Archive for the 'Financing' Category
Chances are you’ve seen or met those people that promise to ‘teach’ you how to pay off an entire mortgage in only seven years. These mortgage accelerator people generally want $3500 for the pleasure of teaching you to pay extra (disposable income as they call it) money towards your mortgage. They hide this process in a shell game using an unnecessary HELOC loan to convince people that they actually have a unique product.
For those considering wasting $3500 on UFF’s software (which they pay a 4 figure commission on to their sales agents), please consider the following.
If you were to pay $5 extra to every mortgage payment you made on a $150,000 loan…you’d pay off your mortgage 5 payments early.
That’s like skipping buying soda with a meal for two twice once a month…and will save thousands. If you really want to hurt your mortgage, spend the $3500 paying it down.
Use your common sense people.
Wrapping up with the Utah state law courses, we had a mortgage broker who had taught a previous course of ours come in. He announced that he would again be giving out a $20 gift certificate to a random member of the class. He attempted to give out two certificates but found the same person won each time.
I must confess that I appreciate when an instructor who is attempting to schmooze the class is open about it. Many of the guest instructors whom we’ve had appear fake or forced when they teach, always reminding us why their services are the best, and that we shouldn’t even bother comparing them to the competition. Open bribery is much easier than listening to silly rhetoric
Class began with the explanation of what a purchase money mortgage is (taking a mortgage in order to purchase a home), which can often be used to supplement the payment on a seller financed/assumed mortgage home.
We then learned about reverse mortgages, which one member of the class assumed was a means of pulling infinite money out of a home. Kind of like when I was young and assumed that adults could get unlimited money from their magical credit cards. Sadly, the member of the class was in her thirties.
He announced that there were 50 year mortgages now, which resulted in a terrified look from the class.
We then went through a few dozen sample test questions together. Here are some terms worth highlighting from the review.
A balloon mortgage is one which has a variable sized final payment, unlike an Arm which is generally amortized normally.
A blanket loan is one which covers multiple properties, and is paid off as parts of the property are sold. Builders often use these when building multiple properties.
Class concluded with the instructor explaining how the handouts he had given us would be so valuable to our dealing with clients in need of a mortgage. Conveniently the pages were covered with business cards, and included a ‘survey’ of the school which is obviously a silly attempt to get our contact information by pretending to care how we feel about the real estate school. Smart way to hook some agents I’d imagine. At least he offered us all a free lunch if we come to his office.
Today’s class started off slow with the instructor promising to teach us how the money supply in the country works. Our instructor lamented the painful 8+% interest rates of the late 70s and 80s that made buying a home difficult. Seeing how rates fell so drastically a few years ago, it would appear to be a no brainer to buy a home NO MATTER WHAT THE INTEREST RATE IS as long as you can afford the payments, because you will more than likely be able to refinance at some point.
It is intriguing to imagine what the home market would be like today with a 20%+ interest rate, yummy…
Many of my readers are probably already familiar with adjustable rate mortgages. These often allow you to pay a reduced payment for the first few years (often with the mortgage amount actually growing) then with a hefty rate adjustment once the original low payments ended. This can really hurt those who don’t fully understand how these work. I have personally found some mortgage companies try to trick me into using an ARM over a 30 year fixed.
After some time listening to the instructor reminisce on past rates, he suggested that we get 15 year loans, and that we use his brokerage’s mortgage company for getting our clients loans. Apparently, we’re just not going to do any better than to go through them. That’s pretty convenient if you ask me!
Tell us you make a million
Drawing from some of yesterday’s discussion regarding whether or not Casey Serin is criminally liable for his actions, I thought I should share what happened to me a few weeks ago.
Having already detailed my ridiculous experience with Quickenloans, as well as lightly touching on the hell that was dealing with Countrywide, I can affirmatively declare that the behavior of lenders in this country is beyond unethical, it is outright corrupt.
Consider the following: A few weeks ago my wife and I happened upon a condo here in Utah that we stood a good chance to win (it was being auctioned) for $61,000. As we would need to close quickly, we called some lenders to see what could be done for us.
