That’s sort of hypocritical for a guy who earns a living as San Diego’s VA Home Loan broker, isn’t it?  I mean, I haven’t funded a loan, without some sort of government guarantee, in 12-18 months.  The Fed’s support of the mortgage-backed securities market has artificially lowered rates to jump-start our business.  Ginnie insures 25% of most loans I write and Fannie guarantees the securities for the other ones.

I guess I’m just ungrateful.

Then it hit me !  The “government option” makes it impossible for private mortgage financing to make a profit. Certain banks received TARP funds, at a ridiculously low carrying cost (like .25%), and lend that money out, risk-free, at 5.0%.  That’s an awfully FAT profit for a virtually risk-free transaction.  That may sound good to you but it tells me that we are dissuading private lenders from entering a market which so sorely needs them.

What’s “the government option” sound like?  If you’ve been watching Glenn Beck, you know what the government option is.  The residential real estate finance industry is a shining example of how it DOESN’T work.  This isn’t about health care, though;   I’m talking about home loans.

I want you to think good and hard about the negative effects of the current funding monopoly.  While it seems great now, this mortgage subsidy is going to have a whipsaw effect, not too far down the road, and it’s gonna hurt.  Private lenders can’t develop a loan product that yields enough for their portfolio (or for the securitized pool investors) because of that single-payer option in mortgages.

If we can’t get the Government out of our lives today and develop private market solutions for the “new” mortgage market, when will we?  Face it.  We’re no more” free marketeers” than the folks at the Social Security administration- and THAT is something that worries me about the future of the mortgage industry.

LOAN HACK:  Mr. Jones, your $1,500 payment only feels like $1,000 because you get to write the mortgage interest paid off of your income.”

JONES:  Your sure about that?

LOAN HACK: Ab-sa-tively.  ‘Course, my boss tells me that I’m required to refer you to your tax advisor for that question.

JONES:  Good idea.  Can we do a conference call tomorrow?

This is where loan hacks get into trouble.  You see, the mortgage interest deduction is  ONLY deductible from taxable income IF the customer itemizes his expenses.  The standard deduction, for 2009, is $5,700 for single filers and $11,400 for married people filing jointly.

Q: When does that get loan hacks  in trouble?

A:  Somewhere around a $200,000 loan amount for married people.

Even at $300,000, the savings aren’t what might appear.  While the customer might pay about $17,000 in mortgage interest, his MARGINAL benefit would only afford him a $6,000 income deduction  (he would still take the standard deduction if he continued to lease).  When loan hacks suggest that  the $2400 payment only FEELS like $1500, they’re practicing prestidigitation.  In fact, the mortgage payment really FEELS like $2200, after accounting for the MARGINAL tax savings.

Is this important?   Well, at least half of the homes sold, in the past twelve months, were under that amount.   How many of those home buyers do you suppose were told by their real estate agents and originators, ” Oh!  You get a write-off (but check with your tax advisor)”

Q: Is it important that you have this conversation with customers?

A: Only if you want to position yourself as a mortgage fiduciary.  Positioning the new breed of originator as a fiduciary is one of our goals at Mortgage Revolution.

N.B.- This is exclusive from the federal bribe to buy a home.  We’ll examine the affect of the legal bribe to buyers  when we ask “Are you explaining to your customers the cost of NOT buying a home?”, next week.

Anyway, Ken is working on a worthy project:

Here is what we are doing – we are going to restore this home to good living conditions. Once the renovation is complete we are going to advertise for people to recommend a family or individual who they believe deserves the opportunity to live rent and utility free for a maximum of one year in the home. We, the Social Media Community are going to prove to the world that we believe in giving. We believe in “paying it forward”.

Not only will we provide the home rent free but, provided donations are high enough, we will also pay generously toward the utilities. Since there are no or very limited management fees all contributions after the rehab will go directly to covering the costs of the home.

The home is already in my possession, rehab has already begun and we three are already itching to do the next one. Essentially we’ll be helping someone or a family of someones to have a respite from the damage they have endured in this collapsing economy.

I donated because I like and respect Ken but he threw in a little kicker:

I WILL SHAVE MY HEAD! If we raise $10,000 by Sunday, June 21 I will shave my head on YouTube! (If we raise $15,000 I will shave my face, too). If we raise $25,000 I will do it wearing an orange diaper with the Twitter bird drawn on my very white chest!

