Russ Msrtin's (edumakated) Blog

Stupid Underwriting Tricks

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Fri, 03 Oct 2008 02:23:10 -0700

Those of us who live and die mortgages on a daily basis often times have to go get a strong drink and just laugh. One of the favorite topics among loan originators at the water cooler is dumb ass underwriting conditions. Basically, conditions that need to be satisfied on a loan approval that are so absurd and illogical that all you can do is laugh about them. Of course, the challenge is trying to explain to clients, Realtors, and others with a straight face as to why you are asking for this stuff... Because of the market we are in, underwriters are scrutinizing every single loan application. Unfortunately, instead of using this time to actually think and make prudent lending decisions, every loan now is underwrittten with a fine tooth comb and we are getting conditions like "loan application to be completed in blue ink". It is getting to the point that I decided to start a weekly post called Stupid Underwriting Tricks so I can share with the public some of the absurdity we deal with from time to time. We recently funded a loan that is being sold to a very very large bank. Absolutely perfect file. A 60% loan-to-value. 800 FICO scores. Low DTI. Conforming loan amount. The borrowers are perfect in every single way. The kind of loan any bank should be begging for in this market. Get this... the investor purchasing the mortgage came back to us POST CLOSING because they want "proof that borrower is not selling vegetables." I AM DEAD FREAKING SERIOUS. What happened was that the purchase contract has an addendum about personal property and the house our clients bought has a very nice small garden. The borrowers wanted to make sure that the sellers would leave all of the foliage with the house. Some how the post closing audit weeny at Big Ass Bank thinks the house has a working farm. Mind you the house is on a quarter acre lot. The house is not in a farming community. It is a just a little suburban house in a regular little town. The borrowers are attorneys at a major law firm. The garden isn't big enough to produce any sustainable produce that one could actually make a living on. How this person was able to make this logical leap is beyond me. Is is it April 1 already? Has this person diluted the gene pool already? WTF? Proof that the borrowers aren't selling vegetables! I couldn't make this up if you paid me...

Democrats Hiding Their Culpability in this Mess???

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Mon, 29 Sep 2008 08:34:45 -0700

Here is an interesting video floating around the net. While I don't want this to turn into a Democrat vs Republican love fest, I think this video does point out some of the major issues that got us into this mess - unchecked lobbying and bad social policy. The video would have been more credible though if they spent a little more time focusing on the greed of Wall Street as well. Greed certainly exacerbated the bad social policy of the Democrats in this mess. I mean no one was forcing Wall Street to make some of these garbage loans (you know, the 100% stated investors loans to buy the crappy condos in Miami Beach). Let's Discuss

What I Could Do With $700 Billion

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Tue, 23 Sep 2008 03:38:31 -0700

I am not too pleased about the yet to be defined $700 billion dollar bail out that Henry Paulson is proposing. First, I believe the banks made their bed so they need to lay in it. Second, I am not sure this is going to do anything to actually stabilize the housing market. I believe we need to be focusing on a bottom up approach by helping the Joe Blow on Main Street instead of the Fat Cats gambling with our money on Wall Street. Here are a couple of things I think they could do with the money that would probably have more of an impact: Federal Works Programs: What is missing from our economy is a wholesale job creation strategy. I mean real jobs that pay real wages. Since it is obvious we need more oil refineries and infrastructure improvements, the government should take the bulk of this money and fund building oil refineries to get the cost of gas down and improving the infrastructure of our highways and public transportation systems. This creates jobs which are what people really need. Most foreclosures are because of job losses and medical issues, not predatory lending, exotic mortgage programs and the like. The government needs to focus on helping deserving homeowners get back on their feet with real job opportunities that benefit the public at large. Stop-Gap Lending: The housing market is in the toilet and many homeowners are stuck in their mortgages because lenders have constricted underwriting guidelines to the point of absurdity. Of course no homes are selling and prices are falling. No one can get a freaking mortgage to buy a home! They went from making loans to dead people to only making loans to over qualified applicants leaving the bulk of folks with no decent financing options. Conversion loans: Allow homeowners in good standing to convert their loans to a fixed rate mortgage regardless of appraised value of the home. Silent seconds: Provide silent seconds that will make up financing gaps if the only reason a home can’t be refinanced is due to appraised value Force subordinations: Make it illegal for second mortgage holders to refuse a subordination if the homeowner is simply trying to do a rate/term refinance and not taking cash out or moving to a more risky loan product. Down Payment Assistance: Not referring to the dead in two weeks seller funded DPA. Offer federally back funds that can be used for down payments on any conforming loan to first time home buyers who are in professions that serve the public good - teachers, firefighters, policemen, social workers and all branches of military personnel. Expedite Foreclosures: Yes, they need to expedite the foreclosure process. Target this at the specuvestors with the option ARMs and $3 million in properties they though they could flip in the hot new condo development in Miami. Get these properties foreclosed on quickly. Next start the public lashings of those involved in obvious fraud from the Loan Officers, Consumers, Realtors, Attorneys all the way to the Wall Street titans. Incentives to Buy Foreclosures: Provide some significant and real incentives to buy foreclosed properties. Maybe have a 10 year property tax holiday for buyers of foreclosed properties. Provide financing programs that allow home owners to buy foreclosed homes with zero down and get loans to fix up the properties as well. Moratorium on New Housing Development: There needs to be a massive moratorium on any new developments from these crap box subdivisions out in the middle of corn fields to over priced yuppie condo ghettos. We do not need any more developers until we get inventories back to a manageable level. National Standards & Licensing: Not going to go into it here in detail, but the rest of the money should go to creating new standards and oversight at the National Level that trump State qualifications for Realtors and Loan Officers. Turn the fields into a real profession and not the joke that it is today. We need to purge about 80% of the people who call themselves Realtors and Loan Officers. Most importantly, the law makers need to LISTEN to those of us who do this everyday and the lobbyist and executives… Rant over.

Why I don't work with Realtors - How to become a Top Producing Mortgage Originator

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Thu, 31 Jul 2008 04:41:33 -0700

Seriously, you have to work with Realtors. But I figured the title would be catchy. Over the years, I have received numerous questions from other mortgage brokers as to how to become a top producing mortgage originator. My spam folder is filled with "proven systems" to becoming a mortgage broker millionaire. I am not aware of any systems that can turn chumps into millionaires overnight, but I have learned somethings over the past couple of years that seem to be pretty common among top producing LOs. First, I am an active mortgage broker. I consider myself a top producer in that this year I should close about $30-35 million in a year when most mortgage brokers are struggling to do one deal a month. There are brokers who close more, but I think my volume puts me solidly in the top .01% of all brokers. You can take it for what it is worth. I don't visit Realtor offices, I don't buy leads, and I don't consistently blog. However, I get to drink plenty of coffee because I am closing loans. This post might be a little long, but I am going to share with you secrets (more like common sense) that results in more production. I probably could package this up and sell it in seminars, but I like helping others. Am I the only one who wonders why these seminar gurus are never active originators? I am also in the midst of my annual business planning cycle for 2009, so I figured it would be a good time to put this down on paper while I am thinking about it for my own personal benefit. So how do you become a top mortgage broker? Entreprenuer, Not Employee: Top producing mortgage originators are entrepreneurs. They just happen to work for someone else. Your employer is just a conduit for you to run your own business. Think of yourself as a subsidiary. Every top producing originator I know thinks of themselves as a business. Everything they do is about how to improve their business and revenue (income). Success Breeds Success: If you hang out with the water cooler whiners complaining about the "leads are weak" then you are going to fail. I only hang out with other top producers and I seek to do the things they do that make them successful. I can't stand the negativity of the whiners. Yeah, the market sucks. Lenders are closing. Clients are rate shopping. However, there are still plenty of us closing tens of millions in loans. What is your excuse? Complete an Annual Business Plan: Every year I sit down and work up a business plan. A business plan is not saying "I want to close $40 million this year." A business plan is putting together an actual plan of action that lays out your goals, but also evaluates the current market conditions and lays out your overall strategic plan and tactics to accomplish your goals. I write my business plan as if I am presenting it to investors. Since I have to determine how I am going to spend my money each year, I need to know why I am spending it on certain initiatives and how their execution is going to help me reach my goals. My business plans can be up to 20 pages in length to give you an idea. Since my wife and I have joint accounts, I guess you could say she is an investor. She reads my business plan thoroughly! It Takes Money to Make Money: I spent $20k on marketing last year. You have to invest in yourself to build your personal brand whether it is advertising or education. Don't be afraid to spend money to grow your business. Always check the Return on Investment and never be afraid to try new things. You should try to spend about 10% of your revenue (remember, you are a business). Be a Professional and Expert: Sounds simple enough. Mortgages are confusing and your clients depend on you to know your stuff. You should be constantly learning about new products, programs and guidelines. If you didn't receive calls from clients regarding the new housing bill and its impact, you need to hit the books. The goal is to have your clients call and ask "How do I structure my financing", not "What's my rate?" Don't Work for Free: Figure out what you want to work for and charge it. Grow a pair. Too many originators allow themselves to work for free out of desperation. Experience will teach you that the easy deals are never easy and if you don't charge what you deserve, you will be bitter. Do not waste too much time dealing with rate shoppers. If a client continues to nickel and dime you, let them go and move on. Most businesses will tell you that 20% of their customers produce 80% of their revenue. You need to focus your efforts on the 20%. Drop the unprofitable customers and let them drive some other chump out of business. Don't be Greedy: If you are ashamed to share with your client the fees you are charging, then you are charging too much. You will also be losing deals to cheaper brokers like me. Ask for Referrals: Referrals are the best source of business. Your clients need to know that is how you survive. Always let your clients know that you appreciate them spreading the word. The goal is to become a purely referral driven machine. Stay in Touch: Almost a quarter of my business is repeat business now. The beauty of the mortgage business is that if you are good, you can be your client's lender for life. The borrowers I did deals for three and four years ago are now moving up. I am the first person they call. You need to send correspondence to your clients at a minimum each quarter. Better yet, monthly. I don't care if it is newsletters or birthday cards. I do both. Here is a free marketing tip: When you take the loan application, be sure to jot down birthdays. Go to Starbucks and buy about $200 worth of $5 gift cards. On your client's birthday, send them the Starbucks gift card with a handwritten birthday note. Work for Great Companies: Find a company that allows you to work as an entrepreneur and grow your business. Stay away from companies that stifle your growth and treat you like an employee. This is why most top originators DO NOT WORK FOR LARGE BANKS. You also want to be at a company that puts your client's first. Companies that give you padded rate sheets, tie you to a cubicle, or feeds you leads are usually not the places that have your client's interest at heart. Go to Your Closings: I try to go to every purchase closing I can. For the life of me, I can't figure out what originators don't go to their closings. When things go smoothly, you have two Realtors and sometimes two attorneys who could be potential referral sources. Not to mention, your clients are happy to see you there. This also protects your reputation. If a Realtor, Attorney, or Title Co does something that causes problems with the financing, you are there to prevent them from attempting to throw you under the bus. Your Reptuation is Everything: All you have in this business is your name. Protect it at all cost. I paid to close a deal once because of a wholesalers screw up. I could have legitimately passed the cost on to my client, but they probably wouldn't have understood. I chose to protect my reputation instead of my wallet. I have received five deals from that client that have more than exceeded the money I paid to close his deal. To this day, he doesn't know I what I did... Save Your Money: Too many mortgage originators got a taste of the good life during the boom. One month of making $20 or $30k does not make you a "baller". Put your money away for a rainy day, so when business gets a little slow you can survive. Find a Niche: Every top producer I know has a niche that generates business. It might be locking up one or two realtor offices. I could be working with relocation companies. It could be developers. It could be construction loans. Mine is young professionals. Again, you are a business and you have to figure out what your position is in the market place. You can't be all things to all people. Partner with Realtors: Too many mortgage originators chase after Realtors with donuts and rate sheets. Here is the reality. Eighty percent of Realtors have no business and probably only close a handful of transactions per year. Any decent mortgage originator knows more than that 80% of the Realtors. Yeah, I said that and I stand behind it. Think about it, a bottom of the barrel mortgage originator might close 15 loans per year. That is about 12 more transactions than the typical Realtor. Not bashing the Realtors, but trying to put things in perspective for the mortgage originator. You probably aren't going to get the time of day with top producing Realtors either. They already have their favorite mortgage originator. Focus your energy on the young, up and coming Realtors. You usually will meet them at the closings. However, you will quickly learn to spot the super star rookies. These are the ones you want to partner with because you can grow your business TOGETHER. Focus on Purchases: During the refi boom, too many loan officers forgot about purchase business. People are always buying homes. Refinances come and go. Every top producer I know focuses on purchase business. They use refinances as bonuses. In summary, it takes a lot of hard work to becoming a top producer. There is no easy fix. However, the beauty of the mortgage business is that the longer you do it, the easier it gets for top producers if you have been doing what you were supposed to be doing all along. I actually had more to share, but I figure I need to get back to work...I hope this helps someone. Russ www.smartmortgageadvice.com

