1. The housing boom is turning out to be quite a bust right now. There were a lot of people that got rich very fast and now there are some people that are in the poor house. What is interesting is that you would never think that the person who probably did three refinance loans for you on your house is probably in worst financial shape than you are in right now.

2. It does not take that much to be a mortgage broker, loan officer, mortgage banker, etc.. You do not need any type of training or certifications. Some states make you take open books tests that you do online and its more like you pick an answer, it says your wrong, you keep guessing until you get the right one and then you move on. Not that hard. All it really takes to be a successful mortgage person is good salesmanship and a will to push. I’m not saying this is an easy job at all. The turnover at most mortgage companies is around 70% in the first 3 months. Be prepared to work long hours staring at a computer and being on the phone.

3. When mortgage rates were so low during the 2002-2006 time period everybody and their mother was either refinancing their mortgage, buying a second home or picking up multiple rental homes. All of this cheap money had never been heard of and you know what it…it made sense to do this. In a matter of time from the year 2000-2003 the 30 year fixed mortgage rate went from 8.5% to 5.25%. That is a huge drop. As an example lets say you have a 30 year loan of $150k at 8.5% your monthly payment would be $1153. The same $150k 30 year fixed loan at 5.25% monthly payment is $828 giving you a monthly difference of $1153 – $828 = $325. This a huge difference. That is a car payment. Over 1 year that is a saving of $325 x 12 = $3900.

4. With so many people looking to refinance their homes somebody had to be there to do the loans. Mortgage brokers were popping up every where. In most states all you had to do was contact a bank that would actually lend you the money and you had to get some license saying that you were an official business. It was so crazy that there are even stories of people writing mortgages from the back seats of their cars. With the influx of customers mortgage lenders were growing at a very rapid rate. They were hiring left and right and if you worked at a smart mortgage company, with just the right amount of advertising you could sit at your desk and the phone calls would roll in asking for somebody to redo their loan. So here is a new mortgage officer with little training saying “we have a rate at 5.5% and that is better than your 8% do you want it?” Of course they want it.

5. So now the mortgage person is starting to get better at their trade and is learning the programs and their sales skills are going up to. They are finding an angle for every person they talk to to do a loan. What does this mean to the mortgage banker. One easy answer…money. Talk about huge commission checks. It was not uncommon for average mortgage brokers to be making over $25k a month. All that they would do is sit at a desk, pick up the phone, say this is what it is, send out some application documents, get you to sign them and as long as you W2′s, bank statements, pay-stubs, etc matched up and the appraisal came in (every appraisal was great from 2003-2006) then the loan would close.

6. Since there was no training involved in becoming a mortgage banker/loan officer anybody could do the job as long as they had the right attitude. There were people working at mortgage companies that had PhD’s and some that had not finished high school. Its hard to believe but knowing that you could possibly make $50k in two months, who would not want to do it even if you had to work a bunch of hours.

7. The mortgage broker is so happy and is on track to make $200k in their first year. This new found money is starting to get to their head and instead of saving the money they go out and buy a $400k home in some suburbia town which has a new housing development going on. They feel like the gravy train is going to keep on coming so its ok because next year they know that they are going to make $300k. Why wouldn’t they feel this way, the majority of the people they did loans for took out adjustable rate mortgages and are going to refinance them soon and hopefully they did such a great job that the referrals are rolling in.

8. Here you have a person making ridiculous amounts of money doing a job that anybody can do. Its kind of like one of things that “sounds to good to be true” and you find out it is years later the hard way. Some Doctors do not even make $200k a year and here is somebody selling mortgages making serious loot. The home has been bought and you know what, that Cadillac Escalde is looking pretty good too. Let’s not forget the boat. The money is still rolling in and interest rates are still low so you finance all of it anyways. You can make the payments so who cares.

9. The gravy train starts slowing down and you notice that some of your clients are calling you back to do another cash out refinance. You say no problem, and send the appraiser out to the home. The appraisal comes in at the same or just a little less than what it did 8 months ago when your clients took out money to buy some crap they didn’t need. This baffles you because every time you sent your appraiser out there the home went up 25% in value. You can’t do the mortgage for them. Another one of your past clients calls in to do the same cash out refinance. Appraisal comes in low again. This process repeats itself for two months straight and you commission check drops in half. Oh poop!!