I love this sort of outrageous promotion !  Ken is actually quite the showman.  He and Jason Crouch (an Austin-based real estate broker) host a radio show on BlogTalkRadio.  If you read any of Ken Cook’s stuff on Active Rain, he’s very much a free-market, old school mortgage originator.

Ken ain’t waiting for the Gub’mint to bailout people who have been blind-sided by the economic recession.  He’s taking matters into his own hands…and helping his community.

If you have a few extra bucks you can donate, help me “scalp” Ken Cook.  A Bald Ken means there is one less homeless family in Georgia.

What can you do, prior to closing a transaction, to demonstrate value to potential REALTOR partners?

I swiped the Loan Toolbox “Gift of Knowledge” idea and found a way to make it more relevant to your local market (and a helluva lot cheaper).

I like to conduct a 30-minute interview with a working, full-time REALTOR and distribute a CD of that interview it to my REALTOR referral base .   It’s much more effective than the Loan Toolbox Gift of Knowledge idea because it positions you as the interviewer.  Here’s how I do it:

1- Find interesting, successful real estate agents.  This is quite simple because so many of them are online now.  I belong the Cyber Professionals, Active Rain, and Wanna Network; many agents are sharing good ideas there.

2- Call the REALTOR and ask her if she’ll perform the interview.  It helps if that agents is not in your local market because she’ll feel comfortable that you arent’ “training her competition”.  Furthermore, “out-of-town experts” carry weight with local agents.

3- Prepare for the interview by sending the Agent-Star a list of 5-7 questions.  Explain that you’d like her have a 3-5 minute answer for each question.

4- Start off the interview with a brief background about how the Agent-Star got into the business and have her describe her success thus far.

5- Conclude the interview by asking the Agent-Star for an “actionable item” which agents could perform daily, that would dramtically improve their business.

6- I use Talk Shoe to record the interview (it’s free and pushes the interview out to iTunes).  Download and save the MP3 of the interview.

7- I use Disc Makers to produce the CDs.  It’s  simple to order and costs about $200 for 100 CDs (or $100 for 25 of them).  Expect a one week turnaround time.

8- Mail those CDs in a package with a “testimonial page” from other real estate agents.  You can solicit testimonials from your LinkedIn account (learn how to do that here).

Bulky packages are ALWAYS opened by real estate agents.  They love the interviews and will listen to them in their car.  The best thing about this idea is that they hardly ever throw those CDs away; they stay in the trunk of the car or on their desks.  It becomes a perpetual business card for you.

PS:  The more tech-savvy among us will suggest that you can just produce a podcast and email the link to everyone.  That’s not as effective as the CD.  Agents know that CDs cost money to produce so they won’t throw it away.  CDs are something they can share with other agents, too. (That’s called viral marketing)

There is nothing to fear.

Jack Guttentag pioneered this concept, years back, when he formed the Upfront Mortgage Brokerage Association.  Guttentag, a well-known industry author and former Wharton professor, extended the transparency concept to lenders, as well.  Professor Guttentag’s credibillity was questioned when he proposed a government regulated price-fixing scheme for mortgage brokers (on InmanNews) and his influence waned with the industry.

Jeff Corbett, a self-described radical consumer advocate, demonstrated how his prior-fee negotiation thrived when he owned a mortgage brokerage.  While Jeff ruffled industry feathers, he taught many mortgage brokers that our superior selling proposition to direct lenders is that we don’t hide the origination profit in a loan.  Jeff showed me how mortgage brokers are uniquely suited to become natural “mortgage fiduciaries” to customers.

The issue, as I see it, is that customers never really find out EXACTLY how much a mortgage brokerage makes until the final HUD-1 Settlement Statement is issued.  That post-facto discovery then plants a nagging question, in the back of the consumer’s mind, and becomes an elephant in the room for their next mortgage originator.

Shoot that elephant in the room dead before he breaks all the furniture.

Discuss the difference between wholesale rates and retail rates.  Explain how mortgage brokers get money at wholesale and “mark it up” so that the retail offering is consistent with direct lenders’ offerings.

