Florida Loan Advocate

How to Determine Whether Your Loan Officer is Reputable

In slower markets, some loan officers may feel pressured to close deals that      aren’t in the homeowner’s best interest. In order to avoid getting into difficult and financially compromised positions with their mortgages, borrowers are well advised to be acutely aware of the signs of a responsible loan officer when selecting a mortgage professional.

First, look for a Mortgage Planner whose values are focused on helping individuals to achieve their financial goals in both the fastest and the safest way possible. A reputable Mortgage Planner will show you the numbers associated with the proposed loan and provide you with concrete information that backs up his or her claims. Review all of the numbers. If they don’t add up, ask for clarification. If your loan officer can’t or won’t answer your questions, move on--without the loan.

Secondly, a responsible Mortgage Planner will present you with financial information that goes beyond the point of the transaction, and will illustrate the total cost of the loan over time. If your loan officer is focusing only on rates and fees, you may be working with someone who’s looking out for his or her own best interests, not yours.

Responsible Mortgage Planners will also tailor their strategies to fit your unique situation. In other words, they always take your personal financial goals into account. No one should try to place you into a loan without knowing the intricacies of your personal financial situation.

Finally, if your loan officer is advising you on issues other than mortgages, you could be working with someone who is compromising your best interests. Issues like investment rates of return and real estate appreciation aren’t the areas of expertise for the vast majority of mortgage professionals and should be left to the professionals who have training and direct experience in those areas.

When seeking a loan officer, look for someone who specializes in mortgage planning, which is the process of evaluating a borrower’s unique financial situation and advising the borrower on a loan that best suits his or her individual needs and goals. If your loan officer is trying to put you into a loan without evaluating how that loan will effect your entire financial situation--including debt management, tax benefits, investment goals and net worth--it’s quite possible that you’re only getting half of the picture.

The bottom line is that your mortgage representative should always be looking out for your best interests, regardless of market conditions.

Thanks to All Veteran's

I just wanted to throw a shout of thank you to all of those who have served and are currently serving in the US military, all branches.  Also, to all of those serving alongside them as our allies as you deserve our thanks as well.

So, no matter what branch you are serving in, know that your sacrifices do not go unnoticed.  It is due to your bravery and sacrifices that the United States of America remains a free nation.  The long times without family and the lives that are lost are but a couple of the long list of sacrifices that have been and continue to be made to keep America free.

So, I ask that whether or not you agree with the Iraq War, or any other war for that matter that the US has been in, please join me in honoring those who proudly serve our country and lay their lives on the line and those who have done so in the past.

Facing Foreclosure? Watch Out for the Scams!

It is a sick world we live in, but we have to face the facts.  There are simply a bunch of greedy bastards that feed of the suffering of others.  Many homeowners who are facing foreclosure could be facing a bigger problem, the so-called rescue that was supposed to save them that ultimately destroyed their lives even more.

If anyone claims to be able to "rescue" you from foreclosure, be skeptical and make sure it is for real.  There are some legitimate rescue companies, but there are also many vultures ready to feed on you. 

The biggest one is probably "equity skimming", where an individual or company offers to take legal ownership of our home temporarily, you subsequently pay rent to the company, and down the road the company returns the property back to you as they promised.  The reality is the company rapes the home of equity by borrowing against the property, collect the rent and never pay the mortgage.  This leaves the home in foreclosure any way, only now the con artist walks away with all of the equity.

The second most common "rescue scam" is from false consulting companies.  They offer to renegotiate the mortgage with a lender or help refinance the property.  They charge upwards of $1,200 for this "service", which typically ends with them doing nothing but taking the money, stating the lender is unwilling to renegotiate or the borrower cannot qualify for a refinance.

If you are facing foreclosure, or anticipate that possibility, don't succumb to these scams.  Try to renegotiate the mortgage with your lender on your own and talk with a mortgage planner to see if there is a legitimate way out.  There are some reputable investors out there that can do a purchase/lease-back rescue with you getting the home back in the end or other options, but make sure you can trust the investor first. 

Scam artists have no ethics and know they can get rich quick of the tragedies affecting homeowners right now.  If you exercise due diligence and find someone you can trust, you will be able to avoid being taken for all the money you've got.

HR 3915 Gets OK from House Panel - Be Afraid, Be Very Afraid

I had been mostly silent during the time period this bill was being prepared for vote.  I did post today on some of the issues within the bill and the real reason I am against it, which is that ultimately it will do more harm than good for the consumer.

Well, the bill is now set to go to the House for a vote and then move its way over to the Senate and finally to the President.  Chances are it will be amended along the way, which we hope will be the case to make the law more consumer friendly.

While there are some issues that I, as a mortgage broker, do not like, they are my issues alone and some of the requirements will actually be welcomed by many of us (hey, any way we can eliminate competition and drive prices up is a good thing for us).  There are issues that you, as a consumer, should be afraid of though.

