application process would be that much easier.

7. Most people do not know that mortgage rates are a commodity. They are traded on the secondary market just like orange juice. On normal conventional mortgages you will be offered the same interest rate as any other bank that day. These markets trade mortgage notes all over the world trying to make a profit off of their investment. Wouldn’t it be cool if the U.S Government could just step in and set their own interest rates for their beloved citizens?

8. The U.S Government can set their own interest rates. What they should do is start printing up their own money (I wish I could do that) and start offering everybody a 30 year fixed rate loan at 5%. Let the U.S Government write the loan and hold onto the note. This way the money they printed up in the first place is being watched over by them and they can collect the interest on it, not a bank. I know what you are thinking. The banks are paying back the loans over a long time period so isn’t the U.S Government still getting theirs? Maybe. What the banks do is borrow the money, sell you a mortgage, and sell the loan. As an example, on a $100k loan, the bank will borrow the money from the Fed or even a larger private bank at let’s say 4%. They start getting charged the interest as soon as they take the money. They write the loan and sell it within the first month. They charge a 2%-2.5% premium. Which means that $100k loan is now being tried to be sold for $102,500 making them a quick $2500 profit. The original $100k is paid back before any large amount of interest can be charged by the Fed and the second bank walks away with no ties since they do not hold the note any more. It would be better if the U.S Government would just hold onto those notes and make the 5% forever. That 5% note will end up making the Fed over $120k just in interest over 30 years. No banks involved. No selling of notes. Just the U.S Government charging a low amount of interest to its citizens and getting a decent return.

9. The return that the U.S Government would make could be used to pay down its national debts. What an idea. Pay down its debts while putting some coin back into its pockets while helping its citizens out. It would not have to worry about shady mortgage companies. No more time spent on Capital Hill grilling mortgage company CEO’s. No more finger pointing. No more worries. Make the underwriting guidelines the same as they were back in the 1990s and before.

10. The one thing that always sticks out the most is that the U.S Government already owns your home. Let’s say that you do not escrow your property taxes and home owners insurance but still pay your monthly mortgage payment on time. You have no mortgage lates on your credit report but are late paying your property taxes. It gets to the point that you just cannot afford your property taxes anymore. Did you know that the U.S Government can come in and take your home anyways? Since you are behind on your property taxes your house is theirs. Ever seen those tax lien commercials where people buy up homes with past tax liens of $3k where the home is worth $100k? Its real, that stuff happens. Every single mortgage company in the land could not lend anymore. Maybe they could service the loans the U.S Government writes now. Anyways, the U.S Government can make some money by charging lower interest rates and never have to worry about a mortgage mess happening again.

Filed Under: Government

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