Explain that ONLY a mortgage broker can act as a “true fiduciary”.  Mortgage brokers negotiate with the “secretive” banks, on behalf of the customer, to secure terms more favorable than the banks would offer that customer directly.  This is actually quite simple if you live near a Bank of America branch.  Take a picture of its lobby sign, displaying the retail mortgage rates, and compare it alongside the Bank of America wholesale rate sheet.  Folks that have a Bank of America checking account actually gasp aloud when they see this variance.

Dollarize your value proposition and explain that it can be paid in points or yield spread premium; offer two or three rate/closing cost schemes. I use Loan Magic’s report for this presentation.

Select the rate/closing cost proposition and lock the rate for the customer, letting him or her see 2-3 wholesale lender rate sheets.  Have the customer sign the rate agreement and the mortgage brokerage fee agreement.   I use my Advisor’s Insight desktop-sharing portal for this and have the customer fax the signed rate lock and brokerage fee agreements on the same day.

The customer knows what your compensation is, understands that it doesn’t add any extra costs to him or her, and (most importantly) is a witness to the process.  That transparency diffuses any future problems that might arise with lock extensions or newly discovered loan level pricing adjustments, in underwriting.  More importantly, your mortgage brokerage fee is never questioned by the customer if the terms are changed in underwriting.

Mortgage brokers should ALWAYS position themselves as customer advocates.  Mortgage bankers continue to lose credibility in the customers’ eyes; let’s use that lost trust against them when we compete.  If we always sit on the same side as the table as the customer, who can be against us?

Well…maybe the banks but that’s a whole different article.

If you don’t see the change, it is because you are blinded by both the slow, silent moves of the attack and your own hopeful optimism of a return to normalcy. But there will be no return; for the mortgage broker’s days are numbered. The forces are aligning now, the outcome is certain, the only question that remains is the timing of the fatal blow

Lower interest rates and contracted lender staffs have kept the mortgage broker alive this year, after an arduous 2008.  The plain fact is that mortgage brokers, for all of our faults, still offer the best chance for a borrower to get unbiased advice, from a mortgage consultant with a fiduciary duty. Why, then are we getting hammered?  Morgan Brown predicted that, too:

Why the change? The answer is two-fold. First and foremost, investors that buy the securities will pay for the protection that a retail origination provides them in assuring a quality underlying asset in those securities. They will pay less for the risk involved in a loan origination made from a removed party. Studies have shown that wholesale originations perform worse than retail; and while you can argue all day that it is the same bank underwriting the loans, in the end investors will buy what they feel confident in – and that is retail originations. Banks won’t waste time or effort to sell an unsellable product at a loss; and that is exactly what is happening with wholesale originations.

Second, the court of public opinion will demand a fall guy for this mess; and probably more than one. While everyone is pointing out Angelo Mozilo, watch for the mortgage brokers to take the brunt of legislative changes and regulatory action that will shut that channel down.

Morgan’s predictions proved to be spot-on accurate.  Where was NAMB while this happened? As it turns out, NAMB was fighting the Banks, the Press, and the Regulators, all of whom were looking to lynch someone for the credit crisis. The problem?  The Banks had more money to lobby the Regulators and hire PR firms to influence the Press…as Morgan Brown concluded:

Surely, not the large banks and lending institutions who developed and sold the ridiculous products; paying mortgage brokers massive kick-backs to push them on to poorly-informed customers. Not them, for they have donated too much money and have hired layers of legal counsel that can stymie any chance at a quick and public trial and execution.

No, it will fall in to the laps of brokers, the small business owners, the 3 man mortgage shops. They will be strung up like the boogeyman (that some surely are) and eliminated from the lending framework. And when that is done the public will rest at ease, and the lenders will get back to making their millions and all will be right with the world…except it won’t.

Today, mortgage brokers are frustrated. Recently, one floated the idea that NAMB had their lunch handed to them (and subsequently recanted), by a Congressional Committee, debating H.R. 1728.  Facts proved that nothing could be farther from the truth.  Read this fifteen-page transcript of the testimony of NAMB Governmental Affairs Representative, Denise Leonard.  Ms. Leonard argued the case for:

1. fairness in licensing standards among all originators: bank, brokerage, or retail lending sales representatives
2. more consumer-friendly disclosure documents
3. suitability in loan recommendations
4. lenders offering a variety of loan products without the threat of reprisal due to opaque regulations
5. increased borrower scrutiny of high-cost or “sub-prime” loans
6. abolishing (or suspending) the Home Valuation Code of Conduct so that consumers’ loan settlement costs won’t rise