My wife called Well’s Fargo Bank and was quoted an amazing 6.25% rate for a 100% financed No Doc 30 year loan with NO POINTS. I was shocked and skeptical when she told me this, as 6.25% is a difficult rate for ANYONE to get in this current market. The loan agent she talked with had encouraged her to provide her credit information and get the ball rolling on the amazing rate he had quoted. Having already had several lenders try to screw us, she and I have both learned to carefully examine a lender before committing.
As things were going well with the auction, I proceeded to call Wells Fargo and provide the same information which my wife had provided. To my surprise, I was quoted a similar rate of 6.25%, however this time with one point. This is hilariously common practice for lenders. You could call Wells Fargo all day long and get quoted a DIFFERENT RATE with each loan officer you talk to. The only consistency will be that EVERY rate quoted will be LOWER than what the underwriter will actually approve.
Still, we had both been quoted 6.25%, which even with a point would be a deal, so I called Wells Fargo for the third time that day and decided to try and lock the rate. I began talking and explaining once again, the kind of loan which my wife and I desired and was quoted a rate of 6.75% with two points. I politely explained that I had been quoted a lower rate earlier during the day, to which the loan agent replied: “Sir, our rates are standard, they do not change and every agent will give you the same quote (ya…right).
Still, this rate was appealing so I asked him to fax me a lock so I could guarantee the rate. He happily agreed to do so if I provided my social and credit card number. I said that that would not be a problem, but that I’d just like to review the details of what was being proposed first.
To confirm I restated what he had already told me several times in our conversation:
“So just to be clear, Wells Fargo is able to give me a 6.75 rate on a no document loan with 100% financing, at two points, for thirty years?”
“He coughed…then said, actually sir, I just checked, the rate would be 8.75%.”
I smiled…predatory lending at it’s best.
“Ok, so you were mistaken then, the rate is 8.75% for a no document” I continued
“Stated income” he interrupted.
“But I clearly said we wanted to do a No doc loan remember?”
“Sir, why would you not want to do a stated income instead? It’s the same thing, you just tell us whatever you want and we use that number to qualify your debt to income…”
“I am self employed and my income is not steady, I do not have a set monthly income and that’s why I was asking for a no-doc loan” I explained for the third time that call.
“Well sir that’s not a problem. You can say anything for your stated income, you could say a million dollars haha…it doesn’t matter.
I insisted that it DID matter, in retrospect I really wish I had confronted him more for TELLING ME TO LIE on my loan application. I then asked what the No Doc rate would be.
He replied that it was the SAME as the stated income rate.
To make a ridiculously long phone call slightly shorter, I will summarize. I painstakingly spelled out the terms which he had quoted me and in the end found that he had actually been quoting the ARM rate and not a thirty year one.
The man was beyond mistaken. He was deliberately lying in an attempt to get his commission. That is the primary issue with lenders in the finance industry. Many of them work for commissions. As such, they have learned that they can often get away with illegally doing whatever it takes to screw the client.
Before attacking someone like Casey for lying on a loan application, realize that the system is set up not only to encourage and permit sleazy loans, it often FORCES someone into them. Imagine a company that encouraged employees to tell their customer to go ahead and steal from the company. Not only encouraged, but paid commissions to the employees who successfully tricked/persuaded/convinced customers into stealing. Honestly, the only thing that saved me from being convinced to do a stated income loan was the fact that this has happened to me SEVERAL times already, otherwise I could easily have been persuaded to have overinflated my income. Why else would the loan officer tell me to? He does work for the company after all, and is generally the ONLY human contact between the lender that clients have. So before you criticize anyone, remember people like Casey are the symptom, not the cause.
I just got finished listening to the massive two hour long webcast by Casey Serin. For those unfamiliar, Casey bought almost a dozen homes with no money down during the housing bubble and has since had most of his purchases foreclosed upon. His purchases were often ones involving cashback at closing, often tens of thousands of dollars. During his webcast he was relentlessly criticized and attacked for stupidity and recklessness.
His blog, iamfacingforclosure.com, has sprung to popularity inciting rage in many of his visitors. I have been a long time reader of his blog and find his site hilarious as well as compelling. Here is a man who used his credit score to secure nearly two million dollars worth of loans with barely a dime of his own. And lost it all.