The Media Just Doesn't Get It - More Mortgage Broker Bashing

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Thu, 24 Jul 2008 08:28:02 -0700

I was going to write something on how to read Good Faith Estimates (GFEs), but an article on CNNMoney.com caught my eye. As you know, I have been pretty critical of the mainstream media in their reporting of mortgage issues. Mainly because they don't have a freaking clue. This article is yet another piece that is so full of misinformation all I can do is just shake my head. Journalist have really got to do a better job sourcing information and really understanding the issues they are writing about. However, I guess this is what you get when you have english majors who have never done anything but journalism writing stories on business topics. The CNN article is about Yield Spread Premiums (YSPs). YSP is how mortgage brokers are compensated. Basically, it is compensation paid by the mortgage lender to the mortgage broker for delivering a mortgage loan at a certain interest rate. The best way to think about YSP is as a profit margin. In short, the Wholesale Interest Rate plus the Yield Spread Premium paid to the Broker equals the Retail interest rate. For those of you with low reading comprehension skills, put another way: Wholesale Rate + YSP = Retail Rate. Simple enough, right? For the life of me, I cannot figure out why this concept is so hard to understand? In predictable fashion, the article characterizes the YSP as some evil "kickback from lenders in return for steering consumers into more expensive loans - a problem that the Federal Reserve failed to address." Let's address the kickback issue. Why do lenders pay YSP to Brokers? Lenders pay YSP to brokers because it is cheaper than paying their own workforce for the broker's client. The broker incurs the cost of advertising, marketing, and other business expenses to originate (obtain clients) a loan. In other words, YSP is an incentive to the broker to use that bank's products. The bank has to compensate the broker for their work and YSP is how they do it. Doesn't YSP raise my interest rate? Yes and No. Remember, banks offer mortgage brokers WHOLESALE interest rates. The RETAIL interest rate is the rate that includes the YSP. Put another way, Bank A may have 30 year fixed rate loans at 6% with no YSP. This is known as the par rate. However, if the broker sells the client the loan at 6.5%, the bank will then pay the broker say 1% of the loan amount as YSP. At 6%, the broker is not being compensated, so they would have to charge the borrower "points". The borrower is either going to get 6% with 1% in total points or 6.5% with no points. No borrower will ever get 6% with no points as that would put the broker out of business since there is no profit margin either in points or YSP. The most egregious error in the article though is that it fails to mention that if the broker is offering a borrower 6.5% with YSP baked in, that rate is still cheaper than if that borrower went to the bank directly. Does the Broker have an incentive to earn as high of a YSP possible by giving me a higher rate? The last time I checked our economic system is solidly capitalist. When I price a loan I want to make as much profit as possible while remaining competitive. It is the American way. However, at the end of the day, it is IMPOSSIBLE for a broker to gouge a consumer who aggressively shops for their mortgage. If a broker is trying to raise the rate on a deal so they can make 2% in YSP on a deal that most other brokers might do for 1% YSP at 6.5%, it wouldn't take but two or three phone calls to competiting brokers to uncover this as the inflated YSP is going to result in a higher rate being offered than other competitors. It really is that simple. Why did the Fed ignore the YSP issue in their ruling? Because the Fed figured out that YSP doesn't matter to consumers. Let's take a little test. You are shopping for a mortgage. Broker A quotes a rate of 6.5%. Broker B is quoting 6.875%. Banker C works for Kuntrywide and claims he doesn't charge the ripoff YSP since he is a banker and his rate is 7%. Broker A does a lot of loans and has a special deal where he gets incentive pricing and will earn a YSP of $8,000. Broker B only gets a YSP of $4,000. Banker C doesn't disclose since banks are treated differently. Which is the better deal? Broker A making $8k in YSP at 6.5%, Broker B making $4k in YSP at 6.875% or Banker C with the "free" loan at 7%? If you are smart enough to own a home, you are going to pick Broker A because it has the lowest rate of all the lending choices you had REGARDLESS OF HOW MUCH PROFIT IS MADE ON THE LOAN. You could give a rats ass what he is making. He gave you the best deal out of all the competitors you called. Real life example. I just closed a loan yesterday and had a YSP of $5200, no points. The borrower asked me to lower the YSP after I disclosed it on the GFE. I said no. The rate was 5.250% on a 5/1 i/o ARM. Why did I say no? Regardless of my YSP, there was no way anyone was going to be able to match that rate. The borrower soon figured it out and agreed. End of discussion. They got freaking good deal and at the end of the day, my YSP was irrelevant because the closest competitor had pricing of 5.75% on the same loan. At the end of the day, it bothers me that such misinformation is spread around by news sources. Some consumer is going to read this article and think their broker is ripping them off when it isn't the case.

A Day Late and a Dollar Short

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Tue, 15 Jul 2008 03:07:03 -0700

Yesterday the Federal Reserve released guidance to banks on subprime mortgage lending. Like most government initiatives, this guidance is a day late and a dollar short. In efforts to slam the lenders, the main stream media also forgot to ask one very important point about the guidance. Who exactly are these lending guidelines supposed to apply? The last time I checked, the subprime mortgage industry was all but wiped out. Did the Fed's take a look at the lender implode-o-meter? Seriously, I don't even think I can name a subprime mortgage lender that is still in business! Nevertheless, let's take a look at some of the subprime guidance. Verification of Income: Lenders must verify income. This means no more stated income loans. This will probably hurt a lot of self-employed borrowers, but the reality is most lenders eliminated these products like a year and a half ago. Once again, a day late and a dollar short. Ban Prepayment Penalties: The ban would cover loans that have a rate change in the first four years and be limited to two years on on some higher cost loans. I don't really have a problem with this ruling. One of the insidious tactics of subprime lenders was to put a three year prepayment penalty on a two year adjustable rate loan. Of course, trapping an already marginal borrower in a high cost loan that is going to get even costlier makes a lot of sense (sarcasm off). I really want to know who the genius was that came up with that idea. Establishment of Escrow Accounts: Requires lenders to set up escrow accounts for taxes and homeowner's insurance. This is already required on most prime loans when you don't put 20% down, but subprime loans it was not required. I have mixed feelings about this. First, if you aren't responsible enough to save for taxes and insurance when the bill comes due, maybe that is a sign you shouldn't be a homeowner. Secondly, if the borrower can't afford to save for taxes and insurance on their own, maybe they don't qualify for the mortgage in the first place. Forcing them to pay it monthly doesn't change that fact. At it's worst, this ruling is basically saying subprime borrowers need the lender to be a nanny for them because they are too stupid to do it themselves. Lenders & Brokers Can't Pressure Appraisers: I am still trying to figure this one out. Appraisers have been complaining that lenders pressure then to meet values. My position is that either appraisers are professionals or they are not. Getting the Feds to say lenders and brokers can't pressure appraisers is basically saying that appraisers are bunch of pansies. Maybe they just need to grow a pair and learn to say no. This is like me as a lender saying the borrower pressured me to over state their income, so I need a law in place that makes it illegal. Give me a break. You either are going to commit fraud or you are not. Better service from "Servicing" Companies: Basically says they need to get their act together in terms of applying payments and just doing things that make good business sense. Part of the problem is half the call centers are located overseas. Maybe the Feds should have just said hire people who speak english and pay them more than $5.00 to work in service centers. Good Faith Estimates: Creditors must provide good faith estimates within three business days. I don't know... I thought we already had to do this. My feeling about GFE's is that they are only as good as the person preparing it. I think the Feds should have just said to consumers to stop focusing on nickel and dime rate shopping and hire a professional mortgage provider to handle your largest financial transaction. A lot of the above points could be prevented if consumers actually took the time to care about who is handling the transaction instead of who is $50 cheaper. But I digress... Advertising: Basically says advertisements need to be more truthful. What this really means is that mortgage ads are now going to look like pharmaceutical ads where the fine print takes up two pages, but the ad is only half a page. Refer to the point above. The Fed should have just said consumer should ignore mortgage advertising altogether because most mortgage professionals will tell you that there is no way to truthfully advertise mortgages. Yield Spread Premiums: This was the biggest news. The Fed basically showed they know that YSP is nothing more than a profit margin and that there is a difference between the wholesale rate and retail rate. YSP is not an evil three letter acronym and the commie consumer groups have no idea what they are talking about when it comes to YSP and its impact on consumers. In short for consumers, YSP is the profit that brokers make that is paid to them by the bank. Nothing more. All you need to worry about as a consumer is what your final rate is and the total out of pocket cost to get that rate. All the other stuff is just too much information. Just my two cents...