10. The mortgage broker cannot close a loan because now all of his clients owe more than what their houses are worth. The bank you go through said none of the loans you send to them to process meet any of their guidelines anymore. This is even happening to some of the larger mortgage companies like Countrywide, Chade, Quicken Loans, etc. Nobody can do a loan for anybody anymore. Here sits the mortgage banker/mortgage broker at their desk waiting for the phone calls or new mortgage leads to come rolling in that day and they don’t. Well, they still come in, but a lot of these people you talk to are in desparation mode and you can’t help them. Guess what, the mortgge broker is next to where they can’t be helped. Most mortgage brokers get paid a small salary, but 80% of their income is commission. Good bye commsions. How are they going to be able to pay for the Escalade, the boat, and most importantly the $400k house that they did not put a $1 down on it themselves without being able to close any loans. The answer is that they can’t. Many. many people in the mortgage business over the past coupleof years made some very easy and quick money. Too much money for a job that requires little real talent or skill. This includes the owners of the companies too. Many thought the money train would roll on forever because real estate has always been such a safe investment. If any of them had ever of taken a Finance or Economics course they would have read about supply and demand for one and would have realized that there had to be a tipping point where the market was going to push back. Nobody thought it would come and it did quickly. So the mortgage broker who probably kept telling you to take more cash out of the equity on your home and who probably did three new mortgages for you over 2.5 years time has no money coming in and can’t pay his bills. You will probably see a for sale sign from the real estate company that is working for the actually lender that bought the loan he wrote for himself in the front yard saying “foreclosed home for sale” on it. Its really sad because they could have said this money and lived the same lifestyle they had been before the money and could have just lost their job but had $150k in the bank. Now they have nothing.

Post from: The Top 10 Reasons

The Top 10 Reasons Your Mortgage Broker Is In Foreclosure

1. The negative amortization mortgage was not the only reason but it did play a major role. At one time last year some major lenders like Countrywide had something like 8% of their mortgage portfolio in the State Of California were Negative Amortizing loans. As most of us know home prices in California are not cheap and to know that the 8% of the loans were in the billions of dollars its easy to see why Countrywide took a dump.

2. I don’t know what idiot or genius thought of this loan. The idiot that said lets give people the opportunity to pay less than the interest so the loan goes up in balance and you know what let’s give them the option to defer it up to 115% or even 125% of the value of the loan. The genius that said we can make a boat load of money making these loans and selling them in bundles to other financial companies. With the lower requirements to get approved on a loan it will be so easy to approve somebody on one. How can we lose.

3. For the people that don’t know what a Negative Amortization Mortgage is exactly, let me explain it as best as I can. What happens is you get 4 monthly payments when you get your bill. You get a 30 Year Fixed, 15 Year Fixed, Interest Only, and the Neg Am minimum payment. All of these payments would will give you an option of what you want to put towards your mortgage. As long as you make more than the minimum payment you do not get any mortgage lates on your credit report. The Neg Am payment is usually based on whatever you rate is minus 3%. Oh yeah, the kicker is your rate is never fixed. If you make the minimum payment the difference between that and the interest only gets put onto the balance of the loan and your loan gets bigger. Yippie, more debt. You can defer this money until it reaches usually 115% of the original mortgage and then it resets. What do you mean by resets says the weary client?  

4. Here’s an example of what the 4 payments, commonly called “Pick A Payment” would look like with a $200k loan at 7%. 30 Year Fixed – $1330. 15 Year Fixed – $1797. Interest Only – $1166. Neg Am (7%-3%=4%) = $666(That’s funny huh). What happens is you take Interest Only – Neg Am which is $1166-$666=$500 and you roll this on to the loan. So your balance the next month on your mortgage will now be $200,500 and so on and so on.

5. Getting back to this reset thing. Once you have reached the 115% value you are required to start paying back the balance. If you make larger payments through out the life of the loan you could get back with it never resetting. Who are we kidding though, the people that took this couldn’t afford to pay it anyways.

6. Going back to the $200k example. You could defer $30k of interest on the loan in a span of usually 3 years. So now you owe $230k on the house. I hope you live in a market where you could sell or at least put that $30k to good use and put in a bank account or made money investing it. So here is how your payment breaks down at the $230k. You take the $230k and calculate it over 27 years now because you had already been in it for 3 years. You are required to make principle and interest payments now. Your new monthly payment at 7% interest is……$1581.97. Imagine you were making the minimum payment of $666 and then the next month having to fork out about $900 more just to keep your house. Hello foreclosure.

7. In the example above this is assuming that the interest rate never changes. This is probably being nice but the interest rate is probably around 8.5%-9% so those payments I used are on the low side. The interest rates for the neg am loan is based of of the Libor which is a daily moving rate. So your payment every month is calculated based on what it is the day your bill is printed.

8. This is a real shocker to any home owner who thought they had a great loan with all of these options to choose from. If things got tight one month you could just make the minimum payment and catch up when you had the money. This sounds good but that is not how our society thinks. We should be thinking I need to save a years worth of expenses in a savings account in case I lose my job or something else happens. then you wouldn’t need a loan like this.

9. The absolute worst part about this loan is that it was so easy to sell. Major lenders like Countrywide, Wachovia, and Washington Mutual all sold this loan but was not apart of their main bread and butter loans that they originated. They bought these loans from mortgage brokers that made the loans and the lenders in turn paid them for the mortgage note. The broker is now off the hook because they didn’t even use their money to fund it and they got paid.

