Author: loantucson

Culling is Caring

buffalo roaming

“I’m not a very productive person, but I recently finished the internet. When you do, a picture of Bill Gates appears, and you get to enter your initials.” Traveling between appointments and listening to the radio recently, I heard comedian David O’Doherty share this little tidbit that made me laugh. As he went on to observe how ironic it was that a bald man was making fun of his hair, I thought more about his internet comment and concluded that this should be the subject of this week’s edition of our award-winning publication. If you’re scratching your head and wondering where I’m going with this, then you’re probably new to our weekly missive. For those of you who are veterans, you’re probably just saying, “Get on with it! I have a flan in the oven and don’t have time for this twaddle!” To the newbies, welcome! To the veterans, please don’t invite me over for dessert!

With inventories reaching historic lows in the real estate market and interest rates starting to inch their way up over time, we’re seeing one of two things: a mass exodus out of the industry or a doubling down by both real estate agents and loan originators. For those of you who are currently wading into the buying pool or are poised on the very edge with your toes testing the waters, this is actually a good thing. While the lack of inventory obviously reduces your choices of homes, this phenomenon that is causing so many to bail out is culling the herd and leaving you with agents and originators who are serious, experienced, and savvy. What else does this mean to you, the consumer?

For example, “knowing” your credit score can be quite deceiving. Just because one of the many services being advertised on TV tells you that you have a credit score that’s 800+, that doesn’t mean you’re going to qualify for the loan you want. Why? The reason could be that you’re only six months into a new job in a new industry, so most underwriters are going to require additional factors that will make your loan go in a different direction. In other words, every situation is treated on its own merits, and credit score is only ONE factor in a sometimes very complex equation. What you should really do is meet with a mortgage company – even if you’re 12 months away from when you THINK you’re ready to buy a house – and have them pull your credit REPORT. They’ll then be able to help you craft a plan that will get you a loan approval BEFORE you even start looking at homes. When you have that approval, you’ll be unstoppable as you go out to look at houses and there are seven other parties who want THAT house. This is one of those moments when it would be appropriate to stick your tongue out at others.

So, while it may seem intriguing to spend your time “finishing the internet” so you can get to that elusive Bill Gates photo and the chance to enter your initials, your time will be better spent getting ready to buy a home – if you do your loan with me, I promise not to send you my photo.

Truth is Loud, Silence is Deafening

Once, many years ago, a very wise person shared with me a small but very powerful insight that has helped me in practically every aspect of my life – it’s easy to remember, too: Seek first to understand, then to be understood. Whenever I rush headlong into any situation with the goal to be understood first, I hit resistance or find my argument to have more holes in it than I had thought possible. Just the opposite: whenever I pause to ask questions and digest the answers, I find it so much easier to reach my goal(s) because I’ve either found a way to build a bridge without the need to take a leap or that my original goal needed to be adjusted because it had holes in it. There’s a great line from the novel (and movie) To Kill a Mockingbird that sums it up: “You never really understand a person until you consider things from his point of view . . . until you climb in his skin and walk around in it.” (I chose not to open this week’s article with that line for fear you might have thought I was going in a different direction with a different movie about lambs and how quite they can be.)

Recently, I was meeting with two real estate agents who handle a lot of higher-priced properties, and I wanted to steer the conversation to a topic that I thought was perfect for who I thought was their ideal clientele. Just as I was about to launch into my presentation, I stopped myself and asked this question: What’s the makeup, demographically, of most of your cash buyers? Of course, I KNEW the answer to this question – older folks who were close to retirement or who were already retired and wanted to downsize – but I asked the question because I’m big-hearted and noble that way. Their response, though, absolutely shocked me: Millennials. What?!!! They explained that most of their cash buyers were folks in their early 30s who have been saving for quite some time and have amassed enough capital to purchase a small home without a mortgage. This not only pulled the rug out from under me as to what I wanted to discuss, it went against practically everything I had believed and read about Millennials.

The focus of this week’s article isn’t really Millennials and the unexpected saving/spending habits of some of them (because my gut still tells me that Millennials buying houses with cash isn’t THAT big of a group in the grand scheme); it’s about being open to the unexpected and learning from new revelations. Because I asked the question and waited to digest the answer, I was able to make a completely different pitch on the fly that gave these two agents something that they could use to market AND take to their existing cash buyers that they’ll find very attractive (and should increase more selling/buying options for those agents). This exchange was a two-way street: I now possess a piece of information that I can add to my repertoire and trot out with other agents when the moment is right. Not bad for asking just one question, right? When you think you have all the answers, that may be true – because you’ve stopped asking questions. Whether you’re an agent or a buyer/seller of property, not asking questions severely limits your options.