What Gas Stations Can Teach Us About Mortgage Brokerages - Part 2

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Fri, 09 Nov 2007 03:01:10 -0800

The other day, I showed you how the gas stations and mortgage brokerages have a lot in common. You can read it here. As promised, there is more to the story between Big Moe's and BP. Recall that Big Moe's is just across the street from BP. Since Big Moe's doesn't have much overhead, he is buying gas from BP wholesale and selling it to consumers five cents cheaper than the BP located just across the street. As the customer, you are happy because you get cheaper gas. Big Moe's is happy because they are a making a few cents profit. BP is happy because even though they didn't sell the gas to you directly, they indirectly made money through Big Moe's selling it to you.This goes one awhile and everyone seems content. One day, a new gas station opens up on the same street as Big Moe's and BP. This new gas station is Citgo. Citgo is just as big of a company as BP with fancy restrooms and kids play areas. Both Citgo and BP are still five cents more expensive than Big Moe's.Citgo decides that they have refined too much gas and they too call up Big Moe's and tell them that they can sell gas wholesale cheaper than BP. Being an astute businessman, Big Moe's takes Citgo up on their offer. After all, his customers don't care if it is BP or Citgo gas. All they care about is getting gas five cents cheaper than going to BP or Citgo and Big Moe's can make a little more money. Everyone is happy. Except BP that is... Not only is Big Moe's undercutting BP, but they also lost money to Citgo since Big Moe's is no longer exclusively using BP for their wholesale gas.BP starts noticing fewer and fewer cars showing up while Big Moe's seems to be doing pretty well and Citgo is also making money. BP decides that the only way they can compete is to undercut Citgo's wholesale price. BP drops their wholesale gas prices and approach Big Moe's with their new wholesale price. Of course, Big Moe's agrees to the lower price and he is making more money and still selling gas cheaper than either BP or Citgo. Now Citgo is pissed at Big Moe's as he is getting even more business and has no loyalty to either BP or Citgo. Citgo and BP are essentially fighting each other while Big Moe's is laughing all the way to the bank.One day, the CEO of BP calls for a meeting with the CEO of Citgo. They discuss lowering their gas prices to compete with Big Moe's, but it becomes apparent that they can't afford to because they are also sponsoring the local NASCAR driver. They also just bought a bunch of corporate jets, not to mention their big executive salaries. Their cost are just too high. They are really upset that they started wholesaling gas just to make a little extra money, but didn't expect some rinky dink gas station like Big Moe's to steal all their market share. Big Moe's started off with about 5% market share and quickly grew to almost 60% in no time. This is unacceptable the CEOs thought. Both CEOs then decide they have an idea. They call up their friend who happens to be the Mayor of the town. We will call him Barney Frank, I mean Fife. They tell Barney that Big Moe's is gouging customers and that theses small gas stations need to be licensed better. They also donated a lot of money to his campaign, so Mayor Fife owes them one.Being the great Mayor that he is, Mr. Fife imposes a law that says gas stations that don't refine their own gas have to disclose their profit margins to their customers. Since gas is so complicated, these profit margins are going to be called yield spread premiums (YSP). The YSP must be disclosed on the pump of the gas station at Big Moe's for all consumers to see. Mayor Fife doesn't believe REFINERS should have to disclose their profit margins. Refiners call their profits service release premiums (SRP). The logic is that it would be too cumbersome for a refiner to disclose since they aren't sure what they are going to sell the gas for at the time of refinement.In addition, the Mayor also says that places like Big Moe's must have their bathroom's cleaned. However, this portion of the law only applies to places like Big Moe's that don't refine their own gas. Refiners aren't required to follow city cleanliness laws because it would interfere with commerce of large refining gas stations.Naturally, Big Moe's isn't too happy about these new laws, especially since they only apply to him and not the other gas stations on the street. However, he didn't have the extra money to contribute to the Mayor's campaign, so he just chalks it up as being "politics". It doesn't matter to Big Moe's though. He knows most of his customers are smart enough to figure out that the only thing that matters is the price of his gas, not how much profit he is making on it. He lost a few customers when they saw he was making 1-2% profit on a gallon of gas. Not enough to lose sleep though.Even after all these challenges were thrown in front of Big Moe's, his volume of gas continued to grow. In fact, he now had a nice gas station and more amenities than both BP and Citgo. His share of the market place grew from 10% to about 60% in no time. He also never told BP or Citgo that he started buying gas from another refiner who was even cheaper called Shell.To Be Continued...

What Gas Stations Can Teach Us About Mortgage Brokerages

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Mon, 05 Nov 2007 04:06:20 -0800

There is often a lot of confusion as to how the mortgage brokerage industry works. Mortgages are not something people deal with frequently and because it is financial product, I can understand the confusion. Sometimes it is best to use other industries as an example. The mortgage industry has some pretty close parallels to buying gas. Let's imagine you are taking a road trip to visit your family this Thanksgiving. About 300 miles in you look at your dashboard and the gas needle is at less than a 1/4 tank. You need to fill up so you pull off the highway to find a gas station. On the left side of the road is BP and on the right side of the road is Big Moe's Gas Station. The BP gas station is brand new with balloons, a kid's play area, bright and shiny signage, etc. Big Moe's on the other hand is pretty rinky dink next to the BP by comparison.You are there to get some gas, so all you are thinking about is the price of a gallon of gas. BP has regular gas advertised for $3.00 per gallon and Big Moe's has gas for $2.95 per gallon. A large number of consumers are going to go to Big Moe's to save money and some are just going to go to BP because they are familiar with BP and never heard of Big Moe. Most people wonder how Big Moe's is able to undercut BP. It is simple. Big Moe's doesn't have the same overhead as BP. Big Moe's isn't offering a kid's play area. Nor is he too particular about keeping the bathrooms clean. He is only there for one purpose and that is to offer you gas cheaply. Since you really don't care about all the other extras BP is offering, you go get gas from Big Moe's to save a few cents.Most people would think that BP would be upset about losing business to Big Moe since he is undercutting them. However, BP is smiling all the way to the bank. See, Big Moe's is getting gas from BP wholesale. Big Moe's is actually selling you BP gas five cents cheaper than the BP gas station across the street. BP produces too much gas for them to sell only through their company owned gas stations, so they sell extra gas on a wholesale market to privately owned gas stations. The wholesale gas is cheap enough from BP wholesale so that Big Moe can buy it, add a few pennies to the price so he can make a profit and still offer the gas cheaper than BP does through it's own retail gas stations. Everyone is happy. You got cheaper gas. Big Moe's made a few cents profit. BP made money selling gas to Big Moe's.This folks is EXACTLY how the mortgage brokerage business works. Mortgage brokerages are just like Big Moe's and large retail mortgage banks are BP. There's more to this story though... check back tomorrow. http://www.smartmortgageadvice.com/

Jumbo Mortgages Don't Mean Jumbo Rates

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Tue, 25 Sep 2007 05:08:52 -0700

It is no secret that anyone getting a mortgage above the conforming limit of $417,000 is in for some sticker shock as the rates on non-conforming mortgage loans have gone through the roof. For instance, a typical 30 year fixed rate mortgage is about 6.375% (no points) right now versus about 7.5% (no points) for a jumbo mortgage. Huge difference.Typically, the maximum purchase price to avoid a jumbo mortgage is $521,250. If you put 20% down or go with a piggyback mortgage, your first mortgage amount would be $417,000. $521,250 x 80% = $417,000.Suppose you wanted to buy a place for $650,000 and put 20% down. This means most loan officers would give you a mortgage of $520,000. This loan amount is clearly in Jumbo territory and subject to the much higher non-conforming mortgage rates. At a rate of about 7.5% this equates to a monthly payment of $3635. However, is there a better way to structure the deal? Of course.Creative financing means running the numbers and thinking out of the box.What loan officers should recommend is holding your first mortgage to $417,000 at 6.375% and putting the balance of $103,000 on a fixed rate second mortgage or home equity line of credit. This gives you the total needed mortgage of $520,000 ($417,000 + $103,000). I have 30 year fixed rate seconds in this scenario at 7.115% (no points). The total combined payment between the two loans is $3294. By structuring the loan this way, you save approximately $341 per month or $4092 per year! The weighted average or "blended rate" of the two loans is just 6.522% or slightly higher than the conforming mortgage rates.Take a closer look:$520,000 @ 7.5% = $3635vs$417,000 @ 6.375 = $2601+$103,000@ 7.115 = $693Total Payment: $3294This is the difference between dealing with established mortgage professionals who know how to properly structure mortgage loans versus call center order takers. In addition, this is also why it is important that you work with a mortgage broker who has access to multiple lenders so you can have more choices that will save you money.

