Category: General

Which
headline is better for grabbing your attention and prompting you to read the
article to which it’s attached: “Credit Reports to Exclude Certain Negative
Information, But Read on to See if This Even Applies to You” or “Credit
Reports to Exclude Certain Negative Information, Boosting FICO Scores”?  Obviously, the former is less than
tantalizing while the latter makes you say, “Tell me more!”  I was in the “tell me more” camp, and the
folks at The
Wall Street Journal
sucked me into their vortex.

The
development, set to go into practice on July 1st,
is certainly a departure from how the Big Three (Experian, TransUnion,
and Equifax) have done things in the past, but it’s not going to wave a magic
wand and make bankruptcies, foreclosures, short sales, etc., go away.  It’s sort of a bittersweet development.  Let me explain:

Many
tax liens and civil judgments will be removed from people’s credit reports if
they don’t include a
complete list of at least three data points: a person’s name, address,
and
either a social security number or date of birth.  Many liens
and most judgments don’t include all three or four. This change will apply
to new tax-lien and civil-judgment data that are added to credit reports as
well as existing data on the reports.
Among the reasons cited for this change included the need to improve standards
for public-records data by using better identity-matching criteria and
updating records more frequently.  As we all know, inaccurate information on
your credit report can have severely negative consequences and take a lot of
time and anguish to correct.

Opponents
to this move state that removing this data from a person’s credit report may
make them LOOK better, but it doesn’t IMPROVE the risk a lender takes when
lending to them.  According to LexisNexis
Risk Solutions, whose parent company is a large provider of data to the Big
Three, consumers with liens or judgments are twice as likely to default on loan
payments.  The folks at LexisNexis go on
to say that
nearly all judgments will be removed and about half of tax liens will be
removed from credit reports as a result of the changed approach.

According
to the folks at The
Wall Street Journal,
these credit report changes will help just under 11 million people boost their
FICO scores by 20 points and approximately 700,000 people boost their scores by
40 points –
combined, that’s about 6% of the US population who have FICO scores.  In the grand scheme of things –
scores range from 300 to 850 –
a 20- or 40-point bump isn’t THAT big of a deal.  However, for someone who has a 550 FICO and
needs to come up with a 10% down payment for an FHA loan, if they got that
40-point boost, they would only need to come up with a 3.5% down payment for
the same loan.  On a $200,000 house,
that’s the difference between coming up with $20,000 versus $7,000.  So, for THAT person, THAT IS a big deal.

As
I said earlier, this development is sort of bittersweet.  Institutions that loan money like to make
money, so they’ll find ways to hedge against the risk that these changes will
present –
one of the more obvious ways, of course, will be an increase in lending rates,
which everyone will get to “share”. However, they also like a market where
their customers are calm and want to borrow money, which means they’re not
going to make any changes at this very minute.

If
you already have good credit, but you’re on the fence about a purchase, this
should be subtle enough of a shove to get you off of it.  If your credit score is less than stellar,
don’t wait for the July 1st
developments –
we can help you improve your credit now and get you out in front of all this
before that time.  We don’t have a magic
wand, but we still put on a pretty good performance every day of the week –
twice on Wednesdays.

In
the final act of the movie The Pink Panther Strikes Again, Inspector Clouseau
visits a quaint country inn located in the Bavarian Alps where he and the
innkeeper use English as their common language –
the accents are cheesy, to say the least.
At any rate, as Clouseau has picked up his room key from the innkeeper
and is making his way out the door, he spies a dog lying in the doorway.  Clouseau turns to the innkeeper and asks,
“Does your dog bite?”  Taking the pipe
out of his mouth, the innkeeper gives him a very nonchalant, “No.”  Clouseau kneels down and reaches his hand out
to pet the dog while saying, “Nice doggy.”
(I’m guessing the common language between Clouseau and the dog was
English, too.)  Just as he does this, the
dog starts barking furiously and snaps his teeth onto Clouseau’s hand.  Upon recovering his hand from the dog’s jaws,
Clouseau stands upright and shoots a very stern look at the innkeeper and says,
“I thought you said your dog does not bite.”
Without skipping a beat, the innkeeper replies, “THAT is not my
dog.”  Obviously, my description of this
isn’t nearly as funny as how the scene actually plays out, but it still makes
me laugh whenever I think about it.
(Look it up on YouTube for a genuine laugh.)  Asking the wrong question or failing to ask
the right question can have consequences ranging from mild to devastating.

Prospective
buyers, when interviewing real estate agents, you shouldn’t ask closed-ended
questions –
questions that can be answered with a simple yes or no or a specific piece of
data. For example, don’t ask, “How long have you had your license?”  Data question.  The person answers, “15 years.”  If you just move on, you don’t know if in
that 15 years, he’s only sold seven houses, and all but one of them was to his
sister-in-law.  Don’t ask, “Do you have a
lot of experience working with first-time homebuyers.”  “Yes, I do.”
If you don’t ask a follow-up question, you don’t learn that the last six
buyers committed themselves to a psychiatric hospital because she couldn’t
close the deal for them.  Instead, you
need to ask questions like, “When was the last time you represented a buyer in
a bidding war, and what did you do specifically to help them win?”  You’ll quickly get a feel for whether this is
the right agent for you or not.