I’ll close with this Chinese proverb: “He who asks a question is a fool for five minutes; he who does not ask a question remains a fool forever.” Depending on your personality, five minutes might FEEL like forever, but it beats the alternative, right? So ask the question(s) NOW, and get it over with.

Bubbles: History or Hysteria?

A bubble coming out of a bubbler.

 

Whether you’re a flipper of TV channels or a die-hard fan of one particular news source (television, radio, internet, or some weird thing called a newspaper), you can’t help but come across a story or twelve on a semi-regular basis about the housing market and whether we’re on a “bubble”.  There are those pundits who claim everything points toward the market being on a bubble and how close we are to it bursting, and there’s an equal number who blow off the idea like that’s the most ridiculous thing they’ve ever heard.  What you don’t hear, though, is actual data supporting their arguments concerning a “bubble” in the housing market because it makes for a better story to watch people wring their hands and make emotional pleas and/or flash artificially whitened and perfectly aligned teeth at the camera and say these end-of-days kooks have it all wrong.  Well, buckle up, kids!  THIS is about to become your favorite news source (at least for the next two or three minutes) because here’s some data to let you decide what’s going on in the housing market – taken from the Housing Finance Policy Center’s housing affordability index:

  • In 2006, in the run-up to the ugliness of 2008-09, there was a $22,000 shortfall between what the median household income could afford and the median sales price of a home.  In some parts of the country, that shortfall was an even greater chasm between what could be afforded and the price at which homes were selling.
  • Today, the median household can afford a home that is $70,000 higher than the price of the median house sold.

For the former, it doesn’t take Einstein to figure out that promising to spend money you don’t have at present along with the distinct possibility that you won’t be getting annual raises or increases to your income to make up that shortfall in the near future is a surefire recipe for things going sideways fairly quickly. Using that same set of sub-Einstein analytical skills, it’s not hard to see the makings of the bubble back in the day and why it eventually burst.

From the latter, we can see that income today is staying ahead of the prices – that could change, and there’s no guarantee that it won’t, but it’s pretty safe to say it’s not going to change drastically in the next 5-6 months – so the makings of a bubble, at present, are fairly absent.

I’m not trying to make any specific forecasts or prognostications about the near and/or distant future – I’m just presenting you with the data, and my interpretation of the data, that’s all. It’s up to you decide what to do with it Think of it this way: if your child – we’ll call him Jack – comes running into the living room where you’re holding a small cocktail party and says, “Jimmy was blowing bubbles, and one of them popped right in Cathy’s eye,” do you wring your hands and lose your cool or do you pat Jack on the head and ask him to join his diminutive friends back outside? Well, it might all depend on whether the source of the bubble was soap or chewing gum. Having a little bit of data can make all the difference, right?

Your Money: In Your Walls or In Your Pocket?

 

Despite the fact we’ve seen the likes of Magnum P.I. and The Fonz as spokesmen for Reverse Mortgages, there’s still a degree of mistrust out there that needs to be addressed.

(Fortunately, when Tom Selleck and Henry Winkler are up there telling us about this loan product, they’re not dressed in a Hawaiian shirt or a leather jacket, respectively) Let me say this from the outset: a Reverse Mortgage is NOT for everyone, but I believe everyone needs to understand what can be ACHIEVED with a Reverse Mortgage before making that final decision. To that end, I’m going to give you three scenarios of how a Reverse Mortgage can be used to benefit you and your loved ones.

Scenario 1 – Significant Money Saver

You’ve worked hard and own your home free and clear, but you’re on one side of the country and your grandkids are on the other. You sell your house and have a very large pile of cash – enough (and a bit to spare) to purchase a home in cash in your new desired location. Let’s say the price tag is $200K. Rather than plunk down all $200K (and watch that pile of cash shrink considerably), you can PURCHASE that home with a Reverse Mortgage, and it will cost you only about half that amount – and you’ll NEVER have a monthly mortgage payment. While you’re NOT paying a mortgage, you’ll have a lot of free time to figure out what you’re going to do with that EXTRA $100K you didn’t have to spend to get that house.

Scenario 2 – Second Home Without a Payment

You live in a part of the country where it’s absolutely beautiful: rolling hills, greenery as far as the eye can see, lakes and rivers abound – but come November, it gets cold and ugly until about April (or May, if Mother Nature is feeling a bit vengeful). You want an escape for the winter, a small home in a place where the mercury doesn’t go into hibernation. You have enough equity in your home that you could do a Reverse Mortgage and pull out enough money to buy that small winter home with cash. Did I mention that with a Reverse Mortgage on your current home, you wouldn’t have a single monthly mortgage payment? Yeah, there’s that. (Scenario 2B: rather than purchasing a second home for yourself, you could take that cash from the Reverse Mortgage and purchase a home for one of your children.)