10. Here is a good example of how a typical sales call would sound like from a broker or banker pushing this loan. After battling with the client over who has the best interest rate and costs with 3 or 4 different mortgage companies the broker decides to throw the Neg Am loan in front of them to see if they like it. (They can’t win the 30 year fixed war and really nobody can. 30 year fixed rates are based off of for the most part the 10 Year Treasury Bond. You take that number that day and add 2-2.25% on top of it, that’s what your 30 year fixed rate is for the day. You might be able to save.125-.25% with your local bank or credit union but I covered mortgage rates already.) “OK client I have this loan that the interest rate is at 3%,” says the mortgage broker. ” What,” the client replies. “Yes, I have a loan that is fixed at a 3% interest rate. This is the lowest interest rate around and I know this beats the 4 other mortgage companies you have talked to am I right?,” replies the broker. “Yes, that sounds really good,” an excited soon to be client says. “Great, so what we need to do now is get my documents out to you to sign and order an appraisal.” The client thinks they are getting a 30 Year Fixed Mortgage at 3% and does not even stop to think why this loan sounds too good too be true and why this brokers interest rate is so much lower than everybody else’s. Americans only want to hear what interest rate you have to offer and not the terms with the loan and that’s why this was an easy sell. Even during the 2-3 weeks you are in process with them you still get phone calls from other mortgage companies trying to get you to go with them but you stick with your 3% and close. Little did you know that the 3% thing is partially true. Its a fixed 3% minimum payment. They did not tell you that the actual interest rate is probably 2% higher then the 30 year fixed rate that you were battling with the other mortgage comapnies with. Most brokers do not go over what the interest rate is and the terms of the loan and will try to side step any questions you have. The said part is when clients would get to the closing table the actual terms of the loan will be discussed with a notary and then you find out about a pre-payment penalty. Not to say it will happen or this is how it always goes down but it has happened. Instead of walking from the table people will close because they do not want to go through the process again and really need the money they might be asking to take out of the equity of the home. Its hard to point the finger because both sides are at fault. The borrower should have read the terms(come on who reads all 23 pages of application documents) and the broker for not being honest about how the loan actually works. I believe its the broker to blame. Its like going to the hospital and just assuming they know what they are doing and taking their word for it. You have to do that because you have no training on how to do brain surgery. The broker knows they are getting a sale and then they can move on. Stupid Negative Amortizing loans.

Post from: The Top 10 Reasons

The Top 10 Reasons The Negative Amortization Mortgage Ruined The Mortgage Industry

1. First off mortgage brokers are not bad people. They are just trying to earn a living and have found a way to make a lot of money with very little personal risk. Mortgage brokers get a bad rap sometimes because of a few people that have misled clients. This happens in all industries but is in our faces more recently.

2. A mortgage broker is somebody who is a middle man between banks, credit unions, and investors. They work with so many companies because some have more programs than others or are willing to take a risk on a certain borrower.

3. Mortgage brokers do not lend you money. All that they do is the shopping for you and charge you a premium to do it.

4. If you currently are working with a mortgage broker or have in the past look for a line on the Good Faith Estimate(GFE) where it says Origination Fee or Broker Premium. That $$ number represents what you are paying him to do the work. Guess what, it was not that much work because even though the mortgage broker has connections with 50 different banks they always go to the same 2 or 3 that consistently get the job done for them.

5. This origination fee is usually 1%-2% of the loan, i.e $100,000 x 1% = $1000 commission for them and so on. As you can see this is some good money for basically talking to you for 20 minutes and picking a loan. Most brokers probably close $1.5m-$2m in loans a month = $15k – $40k in commission. Pretty sickening huh.

6. Next time you look at your Good Faith Estimate ask them about the origination fee. They probably won’t know what to say or have some line saying “that’s how we were able to get you a lower interest rate.” In which you could have been given the same rate by the actually bank funding the loan. Interest rates are determined by what happens on the stock market. If you want a lower interest rate than ask your bank what it would cost to get one at that time. You might pay more but it will be less than what you would have paid with the mortgage broker.

7. Ask the mortgage broker about where it says the actual bank such as “Countrywide Home Loans” as being the lender. Ask them that if you would be receiving the same terms (cost, rate, points) etc, if you were to just call Countrywide up. Why would Countrywide charge you that? They wouldn’t. Call the actual lender.

8. Mortgage brokers have been known to use pre-payment penalties with their loans and if you refinance during a 2-3 year time period you would have to pay them a fee up to 6 months of interest. The only way out of this would be to call them and do another loan with them repaying all ofthe origination fees again. The U.S Government has been stepping in lately and is making it illegal to charge a pre-payment penalty. Good job government. Actually doing something right this time.

9. Mortgage brokers were popping up everywhere over the past 5 years and every body was becoming a mortgage broker. It was quick cash and almost none of the states actually had any testing or regulations. With the changes in the mortgage industry many people who were in process with mortgage brokers were never able to close because the broker went out of business or the lender they were going through had their guidelines change and could not fund the loan. This would make the client have to find another lender and go through the entire process again for another 30 days.

10. The housing mess will probably eliminate mortgage brokers because the banks are realizing that they are not going to pay premium for an investment when its actually a liablilty. They have no way to manage their brokers. Its smarter to hire somebody in house, pay them $40k a year to handle checking, savings accounts, loans, etc and give them $250 when a loan closes than to chase brokers around. If they feel like a broker was lying than all the broker has to do is close up shop and thank the bank for closing loans that should have never been closed.

Post from: The Top 10 Reasons

The Top 10 Reasons You Should Never Get A Mortgage With A Mortgage Broker