Patrick Whelan's Straight From The Hip - a realistic view of today's mortgage marketplace

Is using the builder’s lender a good idea? The answer is NO! I am so aggravated with the way the large builders take advantage of buyers by forcing them to use their preferred lender or even worse the builders own Mortgage Company in order to get so called, “free upgrades” or “builder contributions”. Folks, this is a scam and you need to stop the madness. The fact is the builder is really not giving you a deal when they offer the upgrades and contributions, in fact it is not costing them anything at all, by forcing you to use their lender they are giving you extremely high interest rates and making their money back on your loan.

 How does this work? Let me explain. If the builder uses their mortgage company they give you a rate that is about .750% over what you would get if you went to an outside company for this same loan. When the builder raises that rate they make anywhere from 3-5% in yield spread premium from the bank they use for the loan. So, on a three hundred thousand dollar house they make anywhere from nine to fifteen thousand dollars from the bank for raising the rate. Then they usually charge a one percent origination fee on the good faith estimate. Add that together and they’ve made up to eighteen thousand dollars on the loan. Hmm! That’s funny they offered the client nine thousand dollars for closing costs or twenty thousand dollars in upgrades. We all know the upgrades only cost about a quarter of what they say the cost is and what’s nine thousand for closing costs when you are already making eighteen. The truth is you think you are getting a good deal but you’re not.

The difference of .750% on a three hundred thousand dollar loan is about one hundred and eighty dollars a month to your payment. This calculates to twenty two hundred dollars more a year in payments, over five years that is ten thousand dollars. That’s a lot of extra money you pay for something you can get for free. If you have been reading the paper, builder’s stocks are down and their houses are not selling; they are not doing as well as they were a year ago. You should be able to negotiate a deal for the upgrades or builder paid closing costs and demand to use your own lender. I have refinanced some clients that have closed with the builder and then have come to me to refinance them when they realize how high their rate is compared to the average.  I am tired of seeing my client’s money wasted on refinancing out of builder loans. Oh yea, the lender usually tacks a prepayment penalty (equal to six months of payments) onto  the loan so you can’t get out of it for three years.  They do this because they know they are ripping you off and if you realize this and refinance within 90-180 days after closing the builder will be required to pay the yield spread premium back to the bank, trust they don’t want to do that. Please believe me, they know what they are doing and they are taking advantage of you!

Last week we encountered a massive reduction in mortgage rates bringing the 30 year fixed to an average of 5.89%. This is great news for home buyers as well as clients that are seeking to refinance their current arm rate into a fixed rate term. The current inventory of houses on the market is at all time highs, well over two million nationwide. I know that we are experiencing a tough time in the market right now but with the fact that rates are down and plenty of inventory we should really be pushing homebuyers forward and finding them a great deal with exceptional financing.  THIS IS THE TIME TO BUY! I have been telling clients that if they wait to long because they are concerned with what they have been reading in the papers, they will miss the boat. House pries are extremely low, rates are extremely low, what are they waiting for?

I have another important piece of FHA information to share with you this week. As of 3/31/2007, seller contributions will no longer be an acceptable source of down payment for FHA loans. Clients will need to use their own funds or programs such as CHFA for down payment assistance. I am hoping that FHA will go to 100% financing in the very near future. This would make things easier for all of us. Please read the memo below I received from a leading lender, Taylor Bean & Whitaker, regarding this matter. Thank you for listening and have a great week.

Taylor, Bean & Whitaker Mortgage Corp

IMPORTANT BULLETIN - FHA Down Payment Assistance

Important HUD ruling on FHA Down Payment Assistance:

*  On October 1, 2007 HUD published a final regulation that establishes that a prohibited source of down payment assistance is a payment that consists, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale: the seller, or any other person or entity that financially benefits from the transaction; or any third party or entity that is reimbursed directly or indirectly by the seller, or any other person or entity that financially benefits from the transaction.