Why I Can't Vote for Democrats

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Thu, 20 Sep 2007 06:10:11 -0700

I have never aligned myself with Democrats or Republicans. In fact, I am a proud independent and have always given my votes to the candidates that I feel best represent my personal interests politically regardless of their party affiliation. I voted for Clinton. I voted for Bush. There are many issues that I lean towards the right on and others that make me go left. While I always vote, the mortgage crisis has definitely taught me a lesson in politics. More importantly, it has taught me that our votes really matter. Due to impending anti-predatory lending legislation both at the state level as well as federal, there is a very real possibility my ability to run a succesful mortgage practice will be threatened. In short, now it is personal. Unfortunately, while Republicans have remained largley silent and appear to be taking a "let the market work itself out approach", Democratic politicians have not wasted anytime pointing fingers at mortgage brokers and trying to find yet another big government solution. In fact, when it comes to my industry, Democractic policiticians have shown great skill at ignoring facts and vote pandering in the worst kind of way. At the State Level: Locally, Illinois legislators recently passed SB1167 which is probably the harshest anti-predatory lending law in country. The law essentially forces mandatory credit counsleing on homeowners and buyers and outlaws stated income loans. While I am sure the legislators hearts are in the right place, the law is so void of common sense and practicality that it really makes me wonder about the legislators qualifications in other areas. I will discuss the serious flaws in this law in more detail at a later date but you can read all about it in the Wall Street Journal. At the Federal Level: Nationally, issues in the mortgage market have not gone unnoticed by Senators, Congressman, and Presidential candidates. In fact, it seems like every Democratic politician is vying for air time to provide their uninformed opinion. They just want to make everyone think they are going after the evil predatory lenders. While I won't go over each politicians' proposals (Obama, Hillary, Dodd, Schumer, Frank, et al), there are several key themes in all of their proposals that I am going to address over the next week or so. But to give you some flavor as to what may be coming down the pipe from our representatives:Elimination of yield spread premiums Increased disclosure of yield spread premiums Making stated income loans illegal Requiring mortgage brokers to be fiduciaries National licensing of mortgage brokers Elimination of prepayment penalties Mandatory tax and insurance escrows To the uninformed, a lot of these proposals sound good on paper. Just like ejector seats on helicopters or screen doors on submarines. However, when you really look at what is being proposed, it does not look good and most of these proposals violate 10th grade economics. Nevertheless, I would advise my industry cohorts to think long and hard about who you are voting for and why. Your future is at stake. Remember, it is your pocket book they are coming after.have never aligned myself with Democrats or Republicans. In fact, I am a proud independent and have always given my votes to the candidates that I feel best represent my personal interests politically regardless of their party affiliation. I voted for Clinton. I voted for Bush. There are many issues that I lean towards the right on and others that make me go left. While I always vote, the mortgage crisis has definitely taught me a lesson in politics. More importantly, it has taught me that our votes really matter. Due to impending anti-predatory lending legislation both at the state level as well as federal, there is a very real possibility my ability to run a succesful mortgage practice will be threatened. In short, now it is personal. Unfortunately, while Republicans have remained largley silent and appear to be taking a "let the market work itself out approach", Democratic politicians have not wasted anytime pointing fingers at mortgage brokers and trying to find yet another big government solution. In fact, when it comes to my industry, Democractic policiticians have shown great skill at ignoring facts and vote pandering in the worst kind of way. At the State Level: Locally, Illinois legislators recently passed SB1167 which is probably the harshest anti-predatory lending law in country. The law essentially forces mandatory credit counsleing on homeowners and buyers and outlaws stated income loans. While I am sure the legislators hearts are in the right place, the law is so void of common sense and practicality that it really makes me wonder about the legislators qualifications in other areas. I will discuss the serious flaws in this law in more detail at a later date but you can read all about it in the Wall Street Journal. At the Federal Level: Nationally, issues in the mortgage market have not gone unnoticed by Senators, Congressman, and Presidential candidates. In fact, it seems like every Democratic politician is vying for air time to provide their uninformed opinion. They just want to make everyone think they are going after the evil predatory lenders. While I won't go over each politicians' proposals (Obama, Hillary, Dodd, Schumer, Frank, et al), there are several key themes in all of their proposals that I am going to address over the next week or so. But to give you some flavor as to what may be coming down the pipe from our representatives:Elimination of yield spread premiums Increased disclosure of yield spread premiums Making stated income loans illegal Requiring mortgage brokers to be fiduciaries National licensing of mortgage brokers Elimination of prepayment penalties Mandatory tax and insurance escrows To the uninformed, a lot of these proposals sound good on paper. Just like ejector seats on helicopters or screen doors on submarines. However, when you really look at what is being proposed, it does not look good and most of these proposals violate 10th grade economics. Nevertheless, I would advise my industry cohorts to think long and hard about who you are voting for and why. Your future is at stake. Remember, it is your pocket book they are coming after.

Can the Mortgage Industry Go Any Lower?

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Mon, 17 Sep 2007 03:10:00 -0700

From that.... to this: Ric Flair FinanceYet another reason why the mortgage industry has no credibility left. I thought Trump Mortgage was bad, now we have ex-pro wrestlers hawking mortgages. I know some of you felt I was a little too blunt on the previous post about consumer intelligence and advertising. I think this further proves my professors' point. Seriously, the industry really doesn't need this right now.I am sure the Nature Boy Ric Flair's Figure Four process will definitely inflict some pain like it did in the ring. Woo!

Are Consumers Stupid?

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Thu, 13 Sep 2007 03:57:35 -0700

When I was completing my MBA in marketing at Northwestern University (Kellogg), I recall a very well regarded marketing professor telling the class that when we are designing marketing campaigns at large corporations that it is important to remember that the general populace is pretty stupid. Well, he didn't say it that directly, but we all knew what he meant. I didn't really agree with his position at the time, but the longer I have been in the mortgage business the more I fear he may have been right.The FTC is cracking down on unscrupulous brokers and lenders who use misleading advertising to lure borrowers. You know, everything from the simply renaming negative amortization loans to something more friendly like Secure Advantage or Choice Pay to just outright lying about interest rates and fees like many of the companies who advertise on Bankrate. While I applaud the FTC, the unfortunate reality is that this type of marketing works and these companies are simply giving consumers what they want. The reality is that the general public really is pretty stupid and mortgage advertising that works best is usually dumbed down to the lowest common denominator. If it didn't work, mortgage companies wouldn't do it.The Atlanta Journal recently ran an article on Lenox Financial. This company grew from a handful of loan officers in 2003 to originating more than $4 billion in mortgages today. How did they do it? By running the most irritating and misleading radio advertisements in the business touting that they don't charge closing costs. The President, John Shibley, actually compares his competition to child molestors for charging consumers closing costs (listen to the "blow torch" ad). There is plenty of information available as to why this is misleading and how no closing costs loans simply mean you are getting much higher interest rates than you qualify for, so I will leave it at that. The point is no matter how much the professionals in this business hate Mr. Shibley's advertisements, we have to admit - they work. Mr. Shibley knows what my marketing professor taught - the general public is in fact stupid. Why else would they respond so favorably to this type of advertising? Seriously, who in their right mind would call these companies to borrow hundreds of thousands of dollars? Unfortunately, plenty of people.So should mortgage advertising of interest rates be illegal? I specifically say interest rates because we all know that it is impossible to actually quote interest rates without taking a full mortgage application. In some ways, I say yes. Buying a home is the largest and most complex financial transaction most people will ever undertake. First, consumers have shown that they are not capable of critically evaluating their financial options. Second, too many mortgage companies have shown that they cannot be trusted to actually develop ethical advertising. If mortgage advertising were illegal, consumers would then be forced to seek out lenders the way they should - by asking for referrals from trusted sources whether it be a Realtor, neighbor, co-worker, or family member. Additionally, mortgage companies would also be forced into looking at the long term and doing right by their clients because they would know that their business growth depends on gaining referrals from satisfied clients.On the other hand, the heartless, greedy capitalist pig in me says caveat emptor. Mortgage companies should be able to do what they want as long as it is legal and consumers need to stop being so gullible. Any thoughts?

