The following Letter "Now More Than Ever" was submitted by my friend Jack Minnig, Guest Blogger.
With the exception of the last 12-14 months, the past 4-5 years in the real estate industry has been very prosperous for most who have participated. For the investor, values escalated, for the fix and flip guys business couldn't have been better and for the sellers... well, they set the stage, if you didn't do what they wanted, they were on to the next buyer before you could blink.
Now mortgage people and Realtors had it a bit harder, yes they were involved in the same great market, but when things get that easy, everybody gets involved. And that's exactly what happened, I would bet you couldn't have been at a function with a group of 25 or more people without getting 3 -4 real estate related business cards, Realtors, Mortgage guys, home inspectors, title agents even the handy men were riding the real estate wave. But for those who were making a living from the business, the competition got tough.
Selling real estate became so easy in the mind of the public that owner's couldn't see the need for Realtors, and those that did want to use a Realtor could always find one that would do it for just about nothing, because real estate wasn't really there full time job, they just did it for extra money because it was so easy, list a house, put out a sign, get an agreement, settle and get a check, sometime in as little as 2 weeks, they might have had to invest 8 hours to do that, what could be easier. But, all good things must come to an end, is how the saying goes, and oh how times have changed.
The real estate landscape is a bit different from just a few months ago, and there are changes every week. There have been more then 60,000 people that have abandoned the real estate and mortgage industry, and hundred's of financial institutions that have closed, or been closed. And there are agents and loan officers that are hanging on by the skin of there teeth hoping that things will get better before they get worse, and that means there will be more to go before we are done. OK, you get the idea, things changed for the worse.
NOW MORE THEN EVER there are some things that I would suggest we all do.
First, if you're interested in buying or selling real estate, I can't stress enough the need to use a full time real estate agent from a reputable company; those days of just using the cheapest guy out there should be avoided at all cost. Full time agents from reputable companies have the advantage of ongoing training, and access to all of the most recent changes in the industry from there affiliated arrangements they have with the complimenting businesses in the industry. Second, and for me I think this is the most important, you MUST use a reputable mortgage BANKER, and a seasoned loan officer.
A seasoned loan officer is one that has more then 5 years in the industry, because the last 5 years the mortgage industry has been dominated by sub-prime and Alt A loans, so most loan officer that came into the industry in the last 5 years haven't had to know as much about other programs that have been, and will continue to be the foundation of the industry. As far as the difference in mortgage companies go, they are not all equal, broker, broker/banker, banker or a servicing company, which one is right? Because of the ongoing turmoil in the mortgage industry I would not recommend using a mortgage broker, or a mortgage banker who is brokering there loans.
The first of these 2 types of companies rely solely on outside underwriting, they are at the mercy of the lender, and represent a higher risk level for the company that is going to be funding there loans, the second of these will do something similar. They have the license and the ability to function as a full service mortgage lender, but they lack the size and volume to take on the risk of a banker, so they also rely on underwriting from the lender who will fund there loans.
The credit tightening that everybody hears about starts with the brokers first, the lender's have less control over how a broker does business so they will have the toughest time getting loans approved, the broker/banker does take on more risk then the broker and may be required to buy a loan back that becomes an issue after closing, this will get them a little less stringent underwriting process, but one mistake can put a company like that out of business quickly. Now a full service banker, and a banker servicer will give you the best possible results, they are self contained from originating to underwriting to closing, they do it all themselves.
The full service banker that does not service loans after the closing represents the least amount of risk for the servicing lender. Because the full service banker does its own underwriting, and it closes the loan with its own money, the servicing lender takes on far less risk when purchasing those loans, and because the risk is lower, the rewards are higher. The servicing lender is the top of the heap, the do the same as the full service banker, but they go one step further, the keep the loan and service the borrower for the next 15, 20 or 30 years, depending on the loan term.
Ok, which one is the most beneficial to use?
Before I give you my opinion, let me tell you that I work for a full service banker that does not service loans after the settlement; we do everything from originations, to closing with our money. With that being said, I believe that an established, reputable, full service banker offers the best benefits for MOST borrowers. The reason for this is that a reputable banker will deliver closed loans to most of the bigger servicers Wells Fargo, Chase, GMAC or Bank of America or one of the many top servicing companies that have been out there for years. The biggest benefit that the full service banker can offer is lower rates, with the same dependable customer service that the big servicers are trying to convince you that you will only get with them.
I worked for one of the biggest mortgage bankers that I mentioned above, as a loan officer for that company, my rates were more then ½ a percent higher then loan officer's that were working for broker's that were doing loans for my company, so as an employee of the giant, I couldn't compete with a broker doing a loan through my company, and it's still that way today. But, the giants have the ability to do some things that nobody else can, if you have a buyer that has something out of the norm, something that doesn't fit certain guidelines, but there is a common sense explanation for it, that may be something that the giants will shine at, but if you think about how many of those buyers you may deal with throughout a year, the giants will be glad to help.
So, what does all this mean for you?
If you're a Realtor, manage your business, interview the people you are planning on partnering with for your income, don't get caught up in the hype of a name or what you hear from other people in your business, do your own leg work and make your own opinion's based on experience. Understand all of the parts of your business, you don't have to be an expert on all of the parts, but if you don't have an understanding of the other parts, you won't be able to recognize an expert when you meet one. Knowledge is the best thing you can have right now to navigate this difficult market, but you can with just a little more effort then in the past.
If you're a buyer/borrower decide what you are interested in, if rate is all you are worried about, and you have no concerns about getting a loan and documentation is not a concern, a broker might be your best bet. If you want to finish were you start, and rate isn't something concerns you, and then the giant is the place for you. If you would like to have something between the 2, then the full service banker is your best bet.
But keep in mind that Now More Then Ever your business is in your hands, its yours to make or break, if you plan on doing the same things you have been doing in this new market you'll just be spinning your wheel and you'll get frustrated. A little more effort, a lot more training and a bunch more application will make you the expert the public will look to for guidance.
See you in the trenches and Good luck!
Thank you,
Jack Minnig
Pennsylvania District Manager
Franklin American Mortgage Company
Three Greentree Centre Suite 100
Marlton, NJ 08053
215-688-2973 cell
877-562-6119 toll free
215-946-3547 fax
jminnig@franklinamerican.com
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