*  This regulation is effective October 31, 2007. Therefore, in order for a homebuyer to use down payment assistance derived from a seller the homebuyer must have entered into a contract of sale (including any amendments to the purchase price) that was signed by the homebuyer on or before October 30, 2007. However, in accordance with a settlement agreement resolving previous litigation between the Nehemiah Progressive Housing Development Corporation (Nehemiah) and HUD, this regulation will not apply to the Nehemiah down payment assistance program until April 1, 2008. Therefore, in order for a homebuyer to use down payment assistance derived from a seller under the Nehemiah program, the homebuyer must have entered into a contract of sale (including any amendments to the purchase price) that was signed by the homebuyer on or before March 31, 2008.

Please direct questions to TBW Management, Account Executive, or Client Services.

In the last few weeks I have received a slew of refinance calls from clients that were referred to me by their Realtors. These are clients that I’ve never talked to before but were referred to me to look at their current financing by their Realtor. I was shocked by the calls and extremely excited to say the least. Some of these clients had great rates and had no reason to refinance but some were in trouble and needed help immediately. It appears some of my Realtors are thinking outside the box and finding a way to talk to past clients about something other than the declining house prices and foreclosures. What a concept!  The Realtors are showing their past clients they care by talking about their current financing and making sure they are in good shape for the future and hey, you never know, they may actually pick up a sale or two in the process.

I am so impressed by this idea, you might disregard this by noting that it is bringing me more business, but I really I am. I think this is such a great way to build, maintain, and strengthen relationships with your past clients and guarantee yourself future referrals. If you have been discouraged by the current market and are not sure how to get back into your database give this a try. You will be surprised how happy your clients will be that you took the time to call and show you care. The usual marketing of thank you notes, holiday cards, calendars, and just listed flyers to your past clients are nice but a personal phone call for something other than looking for business to buy or sell their house will definitely go a long way.  

The reason this is so effective right now is most people are concerned about their mortgages and aren’t sure who to call or who they can trust to give them an honest assessment of their current situation with out being taken advantage of by a lender. Why not be the hero?  Call your clients and give them the name of your current lender that you trust and have them take a look at their financing. I can assure your lender will not mind the phone calls right now, it is October after all. Please believe me this will pay dividends in the next few years, they will always remember that unselfish phone call you made to show that you care, and they WILL call you when it’s time to sell or buy.  Oh and by the way, you may be surprised to find that your past clients will be so happy about your call they will tell everyone what you did and you will probably pick up a few new clients. As always I will offer my services to help you, if you don’t have a good lender or your old lender is out of business, give me call and interview me. I would be happy to give you my resume over the phone and prove my worthiness to work with you and your clients. I don’t mind giving free mortgage assessments and I won’t let anybody refinance that does not need it. I know they will appreciate the honesty and call me in the future.

Remember, we all need each other right now and if we work together through the hard times we will all survive and do great things in the future.

This is a call to action to all Realtors and Mortgage Brokers please help educate the general public! I will most likely vomit the next time I meet somebody for the first time that is not in the industry and they say to me, “Oh, your in the mortgage industry, things must be rough for you right now.” “I only say this because of what I have been reading in the paper.”  Seriously, it amazes me how little people know and it absolutely aggravates me when people make statements like this to me because the information they read was from two months ago. I guess they have been sleeping since August or they only read a newspaper once every two months.  These statements are as ignorant and annoying as when someone sees you limping down the street with a bone showing through your skin and asks, “Are you hurt?” I realize I am being rough right now but this happened to me five times this week, not the bone sticking out my skin, the mortgage broker thing.

As I sit here writing this Blog it is apparent to me that it is not their fault. We as the Real Estate Community have not done enough to re-educate and encourage the general public as to how the Real Estate and Mortgage Market is already getting better. We will not get much help from the media, they are only going to report things that scare everyone and they are on a two month delay with information. I just read this week how Nancy Pelosi and the Democrats are proposing a Bill for FHA to increase the amount of money they lend and to relax their guidelines to help sub-prime borrowers refinance. Yeah, Hi! Um, Bush and Bernake proposed this like two months ago, I know our President has not done a lot of things right, but do we have to pretend he has done nothing to help us at all?