The Inside War: Mortgage Banks vs Mortgage Brokers

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Mon, 10 Sep 2007 09:37:10 -0700

Mortgage banks and mortgage brokers have a love-hate relationship. Kind of like Eminem and his wife, Kim (or is it ex-wife again). They need each other, but their love or hate depends on the time of day. As the mortgage meltdown continues to grab headlines, it appears that mortgage brokers and mortgage banks are back in the sleeping in seperate bedroom stage. It does appear that many mortgage banks have been trying to throw mortgage brokers under the bus in order to shield themselves from any complicity and use the market upheavel to possibly steal back some of the market share they have lost over the years. Mortgage brokers keep getting the blame in the media and it seems that mortgage banks are quick to fan the flames.Over the past decade, the broker channel has been a valued part of mortgage banks' origination strategy. It is a lot cheaper and efficient to offer loan products through mortgage brokers rather than a bank trying to staff, train, and compensate their own work. If a mortgage company wants to expand, the easiest way is to offer products wholesale to mortgage brokers. What the mortgage banks didn't count on was that mortgage brokers would actually cannibalize the market share of the banks' retail outlets. The bottom line is that brokers do it cheaper, faster, and better than bank retail operations. In effect, the genie is out of the bottle and the mortgage banks are trying to figure out how to get back some of that market share now that brokers originate about 60% all mortgage loans. Mortgage banks see an opportunity to beef up their retail staffs and keep some additional profits for themselves. They may not say it out right, but the subliminal messages are clear in the advertising. Direct lender. Unregulated brokers. Big national bank. No one can do what we can. No middle men. No yield spread premium. FDIC insured. Blah, blah, blah.Despite the hype, retail mortgage operations have no chance of competing head to head with good mortgage brokers and they know it. Retail banks are simply too bloated with non-productive corporate staff, executives and huge advertising budgets to keep cost low. Many in the brokerage industry feel that mortgage banks have been using under handed tactics to try to tilt the playing field back in favor of retail banks. While it is unlikely that there is a massive conspiracy against mortgage brokers, one does have to wonder about some of the gems that have been dropped lately.Countrywide sent out a letter that when you read between the lines, blames mortgage brokers for their problems. Many brokers have long considered Countrywide the darkside of mortgage lending. Brokers gleefully fed the beast with mortgages only to have Countrywide's retail and retention departments compete fiercely against the broker.A Wells Fargo executive in an interview with a national media outlet says that their rates are now better through the retail channel instead of brokers. Of course, this assumes your broker is stupid enough to send your deal to Wells Fargo when there are plenty of other wholesale mortgage banks who weren't trying to charge Jumbo customers 8% for a 30 year fixed mortgage with 20% down.Next we get this idiot on CNBC outright blaming mortgage brokers. How this guy can sit on national television with a straight face is beyond me. Unregulated? No skin in the game? Only go to places where you have a checking account? Last time I checked, mortgage brokers are pretty much regulated in all but a few states. It is the retail loan officer for large mortgage banks who doesn't have to follow state licensing laws according to the Supreme Court. Love the comment about Countrywide. I guess we can ignore all those Option Arms they were pimping on the unsuspecting public... but hey they are FDIC insured.The mortgage banks would have everyone believe that the mortgage brokers are the ones giving them the bad loans. Of course, the problem with this is that mortgage brokers can only offer what the banks approve. Remember, mortgage brokers DO NOT create, underwrite, or fund mortgage loans in any manner. Any loan a mortgage broker originates has to be done so with the blessing of a mortgage bank. If a shady JT Marlin mortgage broker is putting little old ladies in option ARMs while inflating her social security checks and earning 5% yield spread premium on the loan it is done so with the blessings of a mortgage bank.There is also plenty of lobbying at the state and federal level for new laws regulating mortgages. Politicians are definitely tripping over themselves to add their two cents which is about all their idiotic legislation is worth. Nothing like passing laws affecting industries you don't understand to pander to the media and your voters. Again, it also appears that the mortgage banks have politicians in their back pocket. The only problem is that the laws only seem to apply to mortgage brokers, not state and federally chartered banks. Are these laws designed to protect the consumer or help mortgage banks by tying the hands of mortgage brokers?At the end of the day, it remains to be seen who will win. I predict in the short term, mortgage banks are going to get some share back from the brokers. It will be temporary. Brokers didn't explode on the scene out of good will and the free market favored brokers. Money talks and BS walks. In the long run, banks will realize once again that the wholesale market works and the broker can be their best friend. Hopefully, the brokers who have been thrown under the bus by mortgage banks won't have short memories when the gleeful wholesale mortgage account executive comes knocking.

It Ain't Little Old Ladies Going Into Foreclosure

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Thu, 06 Sep 2007 14:52:07 -0700

I told you several months ago that 99% of people pay their mortgages on time and also suggested that once we start digging into the foreclosures data we will see that it isn’t little old ladies going into foreclosures but specuvesters. My main point really is that all the talk about predatory lending causing foreclosures is much ado about nothing for the most part. As a mortgage broker, it is frustrating because we have been anointed the bad guy du jour and ultimately all of the pandering by boot licking politicians will ultimately impact my industry negatively. Politicians and consumer groups often latch on to one piece of data to prove a point and to justify new laws to pander to their constituency. Right now, everyone keeps talking about increases in foreclosures without putting it in perspective or really dissecting the true causes. At the time I didn’t have any hard data to support my hypothesis, but being in the trenches as a mortgage originator, I didn’t need it to come to my conclusion. However, now I have some hard facts that prove my point. The Mortgage Bankers Association released a delinquency study recently that shows that investors are contributing inordinately to mortgage delinquencies and much of it is concentrated in just four states. Check out these gems from the MBAs press release. “What continues to drive the national numbers, however, is what is happening in the states of California, Florida, Nevada and Arizona. Were it not for the increases in foreclosure starts in those four states, we would have seen a nationwide drop in the rate of foreclosure filings. Thirty four states had decreases in their rates of new foreclosure and the increases were very modest in the states with increases, other than those four,” Duncan said The press release goes on to say: “These four states have a disproportionately high share of investor loans, or loans to buyers who do not plan to live in the house. As of June 30, the non-owner occupied share of defaulted loans (90 days of more past due or in foreclosure) was 32 percent in Nevada, 25 percent in Florida, 26 percent in Arizona and 21 percent in California, compared with 13 percent in the rest of the nation. These investors are much more likely to default on their mortgages if they see the value of their investments falling due to falling home prices.” Lemme spell it out for those of you who ride the short bus to school. The bulk of the foreclosures are SPECULATORS. California, Nevada, Arizona, and Florida are speculator central. In fact, if it weren’t for these four states, foreclosures would have gone down nationally! Folks, if the MBA’s data says 32% of the defaulted loans in Nevada are investors, it means the number is probably 50% or more. I bet the MBAs numbers are based on loans that were actually underwritten as investment properties, but probably excludes the loans that were fraudulently submitted as primary residences or second homes so the investors can get better rates and leverage. So how exactly do mortgage brokers rip off these speculators? Do these people deserve a bail out? Are they victims? Additionally, the other states that are experiencing higher than average foreclosures are in the Midwest. “The percent of mortgages in Ohio that are 90 days or more past due or in foreclosure is still more than twice the national average and 1% of all of the mortgages in Michigan had foreclosure actions started on them during the last quarter, essentially the same rate as during the last quarter. Problems are still significant in the nearby states of Indiana, Illinois, Kentucky, Tennessee and Pennsylvania. While Michigan’s problems continue to escalate, however, Ohio’s have shown signs of leveling off, albeit at a high level,” said Doug Duncan, MBA’s Chief Economist and Senior Vice President of Research and Business Development. Once again, for the slow kids. What do these states have in common? They aren’t necessarily known for having booming local economies. Ford and General Motors aren’t exactly running things in the auto industry anymore. Last time I checked, people weren’t moving in droves to Cleveland. The foreclosures in these states have nothing to do with predatory lending but everything to do with crappy local economies. Kind of hard to pay your mortgage when you don’t have a job! I find it hard to believe that mortgage brokers are that much more predatory in these states than others. Seems to me politicians need to figure out how to stimulate their economies instead of worrying about predatory mortgage lenders. I am not trying to minimize the foreclosure situation as I am sure there are some people who are going through some hard times, but I am getting tired of the predatory lending and mortgage broker as bad guy rhetoric. The facts simply do not support that predatory lending is causing foreclosures.

Who is Responsible for this Mess?

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Mon, 20 Aug 2007 03:39:07 -0700

The Wall Street Journal ran a front page story a few days ago about a family in California who is at risk of foreclosure. I feel really bad for the family. Foreclosure isn't something I would wish on anyone. However, I am sick of the sob stories and I am sick the mortgage brokerage industry being blamed for people's bad financial decisions, but at the same time I also am sick of the handful of commission hungry loan officers who are willing to do anything for a buck. The WSJ article demonstrated how the lack of accountability from consumers, loan officers, and lenders have gotten us into this mess and that everyone is to blame.The article interviews the Montes family who purchased a $567,000 home in a suburb in California (surprise, surprise) with 100% financing. They are in danger of heading into foreclosure because the interest rate is set to adjust in a few months and they will not be able to afford the new payment. Additionally, their home has decreased in value and is now only worth about $535k so there is no way to refinance into a better loan. They are trapped. Recall I wrote about this was going to happen to people back in March.The Devil is in the Details: What really spurred my question is that later on in the article, the Montes's mention that their household income is $90,000 per year and that they have hardly any savings. The article also says that their current mortgage payment is $3200 NOT including taxes and insurance which at a minimum are another $500 per month. They also pay about $700 per month for two cars. Last week I explained how banks use back ratios to qualify borrowers. The bottomline is that prior to the rate adjusting the Montes's have a back ratio of about 59%. This is CONSERVATIVE assuming they have no credit card debt. I would also bet the loan is interest only. Take a look for yourself.So Who is Really Responsible?The Montes Family: Why would two seemingly intelligent adults choose to spend nearly all of their income on a home? It doesn't take a mensa member to figure out if your monthly cash outflow is $4,700 and you only bring home about $5400 per month after taxes in income that you can't afford the freaking house! At some point, consumers are going to have to man up and admit they just made some dumb choices. The sob stories simply aren't going to fly. At the same time, when according to a Bankrate.com survey that most consumers don't even know what type of mortgage they have, it isn't hard to deduce that many mortgage brokers and loan officers are doing a piss poor job of educating their clients.The Mortgage Broker or Loan Officer: No client of mine ever gets away without knowing their debt ratios. I make it my duty to explain what it means on every deal. However, we can get into sticky situations by not providing loans that a borrower qualifies for per the lender's guidelines just because we may personally feel they are over extended. Loan officers do not make the guidelines, nor do we underwrite the loans. Predictably, many politicians have been running their traps about making loan officers have a fiduciary responsibility. However, what does that really mean? Should the Loan Officer in this scenario refuse to do the loan even if they qualify under the lenders' guidelines? The Banks: One really has to ask why a mortgage bank would approve a mortgage where the borrowers are basically living check to check and have 50 cents and pocket lint to their name. It doesn't take a complex risk model to know that the Montes's loan was a foreclosure waiting to happen. At the end of the day, it was greed and borrower be damned. Why else would you have a two year adjustable rate with a three year prepayment penalty? The margins on these mortgages were 6% or higher after the adjustment. If they can't really afford it now, what made the bank think they could afford in after the rate adjusts? I can admit that I am not an expert on secondary mortgage markets. For the life of me I can't figure out why the existing mortgage holder will not just do a one time variance of these notes to a fixed rate to prevent a future foreclosure. For instance, the Montes's might be at 7% right now. Just fix the rate at 7% and be done with it. The article says that the home has depreciated preventing a refinance, but the value should be irrelevant to the current mortgage holder if they are keeping the loan. Why would they care about the value if the Montes's are still making their mortgage payments? Values are constantly changing and only becomes an issue when someone has to sell. It just seems to me that the loss on just converting to a manageable fix rate that insures you have payments into the future would be a lot less than forcing a buyer into foreclosure. The PR damage from this industry fiasco alone doesn't seem worth holding firm on loan terms either only to have a bunch of crying borrowers on the front page of the Wall Street Journal claiming they didn't know they couldn't afford the house and the big bad bank won't help them out.So who really is responsible in all this mess? Should the Loan Officer who originated the mortgage take responsibility? Or maybe the Montes's made their own bed, so they should lay in it? Did a lender really expect the Montes's to pay back this loan?Ultimately, it is the Montes's fault, but the loan officer should have known better and the bank got what they paid for.