That seems to be what causes most people to spit and scream. Some have argued that people react angrily to Casey because of Zero Sum, the feeling that Casey’s loss has somehow affected others negatively.
Honestly, I believe Casey is hated because of jealousy. Allow me to explain. Many of us live our lives owning only one home, and saving extensively in order to afford a down payment. These homes hold mortgages so high that their owners spend the next thirty years working full time in order to afford the monthly payments. Children come along and eventually, after half a dozen refinances to help pay for the children’s college educations, the homes are paid off.
By this time, many find themselves with a pitiful to modest savings, and often reliant on Social Security in order to survive. This is the existence of our grandparents and parents. Little changes as the generations pass.
Casey is unique. He arrived in America after emigrating from the former Soviet Union. He came to America and did something most of us could never fathom, dream of, or dare attempt. He took a risk.
0% down loans allow anyone with a decent credit score to buy a home with NO money. If one overpays, it is possible to get cash back and cover a year or two of mortgage payments as well until one flips it. This is a fact of life. Banks offer this service voluntarily. Say what you will about their decision to do so, they have made it and it’s their responsibility.
Casey was able to borrow all of these funds without having to provide proof of any income whatsoever. Again, the banks voluntarily allow and offer this service. Say what you will about their decision to do so, they have made it and it’s their responsibility.
Something which I don’t believe anyone has seriously discussed yet is how brilliant these crazy purchases of Casey’s were. Allow me to explain. The United States does not have a debtor’s prison. With the exception of Student Loan debt, most debts can be erased through bankruptcy. Foreclosure on a defaulted home generally takes at least six months to execute, and generally does not force an individual into bankruptcy. Generally, the worst the banks foreclosing can do is destroy your credit score for up to seven years.
What am I trying say? Casey’s decision to take out two million in loans was akin to putting two million dollars worth of chips on black on a roulette table. The bonus? The money was given freely to him by the banks. Had the market not slowed, and the bubble popped, Casey would have stood to profit close to one million dollars. Think about that.
Casey could have become a millionaire with no investment of his own. Even as the market tanked, he was afforded an amazing amount of time before the banks foreclosed. He was able to control property for almost a year without even having to make payments. Had the market rebounded, he still would have made tens of thousands. Think about it.
Even as the homes were foreclosed upon he was able to make a few thousand selling his redemption options and wrapping one of his homes. He still made money from homes which he bought with the bank’s money.
What I’m driving at is, Casey could have become a millionaire, something which most of us will never do. He failed, but his failure has been relatively painless considering the rewards he could have reaped.
Casey took a chance that we should all consider seriously. Few people realize how risk free one can invest in Real Estate. For example, in California the civil code of procedure section 580 allows people to buy a home with 0-risk. They are only liable for what they put down, all your other assets cannot be touched. I could move to California, and have my wife buy a $600,000 home with no money down in her name only. If it went up a modest 20% or so in value we could sell if and easily reap $100,000 after closing costs. This is a small fortune to most Americans. If the home went down in value, my wife could turn in the keys and walk away with a small hit to her credit. That’s it. That’s all that could happen if things went bad. This is close to arbitrage , and if nothing else is highly intelligent arbitrage betting. Now imagine if my wife got two or three such homes with no money down. We could potentially net hundreds of thousands with next to no negative repercussions other than a trashed credit which WILL eventually clear itself. Is seven years of bad credit better than thirty years slavery to a mortgage? Is it more intelligent to spend thirty years working to pay off a home, or ‘Casey Serin’ it every seven years until you make a million?
What is beautiful about such a strategy is that if one is married, the assets belonging to one’s significant other CANNOT be touched. My wife could steadily buy homes In California ever seven years, while I kept all our other finances in my name. If things fail, no harm done. If things succeed, we’re rich!
I guess that’s the solution for Casey’s problem. His wife. He needs to focus on getting her credit cleared up so that she can take care of their immediate needs, while Casey takes a seven year break from home loans. He’ll still be young when his foreclosures drop off his credit report, and then he’ll be able to buy another ten homes. The rest of us can all complain, but that’s how the system is set up, and at this rate, Casey will be a millionaire before most of us even pay off half of our 30 year mortgages.