The CMPS Institute (where Certified Mortgage Planning Specialist {CMPS} designation comes from) created their own proposal which you can view here.  I must admit this seems to be the best proposal yet, though even it could use some additions as it falls a little short.  At least it would be the best starting point for what is out there.

Here are some of the dangers you should be afraid of if HR3915, The Mortgage Reform and Predatory Lending Act of 2007, goes through as is...

1. Elimination of Yield Spread Premiums (YSPs) - Mortgage brokers make their living through commissions they earn from the wholesale lenders to whom they broker loans. These commissions are called yield spread premiums (YSPs) and are in most cases fully consistent with the commission schedules that are used by bank loan officers. However, brokers tend to have more latitude than bank loan officers in pricing their loans. This can be very beneficial to consumers as brokers can sometimes be more flexible than bankers in terms of pricing out various point and interest rate scenarios on many loan programs. One loan program that would be virtually outlawed under this proposal would be the no-cost refinance where the broker uses their YSP to pay the borrower’s closing costs. The very clause that is intended to protect consumers would result in harming them and increasing their refinancing costs.
2. Fiduciary Responsibility, Suitability Standards and/or “Net Tangible Benefit” Requirements - Proposals that call for requiring a federal fiduciary standard for mortgage originators or a “net tangible benefit” requirement for mortgage loans are impractical for the most part and will result in costly and unnecessary litigation within the mortgage industry. Secondary market investors would refuse to buy and securitize loans, bankers would refuse to issue loans, and brokers would refuse to originate loans – all out of fear that the consumer will come back and say, “You shouldn’t have sold me the loan in the first place.”  Furthermore, a federally-mandated standard would put the government firmly in the driver’s seat when determining which loans are suitable for consumers. It would be much better to allow consumers to make their own personal financial choices without government interference. Rather than imposing a federally-mandated “net tangible benefit” requirement with no practical way of enforcement, a better solution would be to implement the three guidelines proposed in this policy statement.
3. Legislating Underwriting Guidelines - Proposals that call for federally-mandated underwriting guidelines will greatly limit market-based innovation and snuff out many of the financial choices available to consumers. One of the greatest benefits of living in the US is the myriad choices we have when it comes to investments, homeownership, lifestyle, etc. Government-decreed lending guidelines are not consistent with the personal freedoms inherent in the American way of life. Rather than jumping into the mortgage business, governments should simply require the industry to act in a responsible manner by implementing the three guidelines proposed in this policy statement.

Additionally, more mortgage professionals will likely leave the profession, reducing competition and allowing those remaining to drive costs higher.  So, ultimately, the American homeowner loses.

Money Merge Accounts: How Do They Work? (Beyond the Software) - Part 1

To start the series, I want to make sure you understand one thing, your situation is unique and this or any other strategy you read about (or are pushed into) may not be the best for you. 

Money Merge Accounts are being highlighted as the best thing ever to pay off your mortgage as fast as possible and become financially free.  Undoubtedly, you have seen or heard of being able to pay off your mortgage in as little as 6 or 7 years. 

Impossible?  Scam?  Too good to be true?  NO!

However, before you decide on purchasing a Money Merge Account, or any other mortgage acceleration program for that matter, you need to understand the truth about how they work and determine which one will be best for you.  You also need to seek proper guidance from a mortgage professional that can offer a wide variety of solutions crossing the realm to include equity harvesting.  Why?  That is the only way to ensure that the mortgage solution you choose is the best one for your situation. 

This series will go deep into how these work and why you really do not need expensive software to accomplish the same thing.  Heck, you can even use one type (a little more expensive) to set the program on cruise control and never even think about it again.  More on that later.

I will also show some other strategies, including touching on equity harvesting, to show how these strategies can outperform the mortgage acceleration programs, or simply be a more viable alternative for you.  For the majority of you, these other strategies will provide increased liquidity, safety and rates of return compared to the mortgage acceleration programs.

On to the basics....

Money Merge Accounts and other mortgage acceleration programs such as CMG's Home Ownership Accelerator, utilize a modified form of a Home Equity Line of Credit (HELOC) also referred to as an ALOC.  The reason for this is to utilize the interest calculation differences to minimize interest expenses and maximize principal payoff.

Make no mistake about it, the majority of the savings from any of these programs comes from you applying extra principal payments into your primary loan.  The HELOC allows for an "interest cancellation" effect to take place which "accelerates" the mortgage payoff.

HELOC interest is calculated on an average daily balance, so paying extra principal from your HELOC into your primary mortgage, then dumping your income into the HELOC takes advantage of this difference.  You then pull money for expenses out of the HELOC as you need them, but any money you don't spend is used to keep the HELOC balance down, thus minimizing interest accrual.