How Realtors Can Get Theirs Deals to the Closing Table Sooner and Without Problems.

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Wed, 15 Aug 2007 09:49:15 -0700

Why is it so hard for Realtors to work in tandem with loan officers to ensure that the deals get to the closing table with no problem? You would think that since we are the ones holding the purse strings, Realtors would be more proactive in ensuring a smooth transaction. There is always a lot of whining and complaining about Loan Officers on the AR (much of it earned by the way), but a lot of times I think Realtors simply do not understand what it takes to get financing lined up on time and all the moving parts we have to deal with. Personally, I am sick of having to pick up the pieces or having last minute fire drills because my counsel as the guy with the money was not sought earlier in the process.Let's exam some of my pet peeves:Mortgage Contingencies: Important dates, right? We both want to make sure that our clients are protected. Why is it so difficult for Realtors to simply pick up a phone and call to ask if the mortgage contingency in the contract is even reasonable? No one likes to request extensions, but you have to give us more than a week to get the deal done! Seriously, if I get another Realtor crying about needing to meet a mortgage contingency, but only giving us five days from start to finish I am going to go ballistic. There are these little things such as appraisals we need and they usually aren't done in 24 hours. Often time's borrowers haven't even committed or sent in documentation at the time of contract (another pet peeve, but different topic). NO LENDER is going to issue a clear to close approval without a complete loan package. All it takes is a simply phone call to ask how much time do we need for a clear-to-close loan approval. Here's a hint... it usually ain't a week!This leads me to my main beef... lack of preparation. Most lenders are going to ask for the following items, so why can't listing agents be more proactive and actually do what they are being paid to do and have the following ready when I call so I can meet your contingency?Purchase Contracts: Is it too much to ask that the purchase contract be legible? I get contracts and they look like some kind of Rorschach ink blot. How is an underwriter supposed to read this? There really is no need to squeeze a 4 page contract onto one page in size one point font.Condo Questionnaire: Nearly every lender requires a condo questionnaire completed by the HOA. The questions are all the same for the most part. How many units? How many rentals? How many for sale? Any lawsuits against the HOA? Quite frankly, if a Realtor were doing their job they should already know the answers to these questions. So why does it take several days to get this out of the HOA or listing agent? It should have been completed as a matter of a standard listing agreement tasks in my opinion.Hazard Insurance: Again, every mortgage lender will require proof of hazard insurance. When purchasing a condo, why isn't the contact information for the hazard insurance agent readily available? Again, this could be done as part of standard pre-listing tasks so we aren't scrambling looking for it.Title Work: I had a deal almost fall apart because the seller's attorney decided to wait one week before closing to complete a title search. There was a lien against the property and the end investor would not close with an open lien. Again, if you are trying to sell a house, why wouldn't you want to do a title search ahead of time so we know about these issues prior to the 11th hour and can prepare for them when choosing the lenders?Seller Concessions: There is nothing like walking into a closing to find out the Realtors decided to negotiate a $20,000 repair credit, some funky escrow holdback, or a massive closing cost credit. Of course, they forget to tell the LO about it and we go from what should have been a 45 minute closing to a 4 hour closing trying to get this resolved. Any credits need to be discussed with the loan officer prior to being agreed upon and accepted. These items affect financing and not all lenders treat them the same. Any changes to contracts need to be communicated to us ahead of time.Control the Buyers: Realtors have the luxury of not being constantly second guessed about your price. Often times, we want to get a client approved and cleared to close, but we can't because the consumers won't stop rate shopping. There have been times where I am trying to meet a tight commitment date as agreed to in the contract, but the borrower is still rate shopping. Personally, I don't want my staff working on deals where the consumer isn't yet considered a client and formally committed to me. It is my impression that Realtors are not communicating the importance of these dates and why buyers can't keep jumping around from lender to lender and at some point they are going to have to fish or cut bait.I know I can be direct and passionate, but my point really is that we have to have open lines of communication with each other and that a little preparation ahead of time can make the whole transaction go smoother. Just keep us in the loop is all I ask so we can have the money at the table for a happy closing.

Attention: New Underwriting Guidelines Announced!

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Mon, 13 Aug 2007 05:24:48 -0700

Several lenders announced new guidelines today in effort to stem loses from poorly performing Alt-A and subprime mortgage loans. The new guidelines will ensure that borrowers are able to afford their mortgages and prevent future foreclosures. Mortgage applicants must have 20/20 vision. Corrected vision with contacts will require a .5% rate add-on. Glasses are not permitted. Borrowers must have three FICO scores above 800. The borrowers’ parents and first cousins must also have FICOs above 720. DNA, retina scans, and fingerprint samples will be collected on all full documentation loans Private Mortgage Insurance (PMI) will be required on all mortgage loans regardless of Loan to Value (LTV). Applicants can substitute their first born child’s future earnings in place of PMI. Thirty years of cash reserves are now required on all loans Debt to Income ratios will be limited to 5% A maximum LTV of 20% will be allowed on all loans. Borrowers may get a second mortgage for a maximum combined LTV of 21%. Salary.com is no longer acceptable for verification of stated income loans. Stated income applicants must now be listed on the Forbes Richest 100 list. Five appraisals are now required. All comparable properties must be 100% identical to the subject property and within .01% of the appraised value. Value must be verified by Zillow.com Interest rates will be based on whatever makes up the loss on all the other stupid loans we made over the past few years

Stupid Underwriting Tricks - How Efficiency is Killing the Mortgage Business

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Thu, 09 Aug 2007 06:49:17 -0700

Which one of these clients would you rather lend money to? Which one would you expect would pay a higher mortgage rate? Which loan is harder to get approved? Which loan is more likely to go into foreclosure? Client A: This client is Joe Sixpack and a first time home buyer purchasing a $250,000 home in the West Podunck and has five percent to put down. However, a five percent down payment will only leave him with about $2000 in cash after closing, just barely enough to pay movers and maybe by some cleaning supplies at Wal-Mart. He has a 650 FICO score due to a number of late payments on cell phone and credit card bills over the years. His debt ratio is close to 54% which means more than half his income before taxes is going to pay the mortgage and other major debts. He also had a bankruptcy three years ago. Client B: This client is Joe Ivy League and is buying a home for $600,000 and is putting 10% down. After the down payment, he will have a little more $1.2 million in remaining in liquid reserves. The borrower works for a major investment bank and makes a base salary of $125,000 per year and has a year end bonus of at least an additional $150k. However, we can't count the bonus income because he recently completed his MBA at arguably the best business school in the country so he hasn't yet received his first year bonus payout although a five second Google search would show all kinds of well respected third party documentation (Wall Street Journal for example) of what first year investment banking associates can expect in total comp. His current home is listed for sale, but no offers so we have to count the carrying cost of the home. When counting the debt from the current home plus the debt from the new mortgage, his debt ratio is about 70% if we exclude his estimated bonus income. Counting his bonus income he can carry both mortgages fairly easily with low debt ratios. Alternatively, not considering the carrying cost of his current home, his debt ratios are well within guidelines even if we ignore his annual bonus.According to current mortgage pricing models and underwriting guidelines, Client A is the least risky loan. In fact, Client A would have a conforming mortgage of about 6.5% on a 30 year fixed today. This would be an easy deal because I also get an automated approval from Fannie Mae's Desktop Underwriter and Freddie Mac's Loan Prospector. On the other hand, Client B came to me after their loan was denied by another bank. The problem is two fold. First, underwriting guidelines for traditional mortgages focus more on income than wealth. So even though Client B is clearly a common sense loan, most banks would deny the loan because they can't document enough monthly income to cover the mortgage and existing debts OR because they want to count the current home's mortgage payment in the debt ratios because it has not yet sold (home is listed for sale). Fortunately, I am able to get this deal done as a full documentation loan, but it took several wholesale investors saying no to exceptions before I finally found one. Many that said no, would beg me all day long for Client A's loan.I know, you are again thinking WTF? Client B is a victim of over efficiency in the mortgage business. Back in the day before computers, FICOs, CDOs, hedge funds, automated underwriting systems, and call centers, people used to put on a suit and go meet their banker and apply for a mortgage loan. The banker would look at their loan and maybe took it to a credit committee who made a lending decision based on credit, capacity, collateral, and character. In other words, you were more than just a number but a customer of the bank and they tried to assist you financially by making a sound lending decision.Skipping to 2007, none of that matters anymore. All that matters is can your loan be sold to Wall Street. The system is set up so that FICO scores are king and all loans must fit into a rigid box so they can be packaged and sold. Unfortunately, because of the volume of loans and so many investors are buying pools of mortgages, it leaves no room for common sense underwriting. Underwriting mortgages isn't about making good loans anymore. It is about making sure loans can be sold which leaves us with situations above where a documentable millionaire can't get a mortgage, but a guy living check to check with a three year old bankruptcy qualifies for the lowest rates in the market.I believe respected mortgage blogger, Brian Brady called this the mortgage tax. The good is paying for the bad. I call it stupid underwriting. It isn't about needing a stated income loan or needing some other non-traditional mortgage product. It is about someone actually being required to think and make a common sense lending decision based on the facts at hand, not whether we can fit into a product matrix and the risk models.Mortgage banks and lenders need to go back to actually sitting down with each client individually and making rational and logical lending decisions.