I
once met a veteran agent who told me that most agents don’t ask the wrong
questions –
the
right questions have been drilled into their heads to make sure they have a
serious buyer on their hands –
but he went on to say that too many agents are afraid to ask one of the most
important questions: “If we don’t find your dream house on our first day of
searching, what is that going to do to you emotionally?”  He told me that the buyers’ answers to that
simple question tells him more about who he’s dealing with and what their hot
buttons will be throughout that search than any other question or set of
questions.  Too many agents, he added,
complain that such a question is too personal and might offend the buyers.  Buying a home is VERY personal, he said –
99% of the time, it’s an emotional decision –
and you won’t offend them by trying to understand them.

On
our side of the table, mortgage folks can fail to ask the RIGHT questions.  About a year ago, a gentleman came in and
said that three other lenders had approved him for a loan of X, but he really
needed a loan of Y.  As we asked him the
standard questions, we got to the one that would have limited him at the X mark
–
the fact the other three lenders stopped him at that point told us that they
didn’t ask the next LOGICAL question.  We
asked that question, which explored more detail, and determined that he was
eligible for Y.  Happy day!

I
began this edition with a scene from a movie, so I’ll close with one: Uncle
Buck.  Miles, the nephew, barrages his
uncle with questions ranging from nose hair to his uncle’s marital status.  Uncle Buck comments that his nephew asks a
lot of questions, to which Miles responds, “I’m a kid.  That’s my job.”  In a real estate transaction, we all have a
job to do –
let’s do them well by asking the right questions!

This is a reprint from about nine months
ago, but I thought the timing is right to revisit this subject.  Recently,
I saw this gentleman at the gym whose upper body was almost entirely covered in
tattoos.  I struck up a conversation with
him and learned that it took well over 100 hours, and it cost $85/hour.  As we continued to chat, I was doing the math
in my head: $85 X 100 hours = $8,500!  Being the mortgage geek that I am, my next
thought was, “I’m staring at a walking, talking down payment on a house!”

There’s
a huge misconception floating out there that 20% is required as a down
payment.  There are those products that
do require such an amount, but there are so many others that don’t.  A very popular loan option only requires
3.5%.  In the case of my new gym
acquaintance, $8,500 represents a 3.5% down payment on a $242,000 mortgage –
that’s not a palace, but that amount of money could buy a modest home in a nice
neighborhood.

A
recent poll revealed that potential homebuyers believe that because of student
loan debt, they have no extra funds to save for a down payment. Like any human
being who wasn’t born with a million-dollar trust fund, I understand the
realities of budgeting and finances – there are so many demands on our income
that it seems impossible to save enough for a down payment.  Despair not, my fellow regular people!  Let’s look at a real-life scenario that will
give you hope – and a VERY workable solution.

A
responsible young couple sets their sights on a place close to downtown: a
small home with an asking price of $180,000.
They could get a bigger house that’s new if they move farther away from
downtown, but they decide that this option is best for them: less of a commute,
closer to restaurants they love, etc.  A
3.5% down payment is $6,300 – they have a little bit in savings, but they want
to keep it there for emergencies.  They
need a plan.

Their
VERY smart realtor sits them down and does some VERY simple math with them:

•The
average person spends $8/day at a Starbucks/Dunkin Donuts/Peet’s
– that’s on a drink and something to nosh (bagel, scone, that weird granola
parfait, etc.)

•For a
couple, that’s $16/day X 5 days/week (we won’t count weekends – live a little):
that’s $80/week or $4,160/year

•A
3-lb bag of coffee at Costco costs $12.00, and it makes between 100-120 cups –
conservatively, that’s a 10-week supply for two people

•Using
the Costco coffee, they can probably do the year with 5 bags for a total of
$60.00

•All
told, switching to Costco for JUST one year, the couple could save $4,100

•As
most young couples are wont to do (because they’re working and are busy), they
tend to eat out 3-4 nights/week

•By
cutting out just one of those dinners out each week, that could save $50/week –
that’s $2,600

•With
these two “tweaks” to the couple’s lifestyle (for JUST one year), they could
save $6,700
–
and that would keep their savings account wholly intact

•Even
if home values increased by 5% over the year of saving, that would put the home
(or one like it) at $189,000 – 3.5% of that is $6,615, and the couple has
$6,700.

Is
it a coincidence that the difference between the amount saved ($6,700) and the
down payment needed ($6,615) is $85.00?
That’s just enough to spend an hour with a tattoo artist where the
couple can have their favorite realtor’s name forever inked on their
biceps.  It’s like it was meant to be!