Anyway, we need to get into our databases and start letting our clients know they can stick their heads back out of the turtle shell and continue their dream of a new home purchase. Rates are down .500% since August, house prices have increased by 1.3%, and approval guidelines for a mortgage are getting easier again. If we all sit back and wait for the media to tell people it’s ok to buy again, we all may be bagging groceries at the local the grocery store. We have a duty as Real Estate and Mortgage Professionals to keep this market moving forward by sharing our knowledge and expertise with our past, present and future clients. My office sends out this weekly newsletter that reaches twenty thousand people and growing. We also hold home buying seminars and meet with our Realtors to help educate them on the mortgage world, helping them spread the word. What are you doing to help?

If you need advice or education on the mortgage world, please call us and we can help you and your clients. Please, don’t sit back and tell everyone that times are tuff and there is no business. There is plenty of business out there you just need to do your part because right now it won’t just fall in your lap. If everyone joins forces and gets the word out, I just may be able to keep my chow down!

One more thing, many of our Realtors that receive my Blog and company newsletter pass it onto their clients every week to help educate them. This is the reason we spend our time to send it to all of you. This is not just a place for me to rant and rave but a way to do my part in helping the Real Estate Market.

Wow! What a week! I must share with all of you that my business partner and best friend, Nicole Rueth, and I competed in the Great Urban Race downtown yesterday.  It takes all I have to just walk this morning. This race was incredible, it started at Lodo’s on Market Street and included wheel barrow races in Commons Park, running from there up 16^th Street, to take pictures with street performers, statues, etc… continuing with a run from Civic Park to City Park to put together an 84 piece puzzle, then a run back from City Park to 19^th and Market. Not to mention a stop at the “type writer” building to take a picture of Nicole doing a cartwheel. It was extremely fun and we placed 18^th out of 100 teams. I highly recommend doing this next year if it comes back to Denver. We will post pictures on our website this week for you all to view.

It was also a great week for Real Estate news. House prices in the Denver Metro Area have increased by 1.3% and the house sales are also on the rise. This great news reinforces all my prior blogs that Denver is in great shape and things are staying strong out here. We are all seeing in increase in business in my office and it was mostly purchase business this last week.  I wanted to share a tip with my Realtors that you all were taught in Real Estate 101 class. Tell everyone what you do and what you know, no matter where you are, grocery store, salon, barber shop, restaurant, etc… The reason I say this is people are afraid of what they don’t know or understand, and it is our job to help educate them if we want to keep this market moving forward. People are confused –and it is no wonder - with everything they read and see on TV. This causes many of them to hold off buying a home because they are scarred to death. If you take the time to educate them and explain what is happening out here they will be more likely to make a purchase. I will give you an example of what happened for me this past week. I was getting my haircut downtown last Saturday and I was talking to friend Krystal about purchasing her first home. I spoke loud enough that everyone around me could hear my voice; I didn’t have to try that hard. I ended up talking to the 5 employees about first time homebuyers’ programs and the easy approval guidelines and I now have two approved buyers and a refinance in process. Oh by the way, both buyers were out this weekend looking for homes. This is not a sales secret … I have heard the same thing from Buffini, my Father, Dale Carnegie, etc, you get the point. We all sometimes just need a little reminder of the basics that we tend to forget.

Lastly, I encourage everyone to post responses to my blogs. I get them quite often but they seldom are posted on the blog and I answer those by email. Responding to the blog directly is great way to get answers to your questions and create a great forum for information. I will respond to each and every post and so will others that read my blog. My blog reaches close to 20,000 people every Monday so this is definitely a great source for information. I do ask if you do respond to my blogs in favor or not in favor of what I say, please make sure you read it first before replying. Last week our good friend Craig responded to last week’s blog but he unfortunately posted it to the wrong week’s blog. Craig thanks for your response! But I have to disagree with you … I do agree with what Bernake has done with rate cuts. However, big business does control inflation to the consumers. Big business does experience a rise in costs in production when gas and oil prices rise in regards to shipping, trucking, packaging, etc, but they have the choice of not raising prices to the consumers so they can still make their 5,000% profit on goods. They have a responsibility to their stock holders but we have a responsibility as citizens of the United States to stick together and help each other out, especially when we are on the brink of another recession. So yes, greed of big business DOES control the inflation to the American consumer.