Trump Mortgage - You're Fired (Again)

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Tue, 07 Aug 2007 14:55:14 -0700

Looks like the Donald isn't immune to the mortgage meltdown. Trump Mortgage is closing its doors less than two years after opening, although Trump has sold licensing rights to First Meridian Mortgage. You may also remember that shortly after, I said that Trump getting into mortgages was the last straw and that it signaled we were truly in a real estate bubble. I hate to brag, but I guess I was right. Given all the specuvestors buying up Trump's condotel's in major bubble areas like Miami and Vegas with Alt-A products mortgage products this really isn't surprising.www.smartmortgageadvice.com

What is in Your Wallet? Capital One Stops Screwing Their Customers

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Sun, 05 Aug 2007 05:03:41 -0700

Capital One's advertising campaign did ask a great question. Using a Capital One credit card used to insure that there would be less money in your wallet. After years of stalling and excuses, Capital One has finally agreed to start reporting their customers' credit limits to the three major credit rating bureaus. This is an important development and could save many Capital One customers thousands of dollars in the future. This development is more important than ever with credit tightening in the mortgage market and FICO scores are becoming even more important. I also wonder if it is because Capital One is also aggressively hawking mortgages now too?Capital One used to only report the highest credit balance carried to the credit reporting agencies which often times resulted in a negative affect on their customer's credit rating. One of the major factors that goes into your credit score is your utilization of revolving credit ratio. For example, if you have a credit limit of $10,000 and carry a credit card balance of $1,000 you have a very low credit utilization ratio which is very positive for your credit score. In other words, you have only used a small portion of the revolving credit available to you. On the other hand, Capital One would only report that you carried a $1,000 credit balance instead of informing the bureaus that your credit limit was actually $10,000. So instead of the credit bureaus rating your credit history with you only utilizing 10% of your available credit, it would appear you are using 100% of your available credit giving the false impression that you are maxed out with revolving debt. This little technicality in reporting methods could cost Capital One clients 50-100 points on their FICO scores which ultimately translated into higher mortgage rates for Capital One card holders. For example, if you really should have had a 720 FICO score, being a Capital One cardholder could have made your FICO score less than 680 which can make a huge difference in the mortgage rates that you would be offered. The credit bureaus sell credit ratings and other data to competiting credit card companies. By hiding the credit limits, Capital One made it harder for their competitors to poach their best customers. However, in doing so, they also penalized their best customers.Nevertheless, when it comes to credit cards, it is always best to scrutinize what is in your wallet.www.smartmortgageadvice.com

How Much House Can You Afford?

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Wed, 01 Aug 2007 03:57:50 -0700

The question that I am asked most by potential homebuyers is "How much can we afford?" This is a loaded question. The first thing I tell my clients is I cannot tell you how much you can "afford", but I can tell you how much you will qualify to borrow. There is a distinct difference between the two and this is something that unfortunately, many homebuyers do not understand. More on this later.Lets examine how lenders determine how much you can borrow. Every bank approaches this the same way and the math is extremely easy. Lenders look at two major ratios to determine how much you can borrow:Front Ratio The front ratio is the total housing payment divided by your gross monthly income. Essentially, the front ratio tells the lender what percentage of your gross income is spent on housing. The industry standard for the front ratio is 28%. In other words, under traditional lending guidelines, borrowers typically spend 28% of their gross income on their housing payment.Example: If your total household income is $10,000 per month, you should be able to spend approximately $2800 on your total housing payment. $10,000 x 28% = $2800. The total housing payment consists of principal, interest, taxes, and insurance/condo fees (PITI).Back Ratio: The more important ratio is the back ratio. The back ratio is calculated the same way as the front ratio, but this time we include your monthly debts. The back ratio is the total housing payment PLUS any installment and revolving debt divided by your gross monthly income. The only debts that lenders consider are installment and revolving debt. Installment debts have the same monthly payment each month. These are usually car or student loans. Revolving debts are credit cards. We use the minimum monthly payment required by your credit card company as reported on the credit report. Lenders do not consider miscellaneous debts such as cell phones or cable bills.General underwriting guidelines stipulate that your back ratio should be 36%. In other words, you should be able to comfortably spend 36% of your gross monthly income on housing and major debts. In our example above, that would equate to a total of $3600. So if we spend $2800 on our total housing payment, that leaves $800 to spend on car payments and student loans.So what does this mean in terms of a purchase price? A good rule of thumb to follow is you can spend 3-4x your gross annual income on a home depending on your debt load. So if you make $100k per year, you can spend $300 - $400k pretty easily.It is important to remember that the ratios are a guideline and they are flexible. Most lenders will allow back ratios up to 45% without blinking an eye. Some will even go to 50%. I have gotten loans approved up to 65% with automated underwriting programs. However, this does not mean you can necessarily afford to spend half of your gross income (remember, you still have to pay Uncle Sam) on a house. This is why I said there is big difference between what a lender can qualify you for and what you can afford. If you enjoy eating out at Spago's, maxing out your 401k, traveling, or spending money on anything other than your house, you do not want a back ratio approaching 50% because you will be flat BROKE. Your loan officer/mortgage broker should discuss with you debt ratios to ensure you are ready to handle the debt of homeowner. If your loan officer has not taken the time to provide an analysis of your debt ratios, find another loan officer.I would encourage anyone thinking of buying a home to sit down and complete a DETAILED budget prior to getting fixated on how much they want to spend on a house. This budget should track every expenditure from your student loans to how much you spend on Starbucks coffee. Next you need to figure out how much money you need to save each month. After you do all of this, put away the amount you feel you can spend on a home each month into a savings account for three months. If you can't do this without feeling an ounce of pain, then you need to readjust your purchase price because you will be spending too much on your home.I have some great spreadsheets that will help you budget and calculate your ratios. As always, if you have any questions, don't hesitate to give me a call.Russwww.smartmortgageadvice.com

Even Wall Street Bankers Have Bad Credit Now

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Tue, 31 Jul 2007 10:44:38 -0700

Foot in mouth disease is something that all of us suffer from at some point in our lives. From the mortgage front, John Devaney, who runs United Capital Markets, a hedge fund that made ungodly amounts of money from trading subprime mortgages is now having a little finanical difficulty as a result of the subprime fallout.Poor old Mr. Devaney has to sell his $23 million dollar yacht and put his $16 million dollar ski chalet in Aspen up for sale. He may even have to sell his plane and fly Southwest too.According to CNNMoney, Mr. Devaney is quoted as saying about Option ARMs:"The consumer has to be an idiot to take on those loans," he says. "But it has been one of our best-performing investments."Looks like Mr. Delaney may need to apply for sub-prime cash-out refi to consolidate some credit cards and other debts if things don't turn around. Homeowners getting Options ARMs may be for idiots, but it takes an even bigger one to invest hundreds of millions of dollars in them. www.smartmortgageadvice.com

Rate Shopping Simplified

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Wed, 25 Jul 2007 09:23:55 -0700

I like to keep things simple. In fact, the longer I work in this business, the more I realize consumers want things as simple and plain as possible even when it would be to their advantage to understand the complexities of the mortgage market and their largest financial transaction. As such, I was trying to figure out a way to simplify rate shopping so anyone could understand what has to be considered when choosing a mortgage. Relying on my years as a management and strategy consultant cranking out ungodly amounts of presentation slides full of useless graphs, charts, and business paradigms, I came up with the mortgage triangle. Like all ground breaking ideas, I scribbled it on a napkin. The triangle conveys the three main points of any mortgage loan. low rate, low fees, and great service. After years of testing this theory in a controlled environment, I have come to the conclusion that the consumer can only pick two of the three. It is against the laws of mortgage physics to obtain all three at the same time and if this were to occur, the universe would self destruct across space and time. Let’s exam the available combinations: Lowest Rate and Lowest Fees: If you simply pick the lowest rate and lowest fees, service will invariably suffer. The service component of a mortgage is one of the most overlooked aspects of mortgage but it is the most important. I define service as actually being able to close the mortgage loan at the rate and fees quoted in a timely manner and with the right loan product for your situation. The experience a consumer has with obtaining their mortgage is largely dependent upon the loan officer who is handling the transaction which is why it is important to shop the loan officer and not the mortgage. As such, when you have the absolute lowest rate and lowest fees, you cannot by definition have the best loan officer working on your deal since loan officer compensation is directly impacted by rate and fees. The best loan officers are never the cheapest, nor are the most expensive. They may be the most competitive in terms of all three choices, but never the cheapest. If you got a loan and had a great experience with the loan officer, I am willing to bet money that if you kept calling around, someone else would have probably done the loan a little cheaper. This is not to say you got a bad deal, just that there is ALWAYS someone who can claim to be cheaper. However, whether they can actually delivery is an entirely different topic. Lowest Rate and Best Service: It is possible to obtain the absolute lowest rate on a mortgage and also get great service. However, the fees will be higher. Interest rates and fees are linked. As interest rates go down, fees will go up and vice versa. Again, this is one of the laws of mortgage physics that cannot be broken. The bottomline is closing costs will be higher in the form of discount points, origination fees, and lender fees. This isn’t necessarily a bad thing as it sometimes makes financial sense to pay higher fees or points to get a lower interest rate. Best Service and Lowest Fees: In this scenario, the interest rate will be higher. If lender fees are low or non-existent, it is because the interest rate is higher than otherwise available. Period. There really isn’t much else to say. Most consumers immediately gravitate towards trying to beat the system by getting the lowest rate and lowest fees and great service. Again, you can’t break the laws of mortgage physics! When this occurs, many will actually cross over into a parallel universe where they actually get the highest fees, highest rate, and piss poor service. Occassionally, we are able to pull them back into reality, but sometimes it is too late. Shopping for a mortgage is easy. Just remember the triangle.