Scenario 3 – A Happy Ending

This happened recently with one of our Loan Originators here in the office. A couple called him and said, “We’re moving to Arizona and want to buy a house.” That’s never a bad call to receive. As he proceeded to ask them some questions to help them with a loan, he found that they had sold their business, and they were on their way to Arizona to live closer to family. For those of you who are a step ahead of me can see a problem: since they sold their business, they had no source of income. They had financial resources sufficient to cover their living expenses, but they were nowhere near sufficient for an underwriter to approve a standard loan. Fortunately, the sale of their business garnered a little more than $80K, so our LO talked to them about purchasing a home through a Reverse Mortgage. With that $80K, he was able to get them into a house for about $160K. They were ecstatic! Remember: no monthly mortgage payment!

For anyone who is 62 years of age or older, these scenarios are viable options. Whether you use a Reverse Mortgage for a Purchase of for Refinancing, the house is yours for as long as you wish to live there. Another commonly held fear that a Reverse Mortgage will make your heirs liable to pay it back just simply isn’t true. As I said in the beginning, a Reverse Mortgage isn’t the right fit for everybody, but it’s certainly something everyone should know about whether you prefer a Hawaiian shirt or a leather jacket.

 

Contracts Can Be Fragile

 

Pen ready to check mar the box next to the text I Agree

 

The following is a story as told by a guy in our office – I’ve changed some of the names, but there really aren’t any innocents to protect here, unless we’re talking about the guy in our office.

Mrs. Slaughter was both my Spanish teacher my freshman year in high school and my English teacher my senior year. First day of school my freshman year, Mrs. S is calling roll in my Spanish class, and she gets to me. I raise my hand and say, “Here,” and she pauses and just stares at me. Not good. She then asks, “Are you related to a SHAUN Greene?
“Yes, ma’am. He’s my brother.” (Shaun had graduated the year before and had Slaughter for English – and Shaun was a bit of a . . . rapscallion, shall we say.)
She squinted her eyes a bit like Clint Eastwood did in his “Dirty Harry” movies before he delivered his killer line that was meant to put the fear of God (or more appropriately, the fear of Harry) into the criminal and said, pointing her pencil at me like she was holding a .44 Magnum, “I’ll be watching you!” I was a marked man from day one. Fast forward to my senior year. Mrs. S is in the middle of a lecture either on the symbolism in Shakespeare’s sonnets or how proper grammar saved the world from the Black Plague when Stacey Stephenson reaches over and sort of pinches my arm.
I look down at my arm and then over at Stacey and ask, “What was that for?”
Before Stacey could respond, Mrs. S stops mid sentence and screams, “Greene! That is the last time you will interrupt me when I’m up here speaking! Do you understand me?!” I was absolutely floored (I seriously was not a problem student, and Mrs. S had never had to stop and ask me to stop talking in her class – Stacey was another matter entirely), and I think the look on my face showed absolute genuine surprise.
As I attempted to get my wits about me and defend myself, Stacey piped up and said, “Sorry, Mrs. Slaughter. It’s my fault. Grant had a piece of fluff on his arm, and I was just picking it off. He was just asking me what I was doing.”
The rage drained from Mrs. S’s face – it went from a crimson red to a flush white in about a half second – and she said, “Okay, thanks. But Greene had it coming to him.” I blame my brother.

Every licensed real estate agent had to take a certain number of hours (that might feel close to infinity) in their training on the subject of contracts, so I’m not about to put myself up as an expert on real estate contracts.  This next piece, of advice, however, comes simply from my perspective as a lender and what should be avoided in a real estate contract to assure a smooth loan process and timely close.

On lines 61 and 62 of the Arizona Residential Resale Real Estate Purchase Contract (the line numbers may vary by state), you can write in personal property items that you want to be included in the sale/purchase of the house – this is where you can absolutely blow up the deal, from a lender’s perspective. Rather than going into a full-blown dissertation on the whys and why nots, let me just say this: leave these lines blank. This doesn’t mean we’re trying to discourage you from getting a lawnmower or a fancy dining room table thrown into the deal, just don’t include it in the real estate contract – make those items a part of a separate bill of sale. You can reference the real estate contract as the means by which these items will transfer from one party to the other in the bill of sale all day long, but it’s not wise to mention that bill of sale on lines 61 and 62 in the real estate contract. Suffice it to say, if you do, you’ve just given yourself a WHOLE BUNCH of extra time-consuming work to do from the underwriter. We could go into a long explanation of valuations and liabilities, but let’s just say this: someone’s “older brother” had done something in the past with personal property in a real estate contract to incur an underwriter’s wrath, and underwriters have memories as long as Mrs. S’s. You might think that what I just mentioned is rather inconsequential, sort of like a piece of fluff, but a piece of fluff can get you (or your deal) “slaughtered”. I’ll now keep quiet.