When the balance gets low enough, assuming you are utilizing the software, the program will instruct you to pay more money from the HELOC into your primary mortgage.  This means you are using your "discretionary income" to pay off your mortgage, which may raise a caution flag in your financial situation.  More on that later in the series.

The bottom line in how these work is being more efficient in how you apply using any or all of your discretionary (or disposable) income to pay off your mortgage as quickly as possible.  The software assists you in doing this a little more efficiently, but the software itself does not provide any "real" savings, simply a means to make the program work more efficiently, assuming you use it.  I will address that more later as well.

The next part of this series will be basically a reiteration of how these programs work.  I will, however, add a table that shows how the money is transferred around in a "best case" scenario.  I will then likely touch on how these programs may not help you and show how you can do this without expensive software. 

Continuing in the series, I will show some other strategies, many of which have been posted by me before through the times, that show potentially better strategies than to focus on paying off your mortgage.  Many of these strategies, if implemented and followed, could actually put you in a position to pay your mortgage off even faster than a Money Merge Account can.

I will then end the series with a recap of the various scenarios, how they compare and which one(s) will lead to the most wealth over time.  Again, remember that even the ones leading to the most wealth may not match your specific financial goals, so do not be "swayed" into either one.

As food for thought before my next post in this series, remember the following...

You cannot focusing on saving money and investing money at the same time.  In other words, if you go for a mortgage acceleration program, in order to make it work as advertised you will not be able to divert money into other investments to achieve other financial goals.  To do so renders the benefits of such programs as just about useless.  Choose one strategy and stick to it in order to achieve that strategies true benefits.

Jobs Jamboree Creates Perfect Storm and Destroys Bonds

Today saw the release of the Jobs data.  Last month's data was a big surprise in favor of bonds, this one was the exact opposite as it was a big surprise going against bonds. 

The Jobs Jamboree consists of non-farm payrolls, unemployment rate, revisions to prior month's data, average work week and hourly earnings.  Lots of data at the same time reflecting current inflationary pressures (wage based).

Last month saw a big surprise with a loss of 4,000 jobs versus expectations of 100,000.  Today's data blew everyone away though.  Not only did the jobs number exceed expectations, 110,000 versus 100,000, but the revision to last month's data was upward, not downward as expected.  In fact, the revision was a major revision, going from -4,000 to 83,000.

Combine that data with larger than expected hourly earnings growth and the other data being in line and you have the makings of a perfect storm for sending bonds lower, fast. 

OK, maybe not a perfect storm, but it definitely destroyed the bond market today with them dropping 41bp so far.  They are currently just below their 200-day Moving Average, an important support layer which staying below would signal higher home loan rates ahead.

It reiterates how my previous post may be truer than most think.  Go back and read Will the Fed Regret Cutting Rates? to see what I mean.

Suze Orman has Lost Touch With Reality

I was just watching a snippet from Suze Orman on how she says to get a 15-year mortgage and "stop wasting money" with a 30-year mortgage.  Has she lost it? 

Well, some things about Suze you should know.  Yes, she is a Certified Financial Planner(R), but she currently is not practicing it.  Also, several years ago, 1998 to be exact, the Journal of Financial Planning reported on their own study comparing the 15 year and 30 year mortgages.  They determined that the 30-year mortgage was the best.

It is important to note that the Journal of Financial Planning is produced by the Financial Planning Association, the association of Certified Financial Planners.  So, Suze is going against her own profession by making these comments, and reality for that matter.

Does what she says makes sense?  For the vast majority of Americans, the answer would be NO.  Forbes Magazine has even had an article saying Suze's advice is not the best for most (December 2004 issue).

So, who should you listen to?  Why not listen to those who are not simply entertainers.  You know, those everyday Americans that have chosen to do things different and became wealthy.  Those which can provide guidance on how you can achieve wealth by changing your thought process and not following conventional wisdom, which is basically what Suze reiterates.

In Suze's defense, her advice is good advice to those struggling to pay their bills or lack discipline to implement better strategies, which may even be you.  But if you are looking to meet your financial goals in a better way, providing for your children's education, other goals or simply more money for your retirement, then stop listening to her and start listening to those who have achieved that.

Is Too Much Emphasis Placed on the Jobs Report?

I have enjoyed reading Dan Green's breakdown of how statistically insignificant the "misses" of the numbers are in light of the overall marketplace.  So, it begs to differ whether there is too much emphasis placed on these numbers.

However, whether or not those numbers are overemphasized, markets move dramatically on the news, either up or down.  Today, we see bonds dropping and, due to mortgage rate pricing, mortgage rates are moving higher on this morning's report.

Why?  Bonds do not like inflation and this data shows the potential for wage based inflation.  Also, they see the Fed's next move possibly being unchanged instead of another rate cut.  All of these "emotions" play into the markets.