Picking the Right Property

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Mon, 23 Jul 2007 08:35:07 -0700

How do you tell someone their baby is ugly? It is very difficult. One of the characteristics of many of the good Realtors I have worked with over the past several years is that they aren't afraid to tell home buyers or sellers their baby is ugly. I know, it is cruel. But when dealing with large sums of money, sometimes it is better to not sugar coat things, especially in this market. Homes are still selling. However, the ones that are selling usually have two things going for them. First, the price is right. Second, the home shows very well. They are properly decorated. They have features people want. Most importantly, they stand out from the crowd.Most consumers are unable to seperate themselves emotionally from their purchase. As a result, they often overlook features of their homes that will make it difficult to sell in the future, thus limiting their investment return. Yes, your home is a place to live. However, at the end of the day, you also don't want a money losing investment. When selecting a home, it is important you think beyond today and also focus on the future marketability of your home. Just because you don't mind living next door to a strip club, doesn't mean future buyers won't.Do not make these mistakes. They can be costly.No Parking: While this might not be a big issue in suburbs, having a parking space is a big deal in high density large cities. Buying a condo or house without at least one off street parking space is just plain dumb, especially in Chicago. I know, you don't have a car, but that doesn't mean the buyers of your unit won't either. . People want parking spaces. Don't believe me? Look how much people are willing to pay in New York. Sure, there are some neighborhoods where street parking is readily available, but those are the exception, not the rule.Bad Views: While you don't necessarily need a view of lake Michigan or a downtown skyline, you also don't want a view of the neighborhood gas station either. Seriously folks, buying a home isn't rocket science. People don't want to look at gas stations, fast food restaurants, or overlook strip malls when gazing out of their windows. When you buy a home with such an obvious flaw, you are immediately elimating a large portion of the market.Busy Streets/Highways/Trains: There are some streets that make selling a home next to impossible. You can have the best home in the world, but place it on the wrong street and they will get skipped over faster than crack in a side walk. If you stand outside of the house and it sounds like a NASCAR race, you may want to reconsider that property. It takes a special person to live directly on the El tracks or on Ashland in a walk up.Bad Floor Plans: So you don't think it is a big deal to have to go through the master bathroom to access your deck? So what if washer and dryer hookup is outside of the house? Who cares if the master bedroom is onlyseven feet wide? Bad floor plans are almost worse than living right on the highway. Modern Amenities: It used to be ok for homes to not have modern amenities such as central air or in unit washers and dryers. Nowadays, it is unacceptable. Buying a home without these creature comforts in most cities is just a big no no. People want them. Plain and simple. There is something inherently wrong about spending hundreds of thousands of dollars for a place without a washer and dryer.McMansions/McCondos: Enough cannot be said about buying a home that stands out from the crowd. Developers have over run the country with tasteless and bland tract homes that all look the same or houses that are so out of place architecturally all your neighbors will hate you. In large cities we have high rises full of 2 bedroom/2 bath condos with predictable floor plans. You don't want to be buying a home that is exactly like all 200 of your neighbors. This will make it very difficult to distinguish your property from everyone elses. When that occurs, the only thing you can do to distinguish yourself is lowering the price. If you do pick a home with some glaring flaws, make sure the flaws can be corrected. For instance, if you don't have a washer and dryer can one be added easily? No parking? Maybe a rental space is available. On the other hand, there is nothing you can do about buying a home next to a highway or fixing a jacked up floor plan without major renovations. The bottomline is choose your home carefully with the future in mind. Remember, if you notice something wrong with a property the first time you visit it, your potential buyers when you try to sell it are also going to notice it.

The Loan Officer Species

Russ Msrtin, Residential Mortgage Advisor (Perl Mortgage) — Wed, 18 Jul 2007 06:49:11 -0700

The hunt continues! A couple of weeks ago we discussed the various types of Realtors one is likely to come across. Now it is time for the loan officers to be exposed. Once again, this post is littered with stereotypes and generalizations, but we all know we have run across these folks at some point in our lending careers so don't get all politically correct on me. It would be wise for consumers to figure out which one they are dealing with.The Gangster: Maybe you haven't heard, gangs and street thugs have figured out that mortgage fraud is a lot more profitable than dealing drugs and damn sure less dangerous. Seriously, if your loan officer has a tattoo on his neck or a dollar sign tattooed on the palm of his hand, you may want to keep shopping for a mortgage loan. The Newbie: Everyone starts off as a newbie. Newbie loan officers are very similar to newbie Realtors. In fact, they usually have the same birth mother. I think the temperature of the womb determines who winds up as a Realtor and who winds up as a loan officer. In the finance world, newbies are dangerous. Nothing like being young and dumb. Every established loan officer remembers their dumbest newbie mistake. Mortgage lending is a game of experience, so consumers would do best to focus on your loan officer's experience rather than that low rate quote. Sooner or later the newbie morphs into other species of loan officers. What they become is based on where they started off.Jack of All Trades: Nothing like juggling several different careers. Most part-time loan officers got in the game during the refi boom. Be forwarned, Part Timers are Part Timers because they aren't good enough to be full time. You wouldn't use a part time lawyer. Or better yet, let's use a part time surgeon. Dumb right? So why do consumers use part time loan officers for the largest financial transaction of their lives? Part Timers also have a knack of being able to hook you up with a ton of ancillary products that they also sell on the side. Need life insurance? I got ya! Need homeowners insurance? I got ya. Need a notary? No problem. I can even list your home for sale. I also have my Realtor license. Note: As I was writing this post, a FedEx delivery man dropped off a package and mentioned he was a loan officer on the side. God help us all.The Super Producers: There are loan officers who close in excess of $100 million in loans per year and can make seven figures (yes, you read that right). Every loan officer aspires to be that guy or gal. Like Super Producer Realtors, Super Producer Loan officers have figured out how to make the world revolve around them. Car of choice is ususally a Range Rover of if they are really bold, a Porsche. Super Producers are either really good or really bad loan officers. Like Super Producer Realtors, you are bound to run into an army of assistants. Super Producers are all about volume. Phone calls may only last about 2 minutes with them. You are a fortunate client if they remember your name.The In House Guy: This loan officer usually works inside a real estate office as part of an affiliated business arrangement. They usually are into S&M because there is no way any normal loan officer would ever want to be stuck in a office full catty Realtors all day on purpose. Hint to consumers: They weren't referred to you by the Realtor because they are good or have low rates... it might be that year end cruise to Aruba for in house referrals that is really motivating the referral.The Graphic Artist: Trained by Ameriquest, these Loan Officers are experts at Adobe Acrobat and Photoshop. Need tax returns? No problem. Your employer forgot to include that $50k bonus on your w-2? Wink, wink. We can fix that. These loan officers are masters at making those deals that every other loan officer told you was impossible possible. The FBI will come a knocking.The Refi Monkey: Believe it or not, there are loan officers who have no clue how to handle a purchase transaction. These loan officers got in the business during the refi boom and there was plenty of money to be made just churning loans and selling low interest rates to refi customers. Of course, as rates started going up, the refi monkeys quickly found out that you can't live off refis forever. Now they are running around driving Realtors crazy dropping off rate sheets and donuts. Can often be heard saying things like "Why can't we just push the closing back a few days?"The Fisherman: This loan officer doesn't have very many clients. Of course, you only need one or two closings per month if you make $20k in fees off every deal. Like his name says, he is in constant search of the whale of a client. I haven't figured out if he just targets borrowers who are short on brain cells or if he is just that good of a salesman. Fisherman are easily spotted because they never work more than 15 hours per week. Sub-Prime Sam: Nearly extinct after the sub-prime implosion, this loan officer only focused on subprime loans because "people will always have bad credit" and he was "tired of dealing with A paper rate shoppers." Sub-prime Sam wasn't aware that there is such a thing as a full documentation loan and just because the borrower lost their last paystub doesn't mean it automatically needs to go stated.The Professional: Like Professional Realtors, the professional loan officer is a rare breed. They actually care about their client's financial well being. They have made a career in residential finance. Most of their clients are through referrals. Clients can expect to be treated with respect and educated on all aspects of their largest financial transaction. Professionals usually put together the best overall package of rate, fees, and service for their clients. The rate is always delivered as promised. The fees never change. The loan closes on time. They also may actually attend their closings in person!The Call Center Monkey: These loan officers usually work for big mortgage banks or internet lenders. They usually go by names of Mortgage Specialist or Loan Coordinator. If you are lucky, they have been on the job longer than two months and may even be located in the US. If you called a 1-800# for a big bank, the odds are you are dealing with the Call Center Monkey. Good Call Center Monkeys strive to learn the ropes so they can leave the hell of their Dilbert-esque call center and start making real money in the outside world as a self-sufficient mortgage broker. Depending on the company, some may turn into the JT Marlin though, so be careful!JT Marlin: An evil relative of the less intimidating Call Center Monkey, the JT Marlin works at a boiler room mortgage hack shop. These loan officers love repeating lines from movies such as Boiler Room and Glen Gary Glenross. (Warning: Dirty Language). Success is measured in fees collected. Be careful, because they are always closing. I captured some rare footage of the JT Marlin broker at work. Almost always will be under 30 and can usually be seen driving a leased Hummer H2.I am sure there are other classifications of LOs, so I would love to hear about them. Fire away!