Why are mortgage brokers upset then? NAMB is clearly representing our interests as is evidenced by the testimony of Ms. Leonard.  It is my opinion that NAMB is suffering from an identity crisis.  Rather than “Fight City Hall”,  I think we, as mortgage brokers should embrace and capitalize on much of the unfair legislation imposed upon us and advertise our superior value proposition to the public.  Let me outline my thoughts:

I don’t want fairness in licensing standards.  If regulators believe that independent mortgage brokerage originators must be licensed, let’s promote the fact that  mortgage brokers have the distinct advantage of education and fiduciary duty.  What a unique opportunity we have to differentiate ourselves from “the inferior qualifications bank sales representatives have” and the “one-sided relationship lenders offer the borrowers”.

Don’t wait for HUD or the Fed to impose simplicity in disclosure, offer it now.  Certain federal disclosure forms are confusing but a NAMB generated form, similar to the expected disclosure form positions us as the transparent choice.  Be proactive in the consumers’ eyes.

Offer a NAMB suitability questionnaire, complete with budgeting forms and first-time home buyer education courses (can be done online) with each loan submission.  Document the consumer education and care we provide.

Embrace the software solutions Loan Magic and Mortgage Coach offer to educate consumers on the REAL cost of credit, figured to an expected holding period.  Demonstrate how the current APR formula, as determined by T-I-L-A, is an inferior disclosure item.

Partner with Mortgage News Daily, MSS, or MBS Quoteline to offer real-time MBS market data to NAMB members.  Encourage that partner to promote the higher standard of care a NAMB-accredited originator provides.  Integrate that knowledge into educational courses and promote, promote, PROMOTE that NAMB-accredited originators are better executors of rate locks than the bank sales representatives.

Streamline the NAMB-education courses so that initial designations can be earned without mandatory participation in NAMB Chapter activities.  Make initial designation education available online so that any originator, member or not, can experience the value; the Association membership will follow.

Pursue an aggressive promotional campaign online.  Eyeballs and advertising affordability are on the internet. Build a “brand” akin to the REALTOR “brand” online.  Hire a social media manager to promote that brand and remind consumers that NAMB-accredited mortgage brokers are the superior choice.

Encourage local chapters to promote the value of the designations to respective REALTOR associations and local government housing agencies.  Distinguish our superior consumer education and agency relationship, from the inferior bank sales representatives, to the “gatekeepers” of the transactions.

Finally, engage rather than preach to non-member originators.  The recent encounter about the rumored (and false) failure of NAMB’s testimony to Congress resulted in an appearance of frustration by the NAMB President.  His comments suggested that mortgage brokers worked at the pleasure of NAMB’s efforts and that non-members were not contributing to the support of our industry; he won the battle but risks losing the war.

I’m not convinced that NAMB is the answer for the mortgage brokerage professional but I’m not convinced that it isn’t. Mortgage brokers were sucked into the vortex of the credit crisis by the circling of the industry, media, and regulators’ wagons.  I still believe we are a consumer’s best choice and I’m certain that the folks at NAMB do, too.  We were first into the soup, let’s be the group to lead everyone out of it.

NAMB can take leadership by telling the consumer our value proposition.  In the end, the consumer is the only one who matters.

Point of Disclosure- I’m not a CAMB member so I don’t enjoy the membership in the parent organization, NAMB.   I was a member of AAMB when I lived in Phoenix.  It is not my intention to embarrass NAMB but to invite them to public discourse about how we, as an industry, can effectively promote to the consumer what we know to be true;  mortgage brokers are the true professionals in the lending industry.

Here’s what we’ll try to cover today:

REVIEW:  Five Pillars of Social Media

LinkedIn.com:

Setting up a profile-

• copy that sells your USP
• plug-ins for blog feeds
• website/blog links
• recommendations

Connecting-

• how to connect
• how to request an introduction
• integrating your email database with LinkedIn.com

Groups-

• setting up a group
• joining groups you “belong to”
• broadening your interest through groups
• discussions

LinkedIn Q & A- engaging the community

Meetup.com

• set up a profile
• finding groups of interest
• creating an interest group
• how to optimize your business trips
• calendaring function

Thanks for attending.  Be sure to ask questions, during the webinar, in the comments section below.