When
a real estate agent hears the term “low inventory” these days, 9 times out of
10 you’ll see them make a face like they’ve just been told they’re about to
receive a mandatory colonic.  (Quite
often, that tenth person really enjoys colonics, so it’s sort of hard to gauge
how they feel about . . . all that.)
We’ve reached sort of a weird spot in the housing market right now:
house values are on the rise, the economy is displaying signs of good health,
interest rates are still really good, down-payment-assistance options are more
abundant, and yet the availability of houses is relatively scarce.  THIS is where we separate the GREAT agents
from the good ones!

If
the local housing market were represented by a pie, let’s keep it simple and
cut it up into four pieces: great homes, good homes, bad homes, and worse
homes.  Because inventory is so low, the
first two slices –
great and good homes –
are getting gobbled up, if you will, straight out of the oven.  As the pie sits on the counter, there are
some who are taking a bite here and there at the third slice –
the bad homes.  All of that is leaving
about 40% of the pie on the table –
and this is not only where we see the great agents separating themselves from
the good ones, this is also where buyers are able to get a little more house
for their money (even in a seller’s market).

In
a market like this, you’re going to be walking into homes with less-than-ideal
elements.  Just to name a few things:
you’re going to find a living room where the carpet has been pulled up, peeling
paint on a gutter or fascia board, and outlets with exposed wires.  Obviously, these are issues that can be fixed
and used as leverage for negotiation –
there’s nothing earth shattering about that, right?  But it’s how the agent handles the situation
once the negotiation is completed and the house is under contract that REALLY
matters.

Using
FHA appraisal inspection requirements as guidelines, the GREAT agent knows that
the appraisal is what can really mess things up and either delay the deal or
completely derail it but will take the next logical steps to ensure it doesn’t.  In
the case of the missing carpet, the agent is going to get with the seller’s
agent and say, basically, “Look, we’re perfectly fine with the bare floor.  My clients are planning on putting in new
carpet, but you and I know it’s not going to fly with the appraiser.  Please have your client go down to True Value
or Home Depot and get ANY color paint –
the cheaper the better –
and paint the concrete.  It doesn’t have
to be pretty.  They just need to make
sure there are no bare spots.”  Same
thing goes for peeling paint: scrap off the flakes and paint over the bare
spot.  As for the outlets, a GREAT agent
is going to have a couple of plate covers (it doesn’t matter what color or
style they may be) in her/his car and a screwdriver handy to slap one on when
it’s called for.  None of these
suggestions is designed to “trick” the appraiser –
she/he is given specific instructions on what will and will not pass, that is
all.  And no one is being unethical
because all parties, during the negotiation of the purchase, knew about the
bare floors, the pealing fascia board, and the uncovered outlets.  The GREAT agent is just making sure that
close of escrow isn’t blown by someone who gets paid regardless of whether the
home sells or not (and may or may not care what happens in the
transaction).

While
there are no signs that inventory is magically going to appear tomorrow, a
GREAT mortgage company is prepared with options/products that both agents and
buyers WILL and SHOULD want to know about.
We’re offering classes now, but we don’t offer colonics –
at least 90% of you will be happy!

Buckle
up and get ready to have your mind blown!
Okay, it’s not THAT mind blowing – some of you might even say, “well,
duh” – but it’s still interesting.

The
economists (that’s a fancy term for “the smart folks”) at the New York Federal
Reserve published the results of a study, which reveal that changes in down
payment requirements have MORE influence over home buyers’ willingness to buy
than changes in rates.  Follow me on this
– you’ll be glad you did!

Surveying
both buyers and renters, those smarty pants at the Fed found that the effect of
interest rates may be overrated
when compared to changes in down payment requirements.  The study found:

•Dropping
the down payment from 20% to 5% INCREASES the willingness to purchase, on
average, by 15% among buyers and 40% among renters

•Decreasing
the interest rate on a 30-year fixed-rate loan only raised the willingness to
purchase by 5%, on average

If
you’re straddling the fence between BUY RIGHT NOW with a higher interest rate
and WAIT AN UNKNOWN PERIOD OF TIME to save 20% of the purchase price, here’s an
example to give you a healthy push.  Take
a look at the numbers for a house with the purchase price of $200,000 with a
30-year fixed mortgage:

WAIT  VS.
BUY NOW

$40,000
down payment vs. $10,000 down payment

Total
Loan Amount:
$160,000 vs. Total Loan Amount: $190,000

Interest
Rate: 4% vs. Interest Rate: 4.375%

Monthly
Mortgage (P&I):
$763.86 vs. Monthly Mortgage (P&I):
$948.64

No
doubt $763.86 is better than $948.64 for a monthly payment – that’s not what’s
at stake here.  The difference between
those two payments is $184.78.  In order
for a person to save the additional $30,000 to go from a 5% down payment to a
20% down payment at the rate of $184.78/month, it would take over 162 months –
13.5 years! – to get to that point, which is almost half the life of a 30-year
mortgage.

For
many perspective buyers, that additional $185 is significant
–
and this is where you separate a good loan officer from a great one.  We, the great ones, have
a number of strategies to help make up that difference to
help folks get into
a home as soon as possible!  How does that rate?