Going back to my previous post about whether or not the Fed will regret cutting the rates, especially by 50 basis points, today's data certainly favors the fact the Fed may have hit the "panic button." It also raises questions as to what the Fed's next move will be at the end of the month.

In fact, sentient on Wall Street has moved from believing the Fed should cut rates again to that of the Fed having overreacted at their last meeting.  The Fed certainly has to be second guessing their last decision.

Let's look at another perspective.  That is one of some economy watchers that feel the Bureau of Labor Statistics create jobs out of thin air, then have to go back and do revisions.  They do not like the "guessing" due to the market reacting to today's data, which is likely not accurate.

So, going back to the original question, formulate your own opinion.  But, no matter how you feel, markets react to the numbers and to the revisions that come later and there is nothing we can do about it. 

Take Your "Toxic" Mortgage and Be Happy

If someone were to ask you to name the most toxic or dangerous mortgage that exists, you would most likely name the pay-option ARM.  Why?  Because it allows the borrower to go deeper into debt by paying less than the minimum interest owed each month, adding that difference back into the loan principal.  You may even talk about the potentially high prepayment penalties associated with some of them prevent borrowers from being able to get out easily once they are in it.  Chances are that you would support the current move to ban these "worst of the worst" type loans.

Guess what though?  It turns out that the worst is actually the best.

Option ARMs and other so-called "toxic" mortgages have been portrayed incorrectly by the media.  Yes, there are numbers of homeowners who were duped into these products by greedy mortgage originators.  But, reality, as is often the case, is quite different.

A study from professors at Columbia and NYU actually found that the "optimal" mortgage in a perfect world is the Option ARM.  Sound crazy?  It's not.  I have explained how these products can be used to create tremendous wealth, but they must be used properly.  I have even talked about how taking on more debt can actually help you become debt free faster.

The study breaks it down through mathematic formulas (the report is 65 pages long) and surmises that the "optimal" mortgage in a perfect world would be an adjustable rate mortgage with an option for negative amortization and a ban (or at least severe restrictions) on prepayment.  The report goes on to say that a perfect world is namely one in which borrowers are fully rational and always do what's in their own best interests.

Therein lies the problem as most Americans do not meet the criteria for living in a "perfect world".  Unfortunately, many Option ARM holders foolishly believed they would never have to pay more than the minimum monthly.  Eventually, after paying the minimum long enough, their loan balance hits a ceiling at which the loan recasts and becomes a new loan in essence with larger payments.  Now these homeowners face default and foreclosure.

So, if the optimal loan is truly better for homeowners who behave rationally, maybe it makes sense to get people to behave rationally through extensive consumer education.  If you attend one of my seminars or read my blogs long enough, chances are you already understand that the "old way" of thinking can cost you incredible amounts of money over time, possibly even preventing (at least limiting) your ability to retire.

If you are a numbers guy like me (and there are a lot in this report), then read the report yourself. 

Education is the key to financial success as is looking at all financial strategies, including the proper integration of your mortgage into your overall financial plan.  Focusing on paying off your mortgage as fast as possible may actually be the worst thing you can do to your financial plan, as counterintuitive as that may seem.  Please keep in mind that there is no "one size fits all" strategy.

Can You Help a Widow?

In case you have not already heard (I am a little late in my own learning of this tragic event), Lani Anglin's brother Aaron was killed in a car accident two days ago.  Aaron leaves a wife and two children ages 1 and 6 weeks behind and in need of our help.

While I did not know of Aaron personally, Lani is a fellow Real Estate blogger, hosting rerevealed.com.  Aaron also "starred" in a humorous video released just a day or two ago. 

Lani wrote the following about Aaron on her blog:

"To me, the important thing to know is that the crazy kid in the funny video is my newly 24 year old little brother Aaron who died yesterday on impact. He was driving to my house (to make another silly video) and was driving with his wife (Aleisha Anglin, 25) and their two babies (Eleanor who turns 1 THIS week and McKenzie who is only 6 weeks old).

Aleisha & Eleanor should be released today and McKenzie is in the ICU in improving condition. We have tons of family surrounding us and St. Thomas More parish is providing food this week for our entire family!

Aaron was awesome and his marketing work can be found at http://benaaronanglin.carbonmade.com. He was confirmed in the Catholic faith last week, laughed his butt off at ICanHasCheezburger.com with me this week.

We were born 18 months apart (Irish twins) and grew up as best friends with so many lame stories."

Greg Swann at Bloundhound Blog has created a post for donations to be accepted and is trying to keep it updated on what is being done to help the family.  This is a time when we all can seize the opportunity and help out.  If you can, go to Greg's post and contribute via his link. 

On behalf of their family, I want to say thank you to those who do sacrifice a little for the Anglin family.