I write you for two reasons today. First, to share some insights with you about WaMu and Option ARMs and second, to share with you our teams views on how traditional Loan Officers failed to guide your clients with this type of loan.
Why is what I'm about to share with you important? Because is will affect YOUR business moving forward! Working with the right planner is crucial to your success!
The option adjustable-rate mortgage (ARM) will be the loan that will be blamed for Washington Mutual's demise. The bank believed the loan was a creative mortgage that would help a variety of borrowers in various stages of their lives. The loan gave borrowers more choices over monthly payments each month, thus providing an opportunity to "flip-flop" payments according to household cash flow. Because of its flexibility and versatility, it was promoted as "the only loan you'll ever need."
We at Silverstar Finance have done Option ARM loans and we have had hardly any complaints because of what we do after a loan is funded. Yes, after a loan is funded! We understand the complexities of the loan, we studied the forecasts and the history of the loan, we explained the loan in great detail to each and every client, gave them choices and advice, and most importantly, we continue to conduct FREE Annual Check Ups for everyone that has an Option ARM loan and we also do a Monthly "Rate Watch" for all clients as well. What is "Rate Watch" and why should your trusted mortgage advisor have this service for your clients? See here for an actual sample rate watch email, which you just may love!:
http://www.screencast.com/users/kjkooiman/folders/Jing/media/ba6df2b5-4041-4c57-adcf-13c04c8ae4e5
You and your customers can sign up for this service too if you like.
Did you know that a typical Option ARM loan is forecasted to be in the mid to high 4% range by early next year?
First, the history of the MTA index, which was WAMU's primary index of choice:
http://www.moneycafe.com/library/mta.htm
And the forecast:
http://mortgage-x.com/general/indexes/mta_rate_forecast.asp
Most of our clients had a margin in the 2.65% range. Simply add 2.65% to the number in the forecast chart and you'll be able to estimate what rates for Option ARM customers will have. That means that the majority of our Option ARM clients will have fully amortized rates in the 4.50% range in less than a year and very little negative amortization. If the Loan Officer that you sent your clients to was doing Option ARM loans and gave your clients 3 year prepayment penalties coupled with margins higher than about 2.85%, you and your clients may have a problem, especially if you are still working with this person. It's time to hire another mortgage planner. If you don't think so, I beg of you to do some research into the amount of money that was made by the Loan Officer by their failure to do ethical and honest work. It's because of these high margins that Option ARM loans began to re-cast early, which ultimately put unprepared clients into foreclosure, putting WAMU out of business. We feel that it was the Loan Officers duty to conduct reviews at least once a year to give advice on which payment to make, forecast the re-cast point, prepare their client for the new payment, and do their best to give strategic advice that can delay the re-cast for the customer. All of this should've been done and it wasn't.
Customers got lulled into making minimum payments for far too long (A simple "Annual Check Up" from a Certified Mortgage Planner would've been enough to avoid this problem), compiling substantially more debt than the original loan amount. Others knowingly used the loan to get into homes they realistically could not afford. Once again, working with a Certified Mortgage Planner would've prevented this problem as well. More importantly, the bank accepted option ARMs from many brokers who did a rotten job of explaining how the loan really worked. Seeing a pattern here? Working with a CMP is essential, especially when dealing with complex and life changing circumstances such as explaining this type of product.
Many consumers and brokers simply didn't "get" all of WaMu's options. We did. Others clearly understood but were motivated by attractive commission fees or the possibility of living in a home they could not truly afford. The bank kept accepting the loans from just about all who wanted to opt in. Now, many consumers simply can't opt out.
To sum it up, Loan Officers that were selling the Option ARM loan should have been doing more than being just good salespeople. They should've explained the product to their clients in person, conducted annual check ups, advised clients to sell or refinance if they saw mismanagement or overspending, provided rate watch reports, and should've put the clients needs before their own. They should've cared about their clients and their well-being, and most did not. Even if the Loan Officer did care about their client, it was also their duty to do more than care...they should've created systems to manage their loans and they should've done more due diligence before selling the product, which would've helped gauge whether or not their customer belonged in this type of loan. Many did including myself and many did not. Being nice or a good salesperson is simply not enough.
So while the Option ARM loan is now a thing of the past, doing the right thing for our customers is not. This is the time to give sound planning advice. This is the time to give our clients and prospects the information and education they need so desperately so that they will make good decisions. The smarter your client is, the better decisions they will make, the more successful we will be, and the more referrals we will share. Sounds like a great recipe for success to me!
Hope you enjoyed the commentary and article. Please, forward this to all of your peers, as I'm sure they will appreciate it as well.Thank you!
To Your Success,
Kurtis Kooiman on Behalf of
Team Silverstar Finance
Certified Mortgage Planners
(p) 714-892-1002
(f) 714-892-1092
P.S. Interested in partnering up to put on some educational workshops for your clients? Whether you're a Realtor, a Financial Planner, Divorce Attorney, CPA, Family Therapist, or any other service provider, workshops are very important and profitable!
We have the systems and tools to make this happen in an efficient and very inexpensive way. Most workshops cost anywhere from $100.00 to a max of $1000.00 depending on event location. Just think, one new transaction pays for the entire event and then some! Your clients will thank you for caring, this